Yuan Set to Overtake Yen as Second-Most Traded Currency Against Dollar

The yuan is on track to overtake the yen as the second-most traded currency against the dollar in the foreign-exchange options market, according to London-based clearing house LCH. The dollar-offshore yuan pair is likely to move to second place behind just the euro-dollar when the Bank for International Settlements releases its next triennial survey of foreign exchange and over-the-counter derivatives markets in 2028.

Andrew Batchelor, head of the clearing house’s unit LCH ForexClear, attributes the yuan's growing popularity to its increasing use in worldwide financial markets. China's economy has grown significantly in recent years, and the government has introduced measures to support the currency's globalization. The yuan's use in global currency transactions has been increasing, with the most recent Bank for International Settlements survey showing it made up 8.5% of global currency transactions, up from 7% in 2022.

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The yuan's use is being driven by a number of factors, including increased real-economy trade and cross-border flows, as well as stronger risk-management needs arising from international markets and growing participation by non-banks seeking trading opportunities in the currency. The Middle-East conflict has also bolstered the use of both the dollar and the yuan, with the proportion of international transactions in the dollar rising to a record 51.1% in March.

LCH is also seeking to promote the use of Chinese government bonds as collateral in global transactions. The clearing house has begun accepting Chinese debt denominated in euros and dollars as eligible non-cash collateral through EuroClear in 2025. LCH plans to extend this to Chinese government bonds denominated in the offshore yuan by early in the third quarter of 2026, with the potential to introduce offshore yuan Chinese bond settlement through its Hong Kong partner CMU OmniClear Ltd. next year.

There is significant potential to use Chinese government bonds as collateral globally, as the nation's banks hold a substantial amount of these securities and are increasingly externalizing positions to diversify their portfolios.