China Wants Banks to Up Yuan Use in Cross-Border Transactions
China’s central bank is reportedly asking lenders to use more yuan in cross-border transactions.
The People’s Bank of China has increased the base ratio for yuan-denominated trade transactions from 25% to 40%, Bloomberg News reported Monday (May 26), citing sources familiar with the matter.
Though this increase isn’t mandatory, the report added that banks that fall short of the ratio tend to get lower scores in regulatory reviews, affecting their ability to expand.
Bloomberg noted that the increase underscores China’s drive to boost yuan usage in global trade, and could have a major impact on demand for the currency as U.S. tariffs raise concerns about the global appeal of dollar-based assets.
Beijing and Washington are in talks about the tariffs, which President Donald Trump had raised to as much as 145%. However, both countries recently agreed to a 90-day truce.
The change is happening during a “watershed year” for banks, as PYMNTS wrote Monday, with the landscape “defined by technological upheaval, regulatory flux and a stubbornly uncertain economic outlook.”
Banks, that report said, are planning for a new interest rate environment. While the Federal Reserve is expected to cut rates three more times this year, the benchmark will remain at its highest since 2008, meaning borrowing costs will stay elevated.
According to EY’s Global Banking Outlook, loan growth is projected to reach 6% in 2025, up from only 2% last year, as lower rates spark demand. Still, return on equity is expected to plateau, with profitability gains depending more and more on banks’ ability to transform their business models.
Economic growth, meanwhile, is expected to slow, with Deloitte forecasting U.S. GDP growth at just 1.5% this year, with moderating consumer spending and weak business investment leading to a murkier outlook.
Meanwhile, recent PYMNTS Intelligence research finds that many banks are turning to FinTechs for their cross-border payment solutions, with 62% of banks falling into that category.
Digital wallets, that report noted, have become a popular alternative to traditional banking methods for cross-border payments, with 73% of consumers sending payments this way.
“FinTech companies have capitalized on this demand by offering seamless, efficient solutions. These firms provide digital wallet products that allow individuals to transfer money directly between wallets, bypassing intermediaries,” PYMNTS wrote.
“By focusing on speed and ease of use, FinTechs are meeting the demand for cross-border payment solutions that traditional banks have been slower to adopt.”
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