China Intensifies Global Yuan Promotion Through Debt Conversion and Low-Interest Loans

Strategic Push for Yuan Internationalization

China is actively pursuing the internationalization of its currency, the yuan (RMB), by utilizing its significant position as the world's largest bilateral creditor. This strategic initiative aims to reduce global dependence on the United States dollar and bolster China's influence within the international financial system. Key to this effort is the provision of yuan-denominated loans to overseas borrowers, often at economically attractive domestic interest rates, and the encouragement of converting existing dollar-based debts into yuan.

The People's Bank of China (PBOC) has been instrumental in this drive, implementing various measures to facilitate the yuan's global adoption. These include establishing a network of 31 offshore RMB clearing banks across 27 countries and signing currency swap agreements with approximately 40 central banks worldwide. Furthermore, China has developed the Cross-Border Interbank Payment System (CIPS) as an alternative to SWIFT, streamlining yuan transactions globally. Efforts are also underway to promote the digital yuan (e-CNY) for cross-border payments, with plans for an international operations center in Shanghai.

Leveraging Creditor Status and Favorable Rates

As the primary lender to many developing and emerging economies, particularly through its Belt and Road Initiative (BRI), China holds substantial leverage. This position is being used to encourage partner nations to adopt the yuan for trade settlement and financing. A significant draw for borrowers is the availability of yuan loans at lower interest rates compared to international market rates, especially when US dollar interest rates are elevated. For instance, the PBOC reduced its one-year loan prime rate from 3.8% in January 2022 to 3% in May 2025, making yuan financing more appealing.

Several countries have already begun to convert their dollar-denominated debts to yuan to realize cost savings. Ethiopia, for example, initiated talks to convert a portion of its $5.38 billion debt, while Kenya reportedly saved $215 million annually by converting Chinese railway loans from dollars to yuan. Other agreements include yuan-based loans signed by the China Development Bank with entities like Malaysia's Maybank, Egypt's central bank, and BBVA Peru, and by the Export-Import Bank of China with the Saudi National Bank.

Expanding Global Footprint and Future Outlook

The yuan's share in global finance has seen notable growth. By September 2023, it accounted for 3.71% of international payments, briefly exceeding 4% in early 2024, positioning it as the fourth most used currency for global payments. In 2023, the yuan also became the second-largest trade finance currency. This expansion is particularly evident in countries participating in the BRI across Asia, Africa, and Latin America.

Despite this progress, the yuan still lags significantly behind the US dollar, which holds a 46.6% share in international payments. Challenges such as China's capital controls and limited currency convertibility persist. However, China's long-term strategy focuses on building a resilient, multipolar financial system where the yuan plays an increasingly prominent role in trade, investment, and lending, thereby reducing vulnerabilities associated with over-reliance on a single dominant currency.