Regulatory changes have made the Chinese Yuan an increasingly attractive option for businesses to cut costs and manage exchange rate risks. As a result, the Yuan is the second largest trade currency at over ¥60 trillion. China’s CIPS network for settlements and its currency swap agreements are not available at all banks, and careful analysis is needed to see if transacting in the Yuan is advantageous. In this CBL explainer, we will go over the current policy regime for Yuan transactions and introduce some best practices for determining when you should use it for a specific transaction.

Contents

• Laws Evolved to Support Cross-Border RMB
• The Cross-Border Yuan Payment System and Infrastructure
• CIPS: The Cross-Border Interbank Payments System
• Policy Basis and Institutions
• How to Use the Yuan Payments System
• Yuan for Cross-Border Investments

Laws Evolved to Support Cross-Border RMB

Cross-border payments with China have historically been difficult and expensive to process, with authorities looking for a good solution. Those efforts started in 2009, when the People’s Bank of China (PBOC) piloted cross-border Yuan payments. Since then, RMB’s share in the global payment and settlement system has risen and Chinese businesses have increasingly chosen it internationally. China has set up a significant cross-border payment infrastructure by improving its clearing network, payment system, and policy coordination. Businesses are increasingly interested in using local currencies, citing lower costs, reduced foreign-exchange risk, and greater bargaining power.

Yuan usage in cross-border transactions has only significantly increased in the past few years, becoming influential globally. Cross-border payments rose to ¥64.1 trillion, a YOY increase of 22.6%, and reached ¥34.9 trillion in the first half of 2025, an increase of 14.0% YOY. (See 2025 CNY Internationalization Report) The Yuan is now the world’s second largest trade finance currency, and the third largest for payments.

An increasingly established cross-border payments system is reducing barriers in the real economy. Businesses choose to pay in Yuan based on economic factors such as risks and costs. This is also the general logic of global market actors, who seek to protect their own interests by using more stable and reliable transaction channels. The benefits of using Yuan settlement are as follows:

1. In cross-border import/export, hedge foreign exchange risks without needing to use derivatives, and cut costs by not needing to do foreign exchange transactions.
2. The settlement process and policies facilitate cross-border Yuan payments efficiently.
3. Bargaining power is improved in countries where China is the largest export market because small and medium-sized Chinese businesses gain the ability to integrate supply chains.

The Cross-Border Yuan Payment System and Infrastructure

Payments are routed through a network of Chinese banks. Traditionally, clearance was provided through correspondent banks, clearing banks, and non-resident accounts. Correspondent banking uses an interbank account opened under an agreement between a large Chinese bank and a foreign bank, where the Yuan end is processed in the PBOC clearing system. It’s a well-established approach but cannot process net settlements and is an inefficient use of liquidity.

A clearing bank network involves foreign banks opening accounts with Chinese Yuan clearing banks to provide fund transfers. The clearing bank is a PBOC authorized offshore Yuan clearing bank that provides its services where those transactions are supported. The foreign participating bank provides cross-border CNY settlement services following the applicable rules. The clearing bank system is meant to support Yuan transactions and Yuan denominated markets by providing liquidity and a portal for policy interpretations.

Providing account access and settlement services for banks stimulates the economy. Non-resident accounts are opened by foreign organizations in PBOC approved Chinese banks to provide Yuan cross-border clearing and settlement services, in connection with the PBOC interbank payment system.

CIPS: The Cross-Border Interbank Payments System

CIPS is a cornerstone for Yuan cross-border payments infrastructure. As of the October 2025 data, there were 187 direct participants and 1,559 indirect participants in 122 countries and regions, and extending to 190 countries and regions through 5,000 incorporated banks.[1] The three traditional cross-border payment and settlement options for Yuan prior to CIPS precluded highly effective service, because SWIFT was necessary for the correspondent banking network to transmit payment messages between Chinese and international banks providing clearance services. Moreover, paying in Yuan across borders was inefficient due to complex processes and procedures.

CIPS is more efficient for cross-border Yuan clearance, since it supports traditional cross-border payment options, i.e., correspondent banks, cross-border clearing banks, and non-resident accounts. CIPS offers dedicated connections for direct participants so they can work with indirect participants in clearing bank networks to quickly clear batches of cross-border Yuan payments.

