Why the Lack of Convertibility of the Renminbi Hinders Its Position as a Global Currency

Despite China’s ambitious plans to internationalize the renminbi, the persistence of restrictions on convertibility remains the most significant obstacle. According to data from NS3.AI, the renminbi’s share in global reserves dropped from 2.83% in 2022 to projected 1.93% by 2025, reflecting the structural limitations it faces. The core issue is not just the number of available payment mechanisms but the actual convertibility capacity that international markets demand from a reliable reserve currency.

Capital Controls Erode Central Bank Confidence

Global central banks prioritize unrestricted liquidity and convertibility as fundamental criteria for reserve designation. China has developed sophisticated infrastructures such as the Cross-Border Interbank Payment System (CIPS) and implemented a digital yuan, but these innovations have not overcome regulatory barriers that limit capital flow. The controls imposed by Beijing, while understandable from a macroeconomic stability perspective, generate distrust among international monetary policymakers seeking maximum convertibility and unrestricted access.

Stablecoins and Bitcoin Are Advancing as More Reliable Alternatives

In the absence of full convertibility of the renminbi, central banks and market operators are increasingly turning to crypto assets as settlement tools. Dollar-backed stablecoins offer the price stability demanded by markets, while Bitcoin provides a decentralized alternative that completely bypasses capital controls. These digital assets are gaining traction precisely because they are not subject to the restrictions characterizing the Chinese financial system.

Convertibility: Key for Future Reforms

For the renminbi to achieve a significant position as a global reserve currency, China would need to implement profound reforms in its convertibility policy. Without substantial opening of capital controls and greater guarantees of unrestricted convertibility, the gap between technical capacity and political trust will continue to widen. The current trend suggests that reserve diversification will increasingly favor crypto assets capable of operating without the limitations surrounding renminbi convertibility, unless Beijing enacts structural changes in its regulatory framework.