The Chinese yuan has shrugged off slow economic growth, rock-bottom interest rates, and a slump in foreign investment to post its sharpest annual gain since 2020, sparking speculation that Beijing is pursuing a renewed push for global currency influence. Analysts say the steady appreciation of the tightly managed currency is part of a broader strategy to project financial stability and credibility amid a volatile global market.
Since late 2024, the People’s Bank of China (PBOC) has guided the yuan higher almost every morning through its midpoint settings, while state banks’ frequent dollar purchases have capped volatility and reinforced the currency’s gradual ascent. Kelvin Lam, senior China+ economist at Pantheon Macroeconomics, noted that the yuan “is staying stronger than expected despite escalating U.S. trade actions,” drawing parallels with 1998, when the currency resisted regional devaluations during the Asian Financial Crisis.
The yuan’s strength is particularly notable given China’s economic fundamentals. Benchmark interest rates remain well below those in the U.S., consumption growth is weak, and the capital account showed a $281 billion deficit over 10 months to the end of October. Yet, China’s 15th five-year plan dropped earlier language about promoting yuan internationalisation “prudently,” signaling more assertive ambitions for the currency on the world stage. Kiyong Seong, lead Asia macro strategist at Societe Generale, said that “showcasing a strong and stable yuan amid a volatile market environment tends to be a good case for China to promote yuan internationalisation.”
Goldman Sachs analysts added that both economic and strategic factors indicate yuan internationalisation has become a policy priority for Beijing, predicting the yuan could strengthen to 7 per dollar by year-end and rise to 6.85 within a year. Daily turnover in the dollar-yuan pair surged nearly 60% from 2022 to $781 billion, according to Bank for International Settlements figures, reflecting growing international use.
Steadiness in the yuan has also been maintained by state banks’ consistent intervention, selling yuan onshore and offshore to manage volatility. Analysts say this stability encourages exporters to gradually reduce their dollar holdings, mitigating a longstanding risk to the currency. In October alone, commercial banks purchased a net $17.7 billion of foreign exchange from clients, marking the sixth consecutive month of surplus and suggesting increased dollar sales.
Despite gains, the yuan’s strength has been uneven. It is down 7.7% against the euro and 3% against a basket of trading partners’ currencies. Most analysts also caution that large-scale internationalisation may remain limited until China loosens its capital controls—a move unlikely in the near term. Still, the yuan’s momentum has captured market attention, with experts like Shuang Ding of Standard Chartered noting that China’s approach “should gain trust in the yuan as a store of value,” reinforced by the authorities’ record of managing capital flow volatility and maintaining trade competitiveness.
