Mohammad Ali Fallahi
M.A. in International Relations, Tarbiat Modares University

Introduction

The renminbi, as a project of national power, should be understood less as a purely monetary policy or a technical banking program and more as a grand governance strategy. It is a strategy that seeks to integrate the economy, security, and geopolitics within a monetary infrastructure. In this view, money is not merely a medium of exchange; it is a channel for policy implementation, a mechanism for resilience against shocks, and a language of influence within international networks.

China has moved cautiously toward the internationalization of the renminbi over past decades, but in the mid-2020s this trajectory has become more explicit, institutionalized, and infrastructure-oriented: from the formal promotion of cross-border usage to the strengthening of payment networks, the expansion of swap lines, and the advancement of the central bank digital currency project.

The importance of this issue stems from the convergence of three needs.
First, an economic need: China seeks to make trade and investment with itself cheaper, smoother, and more predictable, while simultaneously attracting part of global savings into renminbi-denominated assets.
Second, a security need: from Beijing’s perspective, the concentration of the global financial system around the US dollar and the political use of dollar-based infrastructures represent a structural risk that must be managed through diversification, liquidity swaps, and alternative payment channels.
Third, a geopolitical need: China aims to strengthen financial ties with its commercial and political partners, particularly in emerging economies that both require financing and are more vulnerable to currency shocks.

In this context, the renminbi functions both as a tool and as a signal: a tool because it enables settlement, lending, and investment; and a signal because it indicates that China is constructing more options for itself and its partners.

 

Economy: Selective Internationalization and the Logic of Use Before Liberalization

The defining feature of China’s strategy is selectivity. Rather than rushing toward full capital account liberalization, China seeks to expand the use of the renminbi in domains where risk control is more manageable. The rationale for this caution is clear: becoming a major reserve currency typically requires deep, liquid, and open financial markets, as well as relatively unrestricted capital mobility. Yet such openness, in an economy grappling with debt cycles, exchange-rate management, and financial stability concerns, can generate vulnerabilities.

Analytical notes from the Federal Reserve have highlighted precisely this tension: safeguarding domestic stability on one hand, and constraining the pace of internationalization on the other.

In trade, China aims to create organic demand for the renminbi. When contracts are priced and settled in renminbi, the need for currency conversion diminishes, and banks can provide trade finance in the same currency. Research reports indicate that the share of renminbi settlement in China’s cross-border goods trade has increased in recent years, reaching close to two-fifths by the end of 2024. This growth, however, is uneven and depends on interest rate differentials, returns on renminbi assets, exchange-rate volatility, and—most importantly—trade partners’ access to renminbi liquidity.

In practice, the rising role of the renminbi in trade does not represent a “full substitution of the dollar,” but rather a reduction of transactional friction in trade with China—a situation where both parties prefer to lower conversion risks and correspondent banking costs.

In investment, China has opted for channel-based opening rather than a wholesale liberalization. Programs such as Bond Connect and Stock Connect allow foreign investors to access onshore markets through defined pathways, without fully liberalizing capital flows. At the same time, institutional frictions in bond markets have been reduced and certain requirements for foreign institutions simplified, lowering operational costs and easing market entry.

These channels serve two functions. On the one hand, they help China increase liquidity and investor diversity, deepening its markets. On the other hand, they allow authorities to monitor and, if necessary, manage capital inflows and outflows. This reflects the logic of “targeted openness”: opening where economic benefits are clear and risks are manageable, while remaining cautious where instability could be costly.

Still, a fundamental point remains. For the renminbi to approach reserve-currency status, there must be a stable supply of safe and liquid assets, and investors must be able to hedge exchange-rate and interest-rate risks using reliable instruments. The renminbi project cannot advance solely by opening entry channels; it advances by building an environment of trust. In financial markets, trust depends above all on stable rules, transparency, predictability, and the ability to exit without disruption.

Here, Chinese policymaking confronts a classic dilemma: each step toward greater global attractiveness may weaken some tools of domestic risk control.

 

Security: Reducing Vulnerability and Building Liquidity Insurance

The security dimension of the renminbi project is rooted in experiences where sanctions and banking restrictions demonstrated that financial infrastructures can be instruments of pressure. For China, the practical question is whether trade and external financing could continue under conditions of severe tension.

Beijing’s response has been to construct multiple parallel pathways: expanding renminbi settlement, widening currency swap networks, and strengthening cross-border payment capacity in renminbi. The People’s Bank of China’s official emphasis on promoting renminbi usage in cross-border payments, pricing, investment, and financing fits squarely within this framework.

From a technical standpoint, swap lines provide liquidity. From a geopolitical perspective, they create institutional linkages among central banks and build a form of trust backstop. The extension of the euro–renminbi swap line between the European Central Bank and the People’s Bank of China until October 2028 suggests that even in Europe, such instruments are viewed as liquidity support mechanisms.

In developing economies, swap lines can play a more direct role. For example, reporting by the Associated Press on the extension of China’s swap line with Argentina illustrates how a country can rely on this mechanism to ease reserve pressures and finance trade payments.

