Why China's currency cannot become a global reserve currency

China’s ambitions to position its yuan as a global reserve currency face significant obstacles rooted in its national currency policy. In recent years, China’s currency has demonstrated weakening international standing, as evidenced by objective statistical data. Central banks around the world continue to turn away from the yuan in favor of more stable and freely convertible assets.

Currency restrictions as a barrier to the yuan

The key issue lies in the strict currency restrictions imposed by China on the yuan. According to NS3.AI analytics, this policy has led to a significant decrease in China’s currency share in international reserves: from 2.83% in 2022 to 1.93% by the end of the following period. This decline reflects growing dissatisfaction among central banks, which seek assets with higher liquidity and fewer administrative barriers to conversion.

Infrastructure does not solve the fundamental problem

Attempts by Beijing to expand yuan adoption through technological innovations, such as the development of the Cross-Border Interbank Payment System (CIPS) and the launch of a digital version of the yuan, remain insufficient. Although these initiatives improve payment infrastructure, they do not eliminate the main obstacle—the limited convertibility of China’s currency. Central banks continue to prefer assets that can be freely used without government restrictions.

Crypto assets fill the emerging vacuum

As a result of these restrictions, a new reality is emerging in the reserve asset market. Dollar-stablecoins and Bitcoin are increasingly considered by central banks as practical alternatives for portfolio diversification. These crypto assets offer what China’s currency cannot—full liquidity and the absence of geographic or political restrictions on circulation. If Beijing does not implement large-scale reforms to liberalize the yuan, further redistribution of global reserves toward cryptographic assets can be expected.