Beijing Faces Balancing Act As China’s Yuan Emerges As Global Currency

As the yuan’s exchange rate hovers near a three-year high against the US dollar, an article by China’s top foreign exchange regulator suggests that authorities remain focused on stability and risk control.

Zhu Hexin, head of China’s State Administration of Foreign Exchange, called for “a more convenient, more open, more secure and more intelligent” foreign exchange system in the article published in the Communist Party journal Qizhi.Regulators would seek to keep the yuan “basically stable at a reasonable equilibrium” through a framework combining macroprudential management with market supervision, according to the commentary, which was originally published on April 22, but resurfaced on other feeds in recent days.

Zhu also called for deeper capital-account opening and stronger monitoring of cross-border capital flows in the article, while pledging to improve foreign exchange hedging services to help companies manage currency risks.While the commentary was largely focused on China’s long-term policy approach for the 2026-2030 period, the comments coincided with the yuan’s rapid recent appreciation against the US dollar. 

Beijing has long worried about a potential overshooting of the exchange rate, which could put pressure on the country’s vast export sector.The comments also came as a report by the University of Hong Kong – which was co-authored by Zhu Min, a former deputy managing director of the International Monetary Fund – found that the yuan’s share of the global foreign exchange market had significantly increased in recent years.

The yuan’s share rose to 8.5 per cent in the 2024-2025 period from 2 per cent in 2013, according to the report published earlier this month. However, foreign participation in China’s onshore bond market remains low, with overseas institutions holding only about 2.7 per cent of outstanding domestic bonds as of the end of 2024, the report added.

Speaking at a conference last week, UBS China global markets head Thomas Fang said that Chinese assets were becoming increasingly attractive to global investors seeking diversification away from the US dollar.“The risk-mitigation properties and low correlation of Chinese assets are becoming increasingly attractive,” he said.However, Beijing faces a balancing act between promoting overseas use of the yuan and maintaining control over capital flows.Last week, both the onshore and offshore yuan hit multi-year highs before pulling back, with markets interpreting the retreat as a sign policymakers were seeking to slow the pace of appreciation.

On Monday, the People’s Bank of China set the yuan’s daily onshore fixing rate at 6.8435 per US dollar, compared with 6.8401 on Thursday.

 The offshore yuan, which trades freely in Hong Kong and is seen as a more market-driven gauge of the currency, hit 6.78 per US dollar last week – its strongest level since February 2023.