China Trails U.S. by 30-40 Years in Finance, Leaving Yuan at 2% of Reserves
Updated
Updated · Fortune · May 18
China Trails U.S. by 30-40 Years in Finance, Leaving Yuan at 2% of Reserves
2 articles · Updated · Fortune · May 18
Ruchir Sharma argued China remains an “incomplete superpower” because its financial system still lacks the global reach needed to rival U.S. power.
Just 2% of global central-bank reserves and 2% of trade invoices are in yuan, even though China accounts for 17% of world GDP and 15% of global trade.
The gap reflects tight capital controls: foreign investors hold less than 5% of Chinese stocks and bonds, while Beijing keeps markets sealed to prevent capital flight.
That leaves the dollar dominant at about 58% of reserves, 54% of trade invoices and nearly 90% of over-the-counter FX transactions, preserving U.S. borrowing and sanctions power.
China is making incremental gains — the PBOC extended $16.4 billion in swap lines by March and the yuan rose to fifth in SWIFT payments — but Sharma said only a bolder opening can change the balance.
With its financial system sealed, can China’s industrial dominance alone unseat the U.S. dollar?
As U.S. debt soars, is America’s weaponization of finance accelerating the dollar's own decline?
The Internationalization of the Chinese Yuan: Progress, Pitfalls, and the Road Ahead
Overview
The report highlights that the Chinese yuan remains a minor player in global finance, with its share in official foreign exchange reserves declining alongside other major currencies, except for a slight rise in the Canadian dollar. Despite past fluctuations, the US dollar has maintained its dominance because central banks value stability and low inflation when choosing reserve assets. This preference was evident when the dollar rebounded in the 1990s after inflation was controlled. The yuan’s limited global role is closely tied to these priorities, showing that trust and stability are crucial for a currency’s international acceptance.