China hedges its bets to make yuan a global favourite

October 16, 2026 (MLN): China is stepping up efforts to internationalize the yuan, shifting its attention from trade settlement to building a wider financial ecosystem that covers investment, financing, hedging and reserve use of the currency.

Beijing is working on the infrastructure needed to support greater global use of the yuan in financing and investment, and to strengthen its standing as a reserve currency, according to Bloomberg.

The measures include a broader range of investment products, derivatives and hedging instruments, along with easier issuance of dim sum and panda bonds for borrowers.

The task for Beijing is no longer only to convince trading partners to settle deals in yuan, but also to ensure the currency has enough liquidity, funding channels, investment products and reserve assets to feature more prominently in global portfolios and capital flows.

The yuan has already moved into second place among currencies used in global trade finance, though it remains far behind the US dollar.

Based on value, the dollar accounts for 80.68% of trade finance, while the yuan holds 9.14%, nearly double the euro’s 4.79%.

The Japanese yen follows at 1.22%, with the Thai baht (0.84%), UAE dirham (0.70%), Saudi riyal (0.67%), Vietnamese dong (0.66%), Indonesian rupiah (0.36%) and Canadian dollar (0.13%) making up the rest of the top ten.

The gap with the dollar underlines why Beijing is now focusing on building the wider ecosystem around the yuan.

More offshore yuan investment products

Plans include raising the size and frequency of government bond sales in Hong Kong, where policymakers want to build a yield curve for the currency.

Hong Kong authorities are also looking at short-term yuan debt instruments and preparing to launch a redesigned yuan-denominated gold futures contract.

Tommy Wu, senior economist for Greater China and North Asia at Standard Chartered in Hong Kong, said the next policy focus is likely to be faster development of renminbi asset markets.

He noted that a key challenge is to tap growing global investor demand for diversification and draw more of that money into renminbi assets.

Derivatives and hedging tools

Many overseas investors are likely to hold back from raising yuan exposure unless they can manage volatility, interest-rate and currency risks.

Authorities are tackling this by widening a major derivatives trading link with Hong Kong, which would give foreign investors access to more onshore interest-rate products.

In August, a new set of government bond futures was also introduced in Hong Kong, adding another hedging option for global investors.

Tommy Xie, head of Asia macro research at Oversea-Chinese Banking Corp (OCBC) in Singapore, said institutions will not keep large renminbi balances without instruments that offer suitable duration, liquidity and risk management.

He added that the gap is not just a shortage of renminbi assets, but the absence of a complete asset-liability and hedging chain.

Larger role in financing

Mainland China and Hong Kong are both working to make the yuan a more common financing currency by widening onshore and offshore funding routes.

China plans to make it easier for overseas borrowers to issue and trade panda bonds, which are yuan-denominated debt sold in mainland China by foreign entities.

Hong Kong, for its part, wants to encourage more yuan debt issuance and develop an enhanced tenor structure for dim sum bonds, which are yuan-denominated securities issued outside mainland China.

The city also aims to raise yuan liquidity so that governments and companies can raise funds in the currency more easily.

Cross-border clearing and settlement

China’s cross-border yuan payment and settlement network is gaining ground. Annual transaction value in 2025 stood at CN¥180.2tr (US$26.9tr), almost four times the level a decade earlier.

Tommy Wu said the expanding Cross-Border Interbank Payment System (CIPS) is making it easier for companies and financial institutions to transact in yuan outside China.

He said further expansion of CIPS for cross-border clearing and settlement is possible, along with promotion of cross-border QR code payments, particularly with Asean countries.

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