London Daily

Focus on the big picture.
Thursday, Oct 02, 2025

Hong Kong security law: how will US sanctions affect China’s plan to turn the yuan into a widely used global currency?

Hong Kong security law: how will US sanctions affect China’s plan to turn the yuan into a widely used global currency?

The threat of US sanctions over Hong Kong has added urgency to Beijing’s efforts to cut its reliance on the US dollar. But analysts say intensifying China-US decoupling is likely to make foreign investors wary of using the yuan in place of the US dollar

Washington’s decision to impose sanctions on Chinese individuals and financial institutions for their role in developing Hong Kong’s new national security law may threaten Beijing’s efforts to make the yuan an international currency, according to analysts.

Meanwhile, some say US threats have added new urgency to Beijing’s goal of cutting its reliance on the US dollar by boosting international use of the yuan.

US President Donald Trump on Tuesday signed an executive order ending Hong Kong’s special status under US law, in response to Beijing’s imposition of the national security law on the city, marking a step towards US financial sanctions against Chinese officials and banks that do businesses with them.

The threat has created significant uncertainty over the future of Hong Kong as a global financial centre and flies in the face of China’s yuan internationalisation plan. The city is the bridgehead for the currency’s access to global markets, accounting for more than 70 per cent of its use in “offshore” payments, analysts said.

Matt Gertken, a geopolitical strategist at BCA Research, a macro research firm, said the intensifying confrontation between China and the United States is causing doubts over the yuan’s value and its “availability” in the long run, dragging on China’s attempt to internationalise the currency.

“The direct geopolitical challenge from the United States will make investors wary of increasing their yuan exposure rapidly,” Gertken said. “Washington is turning more attention to curtailing China’s financial rise as well as its technological rise.”

If the US were to forge deeper trade linkages with other economies, these countries may not join China in creating a global architecture to bypass the US dollar. In particular, the compatibility of the Western liberal democratic model with China’s authoritarian model is being undermined by Beijing’s imposition of stricter central control over Hong Kong, Gertken said.

China’s quest to dethrone the US dollar as a global anchor currency gathered steam after the 2008 global financial crisis. Beijing has increased its use of the yuan in cross-border trade and investment, built up a cross-border yuan payment system, signed bilateral currency swap deals with nearly 40 central banks across the world, and promoted the idea of a super sovereign currency based on the special drawing rights (SDR) – an accounting unit developed and put forth by the International Monetary Fund.

Hong Kong, which has a different currency from the mainland, was the first to entertain Beijing’s global yuan plan. Retailers and money exchanges in Hong Kong catering to mainland tourists started to accept the yuan before other places, and the Stock Connect mechanism, which allows foreigners to invest in mainland stocks and bonds through Hong Kong, offers investment channels for the offshore yuan.

But the primary obstacles to the yuan’s internationalisation remain. The Chinese currency still cannot be freely converted into other currencies, unlike the Hong Kong dollar, even after receiving a nominal international currency status in 2016 via its inclusion in the SDR basket of currencies alongside the US dollar, the euro, the British pound and the Japanese yen.

Beijing has tightened its control over outbound payments in recent years after the capital exodus that followed the stock market rout in 2015, sidelining the goal of making the yuan an international currency.

Jia Kang, a former researcher under the Ministry of Finance, said earlier this month that it was not yet time for China to “tear down its firewall” of capital controls, as it still needs a closed capital account to protect its domestic financial system from external shocks.

“Following the trade war [with the US], we have seen significantly tougher conditions on Chinese citizens’ ability to convert foreign exchange,” Jia said. “The issue is not about how yuan internationalisation could accelerate, but the focus should be on how to hold on to its present position.”

Along with a closed capital account that bars massive outflows, China’s policy of keeping the yuan exchange rate stable against the US dollar, while engineering a quick recovery in economic growth, has resulted in increased capital inflows, data shows.

Tommy Wu, an economist at Oxford Economics, said China still wants to promote use of the yuan beyond its borders, particularly among belt and road countries. But the appetite for the yuan could weaken in a period of US-China decoupling.

“[However] if the use of the yuan should ever decrease, that would be due to the process of US-China decoupling, which is making other countries move away from China,” Wu said. “If this turns out to be a serious matter, then it’s possible that yuan internationalisation would move backwards.”

Still, Beijing’s desire to reduce its reliance on the US dollar is clear, and discussions have intensified into how to increase the use of the yuan as an alternative.

Zhou Li, a former deputy director of the Communist Party’s International Liaison Department, wrote last week that it was time for China to decouple itself from the US dollar ahead of a full-blown confrontation. “By taking advantage of the dollar’s global monopoly position … the US will pose an increasingly severe threat to China’s further development,” Zhou wrote.

But it is always an uphill battle to challenge the dominant role of the US dollar in the global monetary system, which is backed by US economic, military and institutional power and is cemented by choices of banks, traders and investors across the world.