Alongside swaps, the growth of offshore renminbi lending and financing also carries a security dimension. When governments and firms borrow and repay in renminbi, their dependence on dollar funding diminishes, and Chinese banks gain greater influence in project financing. Financial Times reporting highlights the significant rise in offshore renminbi lending and investment by Chinese banks, as well as the expansion of renminbi trade finance, linking these trends to efforts to reduce dollar vulnerability.

At the same time, these instruments can generate new risks. If borrowers face crises or repayment delays, banks and financial institutions become exposed to credit risk and potentially political risk. Financial security here does not mean the elimination of risk, but rather its reallocation and management.

 

Infrastructure: From CIPS to Digital Currency and the Politics of Optionality

In the global financial system, payment networks matter as much as currency units. Possessing a currency that others wish to use, without a network capable of executing payments quickly, securely, and cheaply, does not yield full advantage.

By developing its Cross-Border Interbank Payment System (CIPS), China seeks to reduce the cost and operational risk of renminbi payments and to retain alternative pathways in disruption scenarios. Data published on the official CIPS website indicate that annual transaction volume reached 180 trillion renminbi in 2025, with a broad base of direct and indirect participants. Independent analyses likewise highlight rapid growth in transaction volumes and participation in recent years.

Yet independent infrastructure alone does not automatically create sustained demand for the renminbi. Durable demand emerges when foreign actors view the renminbi as suitable both for settlement and for asset holding. Accordingly, CIPS should be understood precisely: it enhances settlement capacity and operational risk management, but it does not fully replace multi-currency networks and still requires coexistence and connectivity with other components.

Its geopolitical value lies more in having the option than in severing ties with the existing order. This distinction is crucial to avoid extreme narratives. China seeks to reduce dependence, but it also recognizes that global trade and investment are impossible without networked interaction.

In parallel, China is advancing its central bank digital currency as a complementary payment infrastructure. The People’s Bank of China’s action plan to strengthen the management and service system of the digital renminbi—effective from January 1, 2026—signals a move toward a more stable service and infrastructure architecture for e-CNY.

From a policy perspective, digital currency can reduce retail settlement costs, facilitate compliance and traceability, and enable new payment instruments. At the cross-border level, the mBridge project has served as a multi-central-bank experimental platform for cross-border payments, and the Bank for International Settlements announced that it reached a minimum viable product stage in mid-2024.

Nevertheless, caution is warranted. Even if payment technology advances significantly, the core challenge of the renminbi remains trust, market depth, and convertibility rules.

 

Geopolitics: Cautious Multipolarization and the Limits of Reserve Status

From a geopolitical standpoint, the renminbi serves as a tool for expanding China’s strategic room for maneuver. If successful, this national power project raises the cost of financial pressure, as counterparties recognize that China possesses more alternative settlement and financing pathways.

However, success does not necessarily imply the displacement of the dollar. A more realistic outcome is the renminbi becoming part of a multipolar currency basket, particularly in trade with China, China-linked project finance, and limited reserves held by some countries.

IMF data show that the renminbi’s share of global reserves stood at approximately 1.93 percent in the third quarter of 2025, a slight decline from the previous quarter. This reality carries two implications. First, becoming a major reserve currency is an extremely slow process dependent on financial market depth and institutional trust. Second, China’s strategy appears to prioritize practical usage rather than rapid reserve share acquisition in the short term.

In other words, even if reserve shares move slowly, usage in trade and trade finance can change more rapidly—and such changes carry security value in crisis scenarios.

Moreover, some analyses suggest that the declining share of the dollar in global reserves has not automatically translated into renminbi growth, with diversification instead spreading across multiple currencies. This is geopolitically significant: the global monetary order may evolve toward fragmented multipolarity rather than a simple dollar–renminbi bipolarity.

In such an order, the renminbi can gain weight within networks tied to China’s economy without necessarily displacing the dollar’s central global role.

Geopolitical costs must also be considered. The more the renminbi is framed as a tool of dedollarization, the more some countries may interpret it in bloc-based terms and adopt greater caution due to political repercussions. Financial Times reporting similarly emphasizes that China is focused less on replacing the dollar outright and more on building a multipolar system that reduces vulnerability.

Accordingly, even if successful, the renminbi project is likely to unfold gradually, regionally, and functionally: beginning with trade and finance, strengthening infrastructure, and then attempting to make asset holding more attractive.

 

Conclusion

As a project of national power, the renminbi exhibits both tangible achievements and hard constraints. On the one hand, official policy to expand cross-border usage has become clearer; swap instruments and financing tools have expanded; and infrastructures such as CIPS and digital currency initiatives have increased payment and settlement optionality. On the other hand, the renminbi’s small share in global reserves, the need for deeper and more liquid markets, and the tension between liberalization and domestic stability remain constraints that cannot be overcome by declarations alone.

A balanced analysis should therefore view the project neither as a guaranteed success nor as a foregone failure. China is building options—options that are less visible in calm periods but potentially decisive in times of stress.

The future trajectory depends on several conditions: China’s ability to foster trust and liquidity in its financial markets; its management of geopolitical tensions without triggering major shocks; and its capacity to strike a balance in which domestic stability is not sacrificed to external ambition.

In this narrative, the renminbi is not merely money, but part of a power architecture—an architecture constructed slowly, technically, and politically, whose outcome is best measured not by slogans of rapid replacement, but by the degree of optionality and resilience it provides.