Yuan Won't Topple the Dollar—But Yen and Pound Should Worry

The yuan held just 2% of global foreign exchange reserves in the first quarter of 2026, against 57% for the U.S. dollar—and Standard Chartered China CEO Jean Lu says that gap will not close in her professional lifetime.

"There is no way—at least in my career—for the RMB to challenge the USD," Lu said at a media roundtable in Singapore on Sept. 29.

Her verdict does not make the yuan irrelevant. If the Chinese currency cannot displace the dollar, it may still take share from second-tier reserve currencies. "Compared to the yen or pound, the RMB may have a chance," Lu said.

The dollar's share of global reserves actually rose one percentage point quarter-on-quarter in Q1 2026, mostly on mild dollar appreciation, according to the International Monetary Fund. The yuan edged up from 1.95% to 2%.

Beijing is pushing hard to change that arithmetic. The government's most recent five-year plan, released in March, calls for expanding the yuan's international role through mechanisms like Panda bonds and Dim Sum bonds—renminbi-denominated debt issued on the mainland and offshore, respectively. The People's Bank of China this year appointed Deutsche Bank as an offshore clearing bank to streamline European access to the RMB and launched new repo facilities allowing foreign central banks to secure yuan liquidity.

Lu pointed to "limited liquidity in offshore markets" as the structural constraint. Chinese capital controls keep the currency from flowing freely. "We're talking about less than 2 trillion yuan, with almost half of it being in Hong Kong," she said.

Investors and governments are nonetheless rethinking dollar exposure. Growing U.S. government debt and Washington's use of the currency to impose sanctions have pushed a shift toward the Swiss franc, the euro, and gold.

Trade is where the yuan is winning. Settlement volumes between China and Southeast Asia surged 50.7% to 8.9 trillion yuan ($1.3 trillion) in 2025, according to a March report from Standard Chartered. ASEAN firms increasingly treat RMB capital markets as tools for hedging and fundraising. In June, Singapore Airlines made its offshore yuan debut with a 1.5 billion yuan Dim Sum bond.

Geopolitics is accelerating the trend. U.S. sanctions on Russia after the invasion of Ukraine pushed Moscow's trading partners, including China and India, to settle trade in yuan. After U.S. strikes on Iran earlier this year, Tehran asked shippers crossing the Strait of Hormuz to pay tolls in the Chinese currency.

New infrastructure is tightening commercial ties. The Pinglu Canal, connecting southwestern China to the Beibu Gulf, cuts logistics costs by as much as 30%, and trade between Southeast Asia and China is hitting historic highs.

"Southeast Asia is not too far from China, and has similar languages, culture and shared heritage," Patrick Lee, Standard Chartered's ASEAN and Singapore CEO, said at the roundtable. "With the supply chain shifts and geopolitical changes we're seeing, Chinese companies see ASEAN as an attractive place to [invest and] build supply chain ecosystems in."

The relationship carries friction. Southeast Asian manufacturers are struggling with Chinese overcapacity. Thailand saw over 2,000 factory closures in 2024 due to an influx of cheap Chinese steel and other goods, while Indonesian textile manufacturers fought to stay competitive, according to Shay Wester of the Asia Society Policy Institute.

Lee and Lu argue China is moving to manufacture in the region, not just sell into it. "China's larger [state-owned enterprises] and [privately-owned enterprises] are definitely coming to Southeast Asia to lay down their roots and invest for the long term," Lee said. "It's also a bet on the ASEAN economies to upskill and upgrade their companies and their systems."

Lu dismissed the idea that China is simply exporting its industrial overcapacity. "With the threat of a possible tariff and trade war, everyone is urging China to come to their markets to manufacture there, and help them build up their own industries and train their workers… it's a golden opportunity for both China and ASEAN," she said.

The implication for currency markets: watch the yen and pound's reserve-currency positions, and yuan settlement flows in Asia, rather than any near-term challenge to the dollar's dominance.