“China will have greater urgency in internationalising the yuan, but the rest of the world will not share that urgency,” Gertken said.

Newsletter

Related Articles

0:00
0:00
Close
Trump Administration Launches “TrumpRx” Plan to Enable Direct Drug Sales at Deep Discounts
Trump Announces Intention to Impose 100 Percent Tariff on Foreign-Made Films
Altman Says GPT-5 Already Outpaces Him, Warns AI Could Automate 40% of Work
Singapore and Hong Kong Vie to Dominate Asia’s Rising Gold Trade
Trump Organization Teams with Saudi Developer on $1 Billion Trump Plaza in Jeddah
Manhattan Sees Surge in Office-to-Housing Conversions, Highest Since 2008
Switzerland and U.S. Issue Joint Assurance Against Currency Manipulation
Electronic Arts to Be Taken Private in Historic $55 Billion Buyout
Thomas Jacob Sanford Named as Suspect in Deadly Michigan Church Shooting and Arson
Russian Research Vessel 'Yantar' Tracked Mapping Europe’s Subsea Cables, Raising Security Alarms
New York Man Arrested After On-Air Confession to 2017 Parents’ Murders
U.S. Defense Chief Orders Sudden Summit of Hundreds of Generals and Admirals
Global Cruise Industry Posts Dramatic Comeback with 34.6 Million Passengers in 2024
Trump Claims FBI Planted 274 Agents at Capitol Riot, Citing Unverified Reports
India: Internet Suspended in Bareilly Amid Communal Clashes Between Muslims and Hindus
Supreme Court Extends Freeze on Nearly $5 Billion in U.S. Foreign Aid at Trump’s Request
Archaeologists Recover Statues and Temples from 2,000-Year-Old Sunken City off Alexandria
China Deploys 2,000 Workers to Spain to Build Major EV Battery Factory, Raising European Dependence
Speed Takes Over: How Drive-Through Coffee Chains Are Rewriting U.S. Coffee Culture
U.S. Demands Brussels Scrutinize Digital Rules to Prevent Bias Against American Tech
Ringo Starr Champions Enduring Beatles Legacy While Debuting Las Vegas Art Show
Private Equity’s Fundraising Surge Triggers Concern of European Market Shake-Out
Colombian President Petro Vows to Mobilize Volunteers for Gaza and Joins List of Fighters
FBI Removes Agents Who Kneeled at 2020 Protest, Citing Breach of Professional Conduct
Trump Alleges ‘Triple Sabotage’ at United Nations After Escalator and Teleprompter Failures
Shock in France: 5 Years in Prison for Former President Nicolas Sarkozy
Tokyo’s Jimbōchō Named World’s Coolest Neighbourhood for 2025
European Officials Fear Trump May Shift Blame for Ukraine War onto EU
BNP Paribas Abandons Ban on 'Controversial Weapons' Financing Amid Europe’s Defence Push
Typhoon Ragasa Leaves Trail of Destruction Across East Asia Before Making Landfall in China
The Personality Rights Challenge in India’s AI Era
Big Banks Rebuild in Hong Kong as Deal Volume Surges
Italy Considers Freezing Retirement Age at 67 to Avert Scheduled Hike
Italian City to Impose Tax on Visiting Dogs Starting in 2026
Arnault Denounces Proposed Wealth Tax as Threat to French Economy
Study Finds No Safe Level of Alcohol for Dementia Risk
Denmark Investigates Drone Incursion, Does Not Rule Out Russian Involvement
Lilly CEO Warns UK Is ‘Worst Country in Europe’ for Drug Prices, Pulls Back Investment
Nigel Farage Emerges as Central Force in British Politics with Reform UK Surge
Disney Reinstates ‘Jimmy Kimmel Live!’ after Six-Day Suspension over Charlie Kirk Comments
U.S. Prosecutors Move to Break Up Google’s Advertising Monopoly
Nvidia Pledges Up to $100 Billion Investment in OpenAI to Power Massive AI Data Center Build-Out
U.S. Signals ‘Large and Forceful’ Support for Argentina Amid Market Turmoil
Nvidia and Abu Dhabi’s TII Launch First AI-&-Robotics Lab in the Middle East
Vietnam Faces Up to $25 Billion Export Loss as U.S. Tariffs Bite
Europe Signals Stronger Support for Taiwan at Major Taipei Defence Show
Indonesia Court Upholds Military Law Amid Concerns Over Expanded Civilian Role
Larry Ellison, Michael Dell and Rupert Murdoch Join Trump-Backed Bid to Take Over TikTok
Trump and Musk Reunite Publicly for First Time Since Fallout at Kirk Memorial
Vietnam Closes 86 Million Untouched Bank Accounts Over Biometric ID Rules
×