Determined to make the NDT "dethrone" the USD, how does China secretly prepare each step?

China is building a global yuan ecosystem. (Source: Asia Times)

Observers say Beijing is quietly preparing for a real threat to the US dollar’s dominance. Officials in the world’s second-largest economy are seizing every small opportunity to use the Chinese currency to fill the void left by the US dollar.

Be persistent and quietly build your network.

Clearly, the greenback still holds the upper hand at present, accounting for more than 58% of central bank reserves compared to 20% for the euro and about 2% for the yuan. However, the Chinese government is still persistent in building a network for the yuan to spread further and wider.

Backed by the People's Bank of China (PBoC), Asia's number one economy launched the Cross-Border Interbank Payments System (CIPS) - similar to the Society for Worldwide Interbank Financial Telecommunication (SWIFT) - in 2015 with the aim of internationalizing the RMB. This system allows global banks to directly conduct cross-border transactions in RMB, instead of having to go through intermediary payment banks.

Last year alone, CIPS saw a “massive” 43% year-on-year growth in transaction volume, reaching a total value of $24.5 trillion. This is the third consecutive year that transaction volume has increased by more than 30%.

In a continued effort to develop its currency swap network, the PBoC has drafted new rules to expand participation in CIPS globally.

Over the past 17 years, since the Lehman Brothers bankruptcy, which triggered the global financial crisis of 2007-2008, Beijing has signed at least 32 yuan swap deals worth a total of about $632 billion. Most recently, New Zealand has signed a five-year yuan swap deal with China.

The internationalization of the RMB is also increasingly being driven by foreign institutions that allow trading in the Chinese currency. Of the 35 RMB clearing banks operating in 33 jurisdictions, the Bank of China (BOC) is the largest. Its growth speaks for itself. To date, BOC alone has processed nearly $530 billion in payments through the Hong Kong (China) Real-Time Gross Settlement System.

Beijing is also giving the green light to two foreign financial institutions, JPMorgan Chase and Mitsubishi UFJ (Japan), to be able to clear transactions in yuan.

The scale and global reach of the two banks are seen as helping to boost liquidity and open up direct channels between Beijing's financial system and overseas markets.

Among China's clearing banks, BOC currently operates 16, including three in Africa. It also plays an important role in the construction of CIPS. As of early 2025, 44 BOC units had directly participated in the system and acted as agents for about 700 financial institutions worldwide .

BOC also continues to expand its reach in Southeast Asia. It operates as a clearing bank in Cambodia, Laos, Malaysia and the Philippines. In 2024 alone, BOC saw a 40% year-on-year increase in the number of cross-border clearing transactions in RMB.

It can be said that BOC is playing a direct role in the effort to strengthen the position of the RMB in the payment of goods, invoicing of international trade and investment as well as financial activities globally.

The first half of 2025, the US dollar experienced "the worst six months in modern history", according to many investors, with the dollar falling more than 13% against the euro and more than 6% against the yen, Caixin Global reported.

The US dollar faces a "crisis of confidence"

Along with soaring public debt and pressure from the Trump administration to fire Fed officials - including Chairman Jerome Powell - the policy chaos surrounding the President's tariffs is also causing a "crisis of confidence" in the US dollar.

Many Chinese financial institutions have been quick to seize this opportunity. China Construction Bank (BOC) and China Construction Bank (CCB) are the typical "big guys" that are promoting services in RMB.

In parallel with holding product and service introductions across Asia, major Chinese financial institutions are making efforts to integrate more deeply into regional economies.

In June, CIPS admitted six more foreign banks: United Overseas Bank of Singapore; African Export-Import Bank; First Abu Dhabi Bank; Standard Bank of South Africa; Bank Eldik of Kyrgyzstan; and Chongwa Financial Asset Exchange of Macau (China).

The increased use of the yuan in trade and finance can be considered a major success for the Chinese government. In 2016, the International Monetary Fund (IMF) approved the inclusion of the yuan in the currency basket along with the US dollar, the yen, the euro and the British pound. Since then, the use of the currency in international trade and finance has seen a huge leap.

This partly explains why the PBoC has been reluctant to cut interest rates even as Beijing battles deflation. Excessive easing now could undermine confidence in the yuan, slow its transition to reserve currency status, and spark a broader currency war in Asia. Tokyo could go all out to weaken the yen further, dragging Japan and South Korea into recession.

Now, “the PBOC is signaling it wants to keep the yuan stable, which will probably dampen the hopes of those betting that the yuan could continue to depreciate significantly against the dollar,” commented Bill Bishop, a longtime China watcher on the Sinocism newsletter.

“In the medium term, this increases the risk of capital flight from China, especially if the US imposes tariffs,” said Brookings Institution economist Robin Brooks. He said a weaker yuan would not necessarily shock the global economy.

Ironically, the Trump administration’s sweeping tariff policies have actually increased America’s dependence on savings from Japan, China, and other developing countries in the Global South. Moreover, tariffs and trade barriers are sure to increase inflation and curb consumption.

This means economic growth will slow, Chinese households will buy fewer American goods, increasing the possibility that Beijing will weaken the yuan, sparking a full-scale currency war.

Economist at Columbia University (USA), former Japanese Deputy Finance Minister, Mr. Takatoshi Ito noted that, in addition to "alienating" friends and partners, Mr. Trump's tariff policy "will not be able to promote his clear goal of reducing the US trade deficit."

Mr. Takatoshi Ito also said that the high US tariffs will force the Fed to raise (not lower) interest rates, causing the USD to appreciate, exports to decrease and imports to increase. President Trump's promise to cut taxes further but not to propose other spending cuts to compensate for the lost revenue, according to Mr. Takatoshi Ito, could cause the US budget to be in deficit, leading to a trade deficit.

Analysts say Beijing's meticulous preparations on the path to mastering the global monetary system will create momentum for the yuan to appreciate and affirm its solid position in the coming time, especially in the context of the USD's position being "shaken" by President Trump's recent policies.

Source: https://baoquocte.vn/kien-dinh-dua-dong-ndt-soan-ngoi-usd-trung-quoc-am-tham-chuan-bi-tung-buoc-di-nhu-the-nao-327595.html