China FX Diversification And The Dollar

China has been strategically reducing its reliance on the US dollar, bolstering the renminbi's (RMB) international role. The dollar's share in Chinese cross-border transfers has significantly decreased, primarily due to increased RMB usage. However, excluding RMB, the dollar remains highly dominant in cross-border transactions. While the RMB's share in global trade finance has risen, China's overall FX diversification remains limited. The dollar's share of China's FX reserves hasn't changed substantially. Banks' external dollar net assets have remained stable despite decreases in both assets and liabilities. Data suggests that the RMB's increased use in cross-border transfers reflects genuine economic activity rather than solely internal Chinese transactions. The inverse relationship between the dollar and RMB shares in global trade finance further supports the RMB's growing global presence. Despite this, onshore FX trading remains overwhelmingly dominated by the US dollar.