Ask any currency trader what surprised them most in late 2025 and many would say the same thing: the yuan stopped falling. After a multiyear slide, Beijing’s currency has been nudging higher — the onshore rate up roughly 4.4% since late April and trading around the psychologically charged 7-per-dollar line. The mechanics are simple enough to state and fiendishly hard to manage in practice: a record-busting trade surplus, softer dollar moves, and shifting bets about which economy is actually stronger have all conspired to push the renminbi up. But the consequences go far deeper than exchange-rate arithmetic.
A surplus so big it demands answers
China’s export engine has run hotter than the world imagined. Data released at the turn of the year showed a historic goods surplus — numbers so large they forced economists to revisit long-held assumptions about global demand and China’s domestic imbalances. Some commentators, notably Paul Krugman, view this as a policy choice with structural roots: excessive national savings, weak household demand, and an investment profile that no longer absorbs those savings are being exported instead, in the form of shipments abroad.
That pile-up of external demand helps explain why the yuan is appreciating: when foreign buyers keep coming, they create persistent demand for Chinese currency. But appreciation is not a free lunch for Beijing. In a country wrestling with deflationary pressures and a still-ailing property market, a stronger currency can depress domestic prices further and make it harder for exporters already running on thin margins.
Beijing’s balancing act: defend stability, pursue internationalization
Policymakers have moved cautiously. The People’s Bank of China has signalled a preference for stability rather than quick gains or sharp devaluations. Central parity settings have tracked that mood: for example, the CFETS midpoint rate recently dipped to about 7.0197 per dollar, a small but telling move that shows officials are nudging markets without inviting turbulence.
At the same time, China’s longer-term strategy appears to be shifting away from tactical competitive devaluations toward a state-led path of internationalization. That’s not market liberalisation in the Western sense: yuan assets remain tightly controlled, offshore markets are carefully cultivated, and international use is being driven by trade settlement, state-backed projects and a web of swap lines, not by deep, fungible capital markets. The goal is less to dethrone the dollar than to build resilience — a payments and settlement architecture that can function even under geopolitical stress.
Two contradictory impulses
This produces a paradox. On one hand, Beijing benefits from a stronger yuan: cheaper imports, more purchasing power for households, and a signal of macro credibility. On the other hand, appreciation risks hurting export-intensive sectors and could accelerate industrial relocation if margins compress. Add in fragile domestic demand and a property slump, and the logic for tightly managing the currency becomes clearer.
Some economists argue that China can tolerate or even welcome modest appreciation as part of rebalancing — making imports cheaper could lift living standards and nudge resources toward consumption. Others warn that letting the yuan climb while the economy faces deflationary pressure could deepen the slowdown, undermining investment and employment.
Strategic hedges: re-anchoring and de-dollarization, slowly
Beyond cyclical concerns, there’s a geopolitical motive to China’s currency calculus. Beijing has spent the past few years building alternatives to dollar-dominated plumbing: Cross-Border Interbank Payment System (CIPS), e-CNY pilots, expanded swap networks and selective offshore market development. These steps are about creating contingency, not instant replacement.
One consequence is that China may gradually re-anchor the yuan away from an informal dollar peg toward a broader basket — the CFETS index or a multi-currency anchor — reflecting the shifting geography of its trade. That would soften the economy’s sensitivity to U.S. rate cycles and give Beijing more space to respond to domestic conditions. But re-anchoring is a political signal as much as an economic technic; it implies a deliberate step toward a more multipolar financial order.
The world feels it
A stronger yuan matters far beyond Shanghai. For manufacturers across Asia and Europe that rely on Chinese intermediate goods, the squeeze on margins can cascade through supply chains. For global investors, China’s record surplus and currency moves complicate forecasts that assumed perpetual demand from Chinese households.
For consumers in import-heavy sectors, a firmer yuan would make gadgets and foreign travel cheaper. For example, a stronger renminbi would shave dollars off the sticker price of devices like the MacBook — something ordinary buyers notice, even if macro debates feel remote. If you’re shopping, you can check the latest price for a MacBook available on Amazon.
What Beijing might do next
Expect three broad options: actively lean into appreciation (rare, given political costs); actively resist it to protect exporters (what we’ve seen for years); or mostly “get out of the way” and manage volatility while nudging the exchange rate toward a more diversified anchor. The middle path — cautious management with incremental institutional shifts toward internationalization — seems the most politically palatable and economically coherent right now.
That, however, leaves some big unanswered questions. Can China shrink its imbalanced savings without painful structural reforms to the property sector, pension systems and household incomes? How much volatility can exporters tolerate before companies relocate production? And how will the rest of the world respond if Beijing rewrites the implicit rules of its currency regime?
The yuan’s rally is at once a symptom and a signal: symptomatic of China’s unresolved domestic shifts, and signaling a potential strategic pivot in how Beijing wants the renminbi to fit into a changing global order. For markets, policymakers and everyday shoppers, that means the currency story of 2026 will be about more than numbers — it will be about choices.