Yuan strengthens as China advances digital currency expansion

Thursday 25 December 2025 - 10:50

By: Dakir Madiha

Yuan strengthens as China advances digital currency expansion

The Chinese yuan exceeded the key threshold of 7 per dollar for the first time since September 2024, signaling renewed confidence in the nation’s currency strategy. The offshore yuan reached 6.9985 against the U.S. dollar on Thursday after the People’s Bank of China (PBOC) set its daily midpoint at 7.0471, marking its strongest reference rate since late 2024.

The currency’s appreciation underscores its best performance in more than four years, gaining nearly 4% in 2025. Analysts attribute this rally to a weakening dollar, resilient export data, and improved trade sentiment between Beijing and Washington. The upward trend has also been supported by exporters converting foreign revenues into yuan toward the end of the year, a seasonal factor that traditionally boosts demand ahead of the Lunar New Year.

Digital currency initiative gains momentum

Beijing is also accelerating the global footprint of its digital yuan. The PBOC recently launched a cross-border payment pilot with Singapore, part of a broader effort to promote its digital currency across major trade hubs including Thailand, Hong Kong, the United Arab Emirates, and Saudi Arabia. These initiatives are aligned with China’s New International Land-Sea Trade Corridor, designed to deepen regional trade connectivity since its inception in 2017.

Chinese banks operating in Singapore, including the Industrial and Commercial Bank of China and the Bank of China, have started offering digital yuan wallets that can function offline using near-field communication technology. The system enables seamless yuan payments even without internet access, showcasing technological advancements that strengthen the currency’s utility and global appeal.

Controlled gains expected

Despite growing momentum, monetary authorities appear committed to maintaining measured appreciation. The PBOC has consistently set daily midpoint rates below market expectations since late November, while large state-owned banks have intervened by purchasing dollars to counter excessive volatility.

Goldman Sachs estimates the yuan remains about 25% undervalued and may reach 6.85 per dollar by the end of 2026. However, economists note that weaker domestic metrics such as easing factory output and slower retail activity pose potential headwinds. The yuan’s future trajectory will depend on the balance between policy caution and market confidence as China navigates both economic reform and global integration.