Another reason is, it’s much faster, allowing coverage in all time zones worldwide, meeting international financial customers’ Yuan needs for payments, transaction closings, centralized clearing, and real-time settlements. Finally, international direct participants can have CIPS access either through their dedicated connection, or optionally through SWIFT thanks to its interoperability.

Policy Basis and Institutions

With the bilateral Local Currency Settlement (LCS) system, the PBOC is promoting Yuan for trade and investment by signing Financial Cooperation MOUs with other central banks to establish a legal and institutional framework and provide technical capabilities for cross-border payments, and FOREX quoting & swaps. Local-currency settlement agreements were signed with Vietnam, Indonesia, Cambodia, and Laos by the end of 2022.

In March 2023, China and Russia jointly stated that they would increase the local currency percentage for trade, investment, and loans to meet market demand. By August, the 15th BRICS summit encouraged partners to use local-currency settlement in trade and financial transactions. By September, China and Brazil completed the first fully funded and settled in Yuan-Real transactions for pricing, settlement, financing, and exchange.

To establish a network, the PBOC, along with 32 other countries’ central banks, has entered into bilateral currency swap agreements totaling ¥81.8 billion, in which each central bank pledges its own currency as collateral to make an equivalent exchange for another currency (as of May 31, 2025).[2]

Setting up a currency swap network to provide offshore liquidity to partner countries can facilitate import/export local currency settlement, because the choice of cross-border trade settlement currency can be determined by availability of foreign currency financial services. Injecting swap funds allows partner countries to expand funds availability for cross-border import/export settlements, so importers have better access to funds in Yuan.

Second, China needs its trading partners to have access to local currency settlements for the Yuan especially for exports, but restrictions on capital accounts have reduced its circulation globally. Here, Yuan swap funds reduce the cost of credit for foreign companies.

How to Use the Yuan Payments System

The infrastructure and policy provide guarantees that companies’ use of Yuan worldwide will be flexible, efficient, and secure. The PBOC and MOC have worked with organizations such as ICBC to explain policies, use cases, and solutions in its Guide to Yuan Services for Small and Medium-Sized Businesses.[3]

Avoiding foreign exchange risks by denominating transactions in local currency requires making the right choices about pricing and settlements. A key recommendation we have is to use the same pricing currency as for settlements for import/export because involving third-country currencies could cause exchange rate volatility losses.

You need to verify other conditions are in place in order to benefit. There should be

• Low exchange rate volatility with the Yuan
• Local currency swap or settlement agreement supported by adequate policies in both countries
• Exchange rate risk management and control capability

For example, Malaysians can use local currency pricing, because it has an LCS agreement for trade with China, grounded in a stable exchange rate with the Yuan, direct exchanges, open financial markets, and Chinese bank presence. Conditions for Yuan internationalization in Russia are good as it de-dollarized following the Ukraine War, and increasingly uses local currency settlements with China. Yuan transactions are increasingly used in its FOREX markets.

The opposite is seen in India where Yuan pricing and settlements have not gained traction because its financial system is not open to it, and due to politics. Likewise, Egypt lacks local currency services, but it’s due to exchange rate volatility and weak foreign exchange markets.

Yuan for Cross-Border Investments

The Yuan cross-border payment infrastructure is increasingly used for direct investment, which totaled ¥8.3 trillion in 2024, an 8.6% annual increase; FDI into China stood at ¥5.2 trillion, a 5% annual increase, and ¥14.3 trillion for trade payments. (See 2025 CNY Internationalization Report) Indonesia, Argentina, and Pakistan say the Yuan can be used for local currency settlement in trade and investment. Russia has facilitated domestic use of the Yuan by providing currency swaps and Yuan-denominated bonds, and encouraging Yuan for settlement and investments (See Bank of Russia Report).

Cross-border Yuan payments are available for outbound direct investment, capital funds, advance payments, profit repatriation, and share purchase. This approach has been successfully used.

For case studies, a Tibetan agribusiness remitted Yuan to Nepal to invest in building an organic fertilizer facility.[4] A Jiangxi mining machine corporation acquired a foreign mining equipment company by paying in Yuan. A petrochemical company used Yuan as an investment in its Brunei subsidiary so it could purchase equipment locally, without the foreign exchange risk.

