Is the Yuan Really Threatening the Dollar?
The structural contestation of the USD begins in 2008, with the financial crisis, everything accelerated with the war in Ukraine. Even if the contestation is ‘real’, the ‘de-dollarization’ remains a slow process.
Since the end of the Second World War, the US dollar has occupied a unique place in the global economy. It is not only the currency of a powerful country: it is also a currency used by millions of actors (states, banks, companies) to trade, borrow, invest and protect themselves in times of crisis. However, for several years, geopolitical tensions, the use of financial sanctions and China’s rise to power have fueled a central question: is the supremacy of the dollar threatened, notably by the yuan (renminbi)? To answer, it is necessary to understand why the dollar dominates, which can undermine this domination, and why the yuan progresses without being able today to replace the USD.
First, the dollar dominates because it enjoys a “systemic” advantage: the network effect. The more a currency is used, the more practical it becomes, and the more it attracts new users. If the majority of international contracts are in dollars, if banks correspond to dollars, if a large part of raw materials is invoiced in dollars, then companies and governments have an interest in holding dollars and continuing to use them. It’s a powerful circle: everyone uses the dollar because everyone already uses it. This inertia is a fundamental element of monetary supremacy: it does not depend solely on the policy of a moment, but on habits, payment infrastructures, legal standards and market practices.
Then, the domination of the dollar is supported by economic and financial foundations that few countries can match. The US offers what investors are looking for on a large scale: deep, liquid financial markets capable of absorbing immense volumes. The key point is the US Treasury market, often considered one of the safest and easiest assets to buy or sell in the world. For a central bank that needs to place hundreds of billions in reserves, or for a fund that needs a safe haven asset, this liquidity matters more than anything. In other words, a country’s power helps its currency, but what makes a currency truly dominant is the combination of power, institutional trust and the ability of markets to provide “safe assets” on a large scale.
Trust also plays a decisive role. A global currency requires a relatively predictable legal and political framework: investor protection, stable rules, transparency, and a credible central bank. The United States is not perfect, but it has long inspired the idea that contracts would be respected and the financial system kept open. Finally, the dollar has a special status in times of crisis: it is often sought as a ‘safe haven’ currency. Paradoxically, even when the crisis comes from the United States (financial crisis, political tensions), we frequently observe a movement towards the dollar, precisely because it remains at the center of the system.
However, the domination of the dollar is not untouchable. Geopolitical factors are a source of fragilization. One of the elements most often mentioned is the use of financial sanctions: freezing of assets, restrictions on access to the banking system, measures aimed at certain institutions or countries. When a major power can limit access to the dollar, this encourages some states to reduce their dependence. This does not necessarily mean that they are massively abandoning the USD, but they are looking to diversify: increasing the share of other currencies, developing bilateral agreements, or strengthening their gold reserves. We then speak of “de-dollarization”, but it is important to specify that this evolution is often partial, gradual, and motivated by political risk as much as by the economy.
Another factor is the fragmentation of the world into blocks or harder rivalries. If exchanges regionalize, if trust between great powers decreases, it becomes more tempting to use alternative currencies in certain areas. Discussions are thus emerging on payments in local currencies, on alternative payment systems, or on bypass strategies. Yet, these efforts meet a reality: building a dominant currency is much more difficult than creating a payment solution. A global currency must be convertible, stable, supported by powerful markets, and acceptable by actors who are not politically allied.
This is where the issue of the yuan becomes central. China has real assets: it is a major trading power, an essential partner for many countries, and a player who explicitly wishes to reduce dependence on the dollar. It is logical that Beijing encourages the use of the renminbi in certain exchanges, particularly in its regional environment, or in bilateral relations where China weighs heavily. The yuan can therefore progress: more contracts settled in RMB, more banking agreements, more technical and institutional experiments.
But the structural limits of the yuan remain important. For a currency to replace the dollar at the top, it is not enough for a country to be powerful: its currency must also be freely usable and inspire global confidence. However, the renminbi is hindered by capital controls: China limits, according to its priorities, the flow of capital abroad and domestically. This sometimes protects its economy, but it reduces the attractiveness of the yuan as a global currency, because investors and central banks want to be able to enter and exit easily, without political uncertainty. Moreover, monetary domination requires very deep financial markets, transparent, and widely open to foreign players. Even if China develops its markets, they do not yet offer the same level of accessibility and ‘perceived security’ as the US treasury market. Finally, the question of institutional trust is central: a global currency implies legal and political predictability that many international actors consider even stronger in the United States.
Thus, the most realistic scenario is not a brutal reversal where the yuan replaces the dollar, but an evolution towards a more diverse world. The dollar may remain the world’s leading currency while losing some ground in certain areas, sectors or types of transactions. The yuan, on the other hand, can earn shares without becoming the universal pivot currency. In conclusion, the supremacy of the dollar is indeed “contested” and geopolitics are accelerating diversification movements, but the fundamentals that support the USD (network effect, safe assets, market depth, confidence) remain powerful. The real question may not be ‘will the yuan replace the dollar?’ , but rather “how far will the world become monetarily multipolar, while keeping the dollar as the backbone of the system?”
