China sees