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China‘s strategy for the yuan is shifting the balance of global economy. Whilst Beijing aims to strengthen the international role of its currency, it continues to maintain a competitive exchange rate to support Chinese exports. This approach is boosting growth in the Asian giant but is also putting pressure on Europe and fuelling tension with the United States.
Xi Jinping is aiming for a more influential yuan
At the end of January, President Xi Jinping reaffirmed a strategic objective: transforming the yuan into an increasingly influential currency within the international financial system.
In an article published in Qiushi magazine and analysed by the Financial Times, Xi argued that only a strong and credible currency can aspire to become a reserve currency and be used in the world’s leading financial markets.
According to the Chinese leader, achieving this goal requires a more authoritative central bank, stronger financial institutions and a greater ability to attract international capital.
His remarks came shortly after the U.S. Treasury Department described the yuan as “substantially undervalued,” urging Beijing to allow a gradual appreciation of its currency.
The yuan exchange rate at the heart of the U.S. – China dispute
The trade dispute between the United States and China has once again brought one of the most hotly debated issues in international economics back into the spotlight: the value of the yuan.
Despite the tariffs introduced by Donald Trump’s administration, China recorded a record trade surplus of approximately $1.2 trillion in 2025, confirming the strength of its export-driven economic model.
According to many economists, this performance is also favoured by a highly competitive exchange rate: today, it takes around seven yuan to buy one U.S. dollar.
However, several experts believe that the real value of the Chinese currency is significantly higher. Sheng Songcheng, a former executive at the Chinese central bank, estimates that purchasing power parity should place the exchange rate between four and five yuan to the dollar, while other analyses suggest it could be as low as 3.5 yuan to the dollar.
If the yuan were to strengthen to five to the dollar, China would become the world’s largest economy by size, overtaking the United States. For this reason, Beijing continues to pursue the export-friendly exchange rate policy introduced during the pandemic.
Yuan depreciation: why Europe has been hit the hardest
Decline against the euro and the dollar
In recent years, the yuan has gradually weakened against major Western currencies.
In particular, it has recorded:
- a 22% decline against the euro since July 2022;
- a 16% decline against the U.S. dollar between 2022 and 2023;
- a slowdown of the decline rate to 9%, aided by the weakening of the dollar following Donald Trump’s return to the White House.
A weaker currency makes Chinese products more competitive on international markets, increasing the pressure on European businesses.
European exports under pressure
The effects are also evident in trade with the European Union.
European exports to China have fallen from an average of 1.5% of GDP between 2015 and 2023 to just over 1% of GDP in 2025.
During the same period, Chinese exports to Europe have risen from 2.25% to 3% of GDP.
The sectors most affected are:
- automotive;
- luxury goods;
- chemicals;
- beverages.
For many European companies, this means a growing loss of competitiveness compared with Chinese manufacturers.
Can the yuan really replace the dollar?
Despite Beijing’s ambitions, the yuan is still far from becoming a genuine alternative to the U.S. dollar.
Unlike the world’s leading currencies, in fact, the yuan does not fluctuate freely. Every morning, the Chinese central bank sets a daily reference exchange rate and maintains strict control over capital flow.
This approach undermines international investor confidence and slows down the currency’s internationalisation process.
The figures speak for themselves:
- the yuan is the second most widely used currency in international trade;
- it is only the sixth-largest reserve currency;
- it accounts for approximately 1.9% of global foreign exchange reserves;
- the U.S. dollar retains a share of close to 57%;
- the euro follows with around 20%.
Outlook for global markets
China‘s strategy continues to bolster the competitiveness of its exports by maintaining a relatively weak yuan.
Europe is currently the economic region bearing the brunt of the consequences, with declining market shares across several industrial sectors. The United States, meanwhile, continues to dominate the international financial system thanks to the central role of the U.S. dollar.
In the coming years, Beijing’s decision will be crucial: whether to continue controlling the exchange rate to support economic growth or to foster a freer foreign exchange market in order to truly transform the yuan into a global currency.
