FX.co ★ China directs major banks to boost yuan share in cross-border trade

In light of escalating tariff and trade tensions with the United States, the People’s Bank of China has significantly tightened its requirements for the country’s largest financial institutions regarding the use of the national currency. According to Bloomberg, the Chinese regulator has raised the recommended minimum share of cross-border trade transactions conducted in yuan from 25% to 40% as part of a scheduled adjustment to macroprudential oversight. This move clearly demonstrates Beijing’s determination to reduce dependence on the Western financial system and expedite the internationalization of the yuan in global markets.

The central bank’s new directive is not formally a binding law. However, commercial financial institutions that ignore the recommendation to increase transactions in yuan could face serious regulatory consequences. Banks that do not meet the required metrics within the specified timeframe are guaranteed to receive lower ratings during comprehensive audits by the agency. This, in turn, could impose significant restrictions on their licensing capabilities for scaling and expanding their businesses. International analysts believe that such implicit incentives from authorities could have a substantial impact on long-term global demand for the Chinese currency.

The need for urgent measures from the regulator has been driven significantly by the recent decline in the yuan’s role, prompted by a renewed wave of tariff restrictions between Washington and Beijing. Statistics indicate that amid rising sanctions pressure, the yuan’s share of international transactions fell by 0.63 percentage points to 3.5% in April. Concurrently, there was a sharp decline in external trade volumes between the two largest economies in the world, with China’s physical exports to the United States dropping by 21% in just one month.