Recent data reveals China’s ongoing efforts to reduce its dependence on the US dollar while expanding the international role of the renminbi. This strategic shift, which began during the Trump administration, reflects Beijing’s preparation for potential increased tensions in US-China relations.
Analysis shows the dollar’s prominence in Chinese cross-border transfers has significantly decreased over the past 15 years, falling from approximately 80-85% in 2010 to 40-45% currently. This decline has been primarily offset by increased renminbi flows rather than adoption of other currencies. Notably, the renminbi’s share in global trade financing has seen substantial growth, rising from roughly 2% in 2021 to over 7% today, directly impacting the dollar’s market position.
However, certain aspects of China’s financial system remain heavily dollar-dependent. The composition of China’s foreign exchange reserves shows little change in dollar allocation in recent years. Chinese banks’ external dollar net assets have maintained relative stability, standing at $476 billion in the fourth quarter of 2024, though both gross assets and liabilities have decreased.
SWIFT data indicates a marked increase in renminbi usage for international transactions, though it remains modest compared to dollar dominance. The currency’s role in global trade finance has more than tripled since 2018-2021, while the dollar’s share has declined from 86% to approximately 81%. This shift appears particularly pronounced in Russia-China trade following the freezing of Russian reserves, with emerging markets also showing increased interest in renminbi-denominated trade.
Chinese corporate foreign exchange hedging has shown steady growth, rising from less than 10% in 2015 to nearly 30% in 2025, according to SAFE definitions. Meanwhile, banks’ net foreign exchange exposure has decreased from about 3.5% in 2015 to under 1.5% by late 2024.
The People’s Bank of China continues to hold the majority of Chinese foreign assets, including non-dollar holdings, though other entities have increased their holdings over the past decade. Bank-specific data reveals Chinese banks’ external dollar assets have decreased by $200 billion since late 2021, with liabilities dropping by $224 billion during the same period.
In terms of loans and deposits, Chinese external dollar net assets reached $356 billion in Q4 2024, down from $478 billion in early 2022. The distribution between banks and non-banks appears relatively balanced, possibly due to substantial non-bank dollar deposits in foreign banks.
The bond market presents a different picture, with banks holding the vast majority of external dollar net assets. Non-bank entities only recently achieved positive net assets during 2023.
These trends suggest China has made progress in reducing dollar dependency through increased renminbi usage, particularly in international trade and cross-border transfers. However, the dollar remains deeply embedded in China’s financial system, especially in foreign exchange reserves and trading. The gradual nature of this transition reflects both the complexity of reducing reliance on the world’s dominant reserve currency and China’s measured approach to financial system reform.