“Kenya’s plan to switch debt payments to China from US dollars to yuan is a ‘win-win’”, reads a recent headline in the South China Morning Post. The reasoning, according to the paper, is that the move will reduce Kenyan interest payments “while advancing China’s goal of increasing the global use of its currency”.
How successful the plan will turn out to be in achieving either goal is an open question, but it confirms a trend: both debtor and creditor nations are exploring ways to reduce their reliance on the US dollar.
We have previously explored the growing pressures on the US dollar’s role as the world’s reserve currency. A key reason for the dollar’s enduring pre-eminence is the lack of credible alternatives. As a JP Morgan analyst explained, “a candidate reserve currency must be perceived as safe and stable and must provide a source of liquidity that is sufficient to meet growing global demand.”
While we have a clear understanding of the characteristics a reserve currency must possess, what conditions could trigger substantial shifts in the currencies used for international trade?
Currency conditions
Economists Felipe Benguria and Dennis Novy supply an intriguing case study. Their research looks at Argentina in 2023, when the country experienced a currency shortage. In response, the Argentinian government secured a renminbi swap line with the People’s Bank of China.
While “nearly all imports” had been invoiced in USD, within months about half of imports were priced in renminbi, and hundreds of Argentinian companies switched from USD to renminbi as currency for paying for their imports.
The researchers note that rapidly switching invoice currencies is extremely unusual. However, these were unusual circumstances.
In Benguria and Novy’s words, “we show that in contrast to the prevailing view, invoicing currency patterns can shift rapidly – but only under specific macroeconomic conditions, particularly in the presence of a foreign currency shortage.”
Indeed, the switch was not merely unusual, it was also transient. Javier Milei’s election as president saw policy shifts that reversed the de-dollarisation trend in the country. (For more, see Benguria, F and D Novy (2025), ‘DP20311 How to Grow an Invoicing Currency: Micro Evidence from Argentina, CEPR Discussion Paper No. 20311)
While the US dollar continues to dominate global trade under normal conditions, there is precedent for firms switching the currency in which they invoice in exceptional circumstances. China’s reported consideration of yuan-backed stablecoins provides additional evidence of Beijing’s commitment to expanding the yuan’s role in international commerce. Taken together, these developments suggest that incremental shifts in trading currencies are possible.
Market signals
Questions of international political economy aside, what about trading conditions? Hedge funds, at least, are bullish on the yuan versus USD, Bloomberg reports. The bets on yuan gains are fuelled by, on the one hand, China’s central bank indicating it would let the yuan gain against the USD and, on the other, soft US jobs data.
In the short term, many investors see a stronger yuan as a safe bet. Over the longer horizon, structural shifts in global trade invoicing would require sustained policy support, broader adoption, and macroeconomic conditions that make the yuan a credible alternative to the US dollar.
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