China's Yuan Internationalization Follows 'Do What Must Be Done' Strategy

The following is an account from an economic official who was involved in negotiations for the Korea-China currency swap agreement during the 2008 global financial crisis. According to him, China's initial response to South Korea's proposal was lukewarm. However, when the Korean government argued that "given widespread criticism that oversupply of U.S. dollars was one cause of financial instability, using the yuan to defend Korea against a foreign exchange crisis would help internationalize the yuan," China's stance changed dramatically. Not coincidentally, the Chinese government began actively pursuing yuan internationalization the following year, including expanding yuan usage in trade settlements and financial transactions.

Recently, as Iran considers allowing only oil tankers that settle payments in yuan to pass through the Strait of Hormuz, the Middle East conflict shows signs of escalating into a currency hegemony war between the U.S. and China. The "petrodollar" system—where Middle Eastern countries receive dollars for oil sales and reinvest them in U.S. Treasury bonds—is a key pillar supporting America's reserve currency status. In response, China has been actively pursuing the "petroyuan" since President Xi Jinping declared in 2022 that he would "promote yuan settlement for crude oil and natural gas." Russia, India, Brazil, and Iran are already settling oil payments in yuan.

However, analysts suggest China's yuan internationalization efforts more closely follow the "yousuo zuowei" (有所作爲—proactively accomplish what must be done) strategy dating back to Deng Xiaoping, rather than aggressive diplomatic tactics under the banner of "great power rise." Openly challenging dollar hegemony could invite counterattacks and destabilize China's own financial system. For this reason, China is focusing on broadening its foundation through expanding currency swap agreements, building the Cross-Border Interbank Payment System (CIPS), and promoting yuan settlement with Belt and Road countries. But should a turning point arrive—such as China's GDP surpassing that of the United States—it is clear that China will move beyond "yousuo zuowei" to an overt "yuan rise" offensive. A situation could emerge where China demands yuan settlement from neighboring countries like South Korea or for critical resources such as rare earth elements. We must not dismiss this as a distant future scenario but begin considering countermeasures now.