Can the Chinese yuan displace the US dollar?

Graphs, Data, Perspectives Can the Chinese yuan displace the US dollar?

Key points

• 8 min read New Delhi Sep 26, 2026 06: 59 AM IST First published on: Sep 25, 2026 at 07: 12 PM IST.
• President Donald Trump discussions with Chinese President Xi Jinping during a State Dinner in the East Room of the White House (AP Photo).
• The PIIE paper by Martin Chorzempa points out that more and more banks globally are signing up for China's Cross-Border Interbank Payment System (CIPS).
• An expert explains As Xi-Trump meet, why an island 15, 000 km away matters.
• Chinese President Xi Jinping's visit to the US and his session with US President Donald Trump comes at a time when the global economy is buffeted by uncertainty.

Graphs, Data, Perspectives Can the Chinese yuan displace the US dollar? China's growing economic might and the US's increasingly erratic policy decisions raise questions on whether the yuan can mount a credible challenge to the dollar. But doing so requires much more than economic strength.

President Donald Trump discussions with Chinese President Xi Jinping during a State Dinner in the East Room of the White House (AP Photo). Written by: Udit Misra.

Apart from the wars in Ukraine and Iran, global trade has additionally been disrupted by the tensions between the world's two biggest economies, especially as Trump continues to levy punitive tariffs on all and sundry.

For context, the ensuing disruption, be it in the form of higher rates or reduced foreign investments, often hurts smaller and poorer economies such as India the most.

China is still some distance away from overtaking the US – its GDP (or gross domestic product, the measure of the size of an economy) is around $21 trillion while the US's is at around $32 trillion. But China has easily become the second biggest economic power on the planet since it already dwarfs the Euro area (at less than $20 trillion) in total economic size.

China's rise over the past 20 years has not only been spectacular but has additionally been in sharp contrast to the economic stagnation in European economies.

Its growing dominance over the global order has led to a natural query: Can the Chinese currency, yuan, rival or even trump the US dollar as the global currency of choice?

This question assumes greater relevance as the US policy decisions become increasingly ad hoc, violating global norms and often weaponising the US dollar. The 'privilege' of the US dollar.

To be sure, everyone on the planet (be it an individual or another country's central bank) is happy to trust the US dollar. They would park their savings in US dollars (or in dollar-denominated assets) or settle trade amongst each other using that currency instead of their own currencies. This gives the US economy great power, allowing the country to live beyond its means.

Here's how. When the US wants to purchase more goods from the rest of the world, it can simply print more dollars to pay for it. The other party accepts these since it trusts the US economy and its governance system. What's more, the other party uses these new dollars to purchase US bonds, either issued by the administration or other major US businesses.

Meanwhile, an expert explains As Xi-Trump meet, why an island 15, 000 km away matters.

As no one thinks the US will default on its debt, this way the lending party can create some profit on their dollars while being assured that it is the safest investment on the planet.

No other country enjoys this so-called "exorbitant privilege" that the dollar confers on the US.

If India prints more funds to purchase more goods from the rest of the world, all that excess funds will stay in India since no one outside wants to hold Indian rupees.

In turn, all that excess printing of funds will lead to a spike in costs within the country (domestic inflation) since everyone in India would have more capital chasing the same amount of goods and services.

It is since the US dollar has become the trusted medium of exchange globally that the US economy has secured this superpower.

Notably, the trust in the US dollar is, in essence, a trust in the continued strength of the US economy and the robustness of the rule of law in the country. But it is additionally true that for a while now – since World War II, in fact – there has been no single country that could rival the US in terms of economic might.

Over the past few years, the discourse has changed on both counts.

For one, US decision-making is increasingly at odds with the rules-based global order the country itself supported create. Trump's punitive tariffs are but one example. One can additionally cite the removal of Russian banks from the SWIFT system – in response to its 2022 invasion of Ukraine – that was led by the US (under Joe Biden) and other Western countries. What is the rules-based global order?

SWIFT is a global financial messaging service, dominated by the US. It is the cornerstone for funds transfers throughout the world.

Against the backdrop of these developments, trust in the usage of the US dollar has eroded on the margin.

This has happened at a time when China has not only grown major enough in economic might to rival the US but has additionally increasingly pitched its currency as an alternative to settle global transactions. So, can yuan knock the dollar off its perch?

Given the overwhelming dominance of the US dollar in the global economy – more than 50% of all transactions are done in dollars and more than 50% of the global foreign exchange is stored in dollars, etc – knocking off the US dollar completely is a bridge too far for any currency.

For context, the yuan, nevertheless, did gain considerable ground among users after the Russia-Ukraine war.

As a new research paper from the Peterson Institute for International Economics (PIIE) pointed out lately (see chart), yuan's share in the SWIFT network, the global standard for payment messages between banks, "spiked after sanctions imposed by every major reserve currency issuer made Russia and other countries more willing to use the yuan".

Meanwhile, the yuan's performance. By July 2024, yuan's share of global payments was at 4.7%, overtaking the Japanese yen and Canadian dollar to become the fourth most applied currency in the world. The other two were the euro and the British pound.

Since then, nevertheless, its share has fallen back to 2.75%, leaving it the sixth most employed currency. Dollar's share is closer to 50% in SWIFT. Is the yuan challenge over? There are two ways to look at yuan's future prospects.

Meanwhile, the first is to look at other sets of data to understand yuan's attractiveness.

Notably, the PIIE paper by Martin Chorzempa points out that more and more banks globally are signing up for China's Cross-Border Interbank Payment System (CIPS). CIPS settles payments in yuan instead of dollars. Data demonstrates that more and more payments are being settled in yuan on CIPS over the past couple of years, even as the currency has lost ground on the SWIFT platform.

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In other words, CIPS's trajectory suggests that an increasing share of payments using the yuan are bypassing the SWIFT network.

"It is a sign that China is prioritizing resilience to potential future sanctions and self-sufficiency, even at the risk of diverging from global payment standards, " writes Chorzempa.

Meanwhile, the second way to look at this matter is to ask a more fundamental question: Can the world trust China?

Meanwhile, the global trust in the US dollar is not just regarding the size of the US economy. As well as independent and fair courts of justice, what is equally, possibly more, significant for the trust in the dollar is the way the US economy is run on the basis of clear-cut rules, well laid-out limitations on the arbitrary actions of the administration, transparency of data, existence of a free media. All of these components come together over time, along with massive economic might, to afford the US the privilege of the dollar being the go-to currency for the planet.

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Now, the US is struggling on plenty of of these counts at present. It was quite symbolic that on a day when China's President visited the White House, sections of the US media were refused entry thanks to an illegal and arbitrary ban by the US President.

But China cannot even pretend to have similar freedoms. Global trust requires China and its administration to play fair and by the globally-accepted rules. In the absence of well-founded, independent and constitutionally-secured institutions in China, the yuan may never be able to become the global benchmark, regardless of what happens to the dollar. © The Indian Express Pvt Ltd. Udit Misra is Senior Associate Editor at The Indian Express. Misra.

In short, can the Chinese yuan displace the US dollar? Is the central thread here, and readers can expect follow-up reporting as the picture becomes clearer.