FDI into China using offshore Yuan is already covered by complete regulations and processes, which provide that foreign businesses’ capital fund accounts can hold foreign investors’ capital fund contributions if managed as a segregated account. (Cross-border Yuan Bank Services Guidelines (2021 Version),  FDI Yuan Settlement Services Administrative Procedures)[5][6] Some jurisdictions are also piloting new models.

The Shanghai Lingang FTZ in December 2020 piloted segregated capital fund account requirements for FDI in Yuan, which facilitates capital injections for foreign businesses. Instead, the policy allows using basic accounts to receive capital contributions from foreign shareholders after completing business registration procedures, and many area companies have successfully done this.[7] Hengqin and Qianhai similarly reformed Yuan capital injection in the Greater Bay Area in 2023.[8][9]

Financial transactions, not just direct investment, have significantly changed with the offshore Yuan.

In 2025, BOC Macau led an M&A syndicate for the Singaporean Golden Eagle Group’s ¥15 billion acquisition of Hong Kong-listed Vinda International.

This was the largest recent successful APAC syndicated loan denominated in Yuan.[10]

Conclusion

Yuan local currency transactions are playing an increasingly important role to help businesses reduce transaction costs, prevent exchange rate volatility, and enhance bargaining power.

China sees setting up clearing bank networks, CIPS, LCS, and swap agreements as fundamental to institutionalize Yuan circulation regionally.

In the future, the trends of global monetary multipolarization, geopolitical dynamics, and the Belt and Road Initiative will continue. This will drive Yuan to be utilized more in trade, business, and investment.

FURTHER READING

• Get more insights about Chinese law at CBL’s China Law Library

FOOTNOTES

[1] CIPS Article, (CIPS系统参与者公告第一百一十四期), (CIPS, Oct. 31, 2025), (in Mandarin).

[2] People’s Bank of China Article, (中国人民银行签署双边本币互换协议情况), (People’s Bank of China, Mar. 6, 2026), (in Mandarin).

[3] Ministry of Commerce Manual, (中小企业跨境人民币服务手册), (Ministry of Commerce, January 2023), (in Mandarin).

[4] People’s Bank of China Report, (西藏成功办理首笔对尼泊尔人民币跨境直接投资业务), (People’s Bank of China, May 7, 2022), (in Mandarin).

[5] Cross-border Yuan Bank Services Guidelines 2021 Version, (银行跨境人民币业务展业规范2021版), (National Administration of Foreign Exchange, Jun. 15, 2021), (in Mandarin)

[6] FDI Yuan Settlement Services Administrative Procedures, (外商直接投资人民币结算业务管理办法), (People’s Bank of China, Oct. 13, 2011), (in Mandarin)

[7] Shanghai Lingang Free Trade Zone Report, (在全国率先试点取消外商直接投资人民币资本金专用账户), (Shanghai Lingang Free Trade Zone, Dec. 28, 2021), (in Mandarin).

[8] Hengqin-Guangdao-Macao Business Zone Financial Support Opinion (Banking Circular No. 41 (2023)), (关于金融支持横琴粤澳深度合作区建设的意见), (People’s Bank of China, Feb. 24, 2023), (in Mandarin)

[9] Qianhai-Shenzhen-Hong Kong Service Business Zone Liberalization Financial Support Opinion (Banking Circular No. 42 (2023)), (关于金融支持前海深港现代服务业合作区全面深化改革开放的意见), (People’s Bank of China, Feb. 23, 2023), (in Mandarin)

[10] People’s Daily Report, (150亿离岸人民币并购银团放款落地), (People’s Daily, Mar. 18, 2024), (in Mandarin).

BIBLIOGRAPHY

Yang Cuo, Tan Xiaofen, “Bilateral Currency Swaps Increase Cross-border Trade RMB Settlements”, Economic Theory and Economic Management, 2023, No. 10.

Zhang Chong, Ding Jianping, Bao Yanglin: “Denominated in Local Currency and Local Currency Settlement: Characteristics, Theoretical Analysis, and Prospects”, International Economic Review, 2024, No. 6.