- RMB usage has seen material increases since the US-Iran War.
- CNY has been appreciating against the USD despite soaring AI-driven Asian exports.
- China’s trade partners are recycling the RMB through purchasing Chinese goods such as renewables.
- Chinese policymakers are making concrete efforts to enable offshore RMB use.
- The easing debasement trade should not derail the RMB internationalization.
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Ongoing geopolitical conflicts, spanning from Ukraine to the Middle East, are prompting businesses and investors to diversify away from domestic and hard currencies. Since the onset of the US-Iran conflict in February, daily usage of China’s Cross-border Interbank Payment System (CIPS) has seen material increases. The number has jumped from RMB680bn in 2025 to RMB790bn in March-May 2026. A similar pattern has been observed since the Ukraine-Russian war broke out in 2022.
Accelerating global RMB usage is translating stronger demand for China fixed income assets. Accordingly, foreign ownership of China government and policy bank bonds has been rebounding. This explains why Asian exports have been soaring amidst the AI supercycle, yet only the CNY has been appreciating against the USD.
As China has replaced the US as the world's largest oil importer, oil producers are more likely to increase the proportion of RMB settlement. With a managed CNY capital account and flow, China’s trade partners are recycling the RMB through purchasing Chinese goods such as renewables, a growing yet over-supplied energy source in China. As oil supply has been held hostage by geopolitical events, the shift towards renewable energy is gaining traction. Outward shipment of EV, lithium batteries, and solar cell growth has jumped by 30-70% YoY YTD. Other ongoing RMB recycling channels include acquiring China’s infrastructure products (see: China FX and Bond Primer).
Against this backdrop, foreign companies are progressively parking their RMB income in CNH products for treasury management. Engagement in the onshore market through channels like Northbound Bond Connect is also expanding, with trading volume hitting a historical high in March. Likewise, CNH bond issuance is experiencing increased momentum, especially as widening negative CNH-USD spreads help contain funding costs. According to rating agencies, Dim Sum bond issuance by foreign entities reached a record high of RMB175.6bn in 2025 and has surged 128.6% YoY in Q1 2026 to RMB76.8bn.
Chinese policymakers are making concrete efforts to enable offshore RMB use. PBOC Governor Pan Gongsheng announced the rollout of the Foreign and International Monetary Authorities (FIMA) repo facility at the Lujiazui Forum two weeks ago. By allowing foreign central banks to post CGBs as collateral for yuan liquidity, offshore CNH rates should remain anchored. Sufficient liquidity is expected to foster RMB internationalization, thereby aiding demand for CNH products and providing liquidity for rising bond issuance.
Other offshore CNH liquidity initiatives include opening up the onshore repo market to Bond Connect investors last year. Additionally, the Chinese authorities have raised the overseas loan leverage ratio for foreign banks from 0.5 to 1.5 in Q1 2026. Offshore liquidity thus remains flush, with offshore rates falling below onshore rates since July 2025.
Looking ahead, the easing debasement trade may slow inflows into RMB assets. We note that the USD/CNY has returned to 6.80 levels. Yet, this should not derail RMB internationalization given China’s still-growing trade outside the US. For instance, ASEAN has already overtaken the US (and the EU) as the biggest exports destination of China. SAFE’s data also shows that the RMB has overtaken the USD as the major currency used bilaterally in China’s cross-border currency settlements since 2023. Already, China has signed more than bilateral currency swap agreements with 40 counterparties, targeting commodity and agricultural trade to secure food and energy security.
Central banks continue to gear up their holdings of RMB assets in their reserves. RMB positions by international central banks have increased by 140% to USD256bn between 2016-2025. Its share has expanded twofold from 1.08% to 1.95%. Assuming its weight in global foreign reserves rises further to 5% in the next 10 years (largely on par with that of the GBP and JPY), it would mean more than USD400bn in inflows into RMB assets.
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Ma Tieying 馬鐵英, CFA
Senior Economist - Japan, South Korea, & Taiwan 經濟學家 - 日本, 南韓及台灣
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