The Challenge of the Renminbi as a Global Reserve Currency: Capital Controls and Crypto Alternatives

China’s currency strategy to strengthen the renminbi’s global position faces significant structural barriers that are difficult to overcome. The Chinese government continues to work on elevating the renminbi’s status as an international reserve currency, but strict capital restrictions remain the main obstacle to this development.

Capital Controls Hamper Renminbi’s International Expansion

Data from NS3.AI shows a significant downward trend in the adoption of the renminbi as a global reserve asset. The share of the renminbi in international currency reserves is projected to decline—from 2.83% in 2022 to around 1.93% in 2025. This decrease reflects the challenges faced by China’s currency in competing with other major currencies in the global market.

The primary obstacle lies in the strict capital control system. These restrictions prevent free capital flows and reduce the liquidity of the renminbi in international markets. As a result, central banks in various countries continue to favor easily convertible assets with stable exchange rates, primarily the US dollar and euro.

Modern Payment Infrastructure Still Insufficient to Overcome Convertibility Barriers

China’s efforts to expand the reach of the renminbi are not limited to policy measures alone. The government has developed advanced cross-border payment infrastructure, including the Cross-Border Interbank Payment System (CIPS) and launched innovative digital yuan initiatives. However, these efforts have yet to address the fundamental issue of convertibility.

The issue of renminbi convertibility remains a persistent obstacle in the currency’s journey toward a stronger international status. Although digital payment technologies and settlement systems are becoming more sophisticated, institutional preferences still favor currencies and assets that are not restricted by central government controls.

Cryptocurrencies and Stablecoins as Diversification Options

This situation opens opportunities for alternative assets to fill the gaps left by traditional currencies. Stablecoins pegged to the US dollar and Bitcoin are increasingly viewed as attractive settlement instruments for central banks. These assets offer advantages that the renminbi lacks: flexibility, global accessibility, and freedom from domestic regulatory restrictions.

Projections indicate that future reserve diversification will likely shift more toward cryptocurrencies and other decentralized instruments. This trend will continue unless China undertakes comprehensive reforms to improve renminbi convertibility and reduce existing capital controls. Without significant reform measures, China’s currency will continue to compete under less favorable conditions in the global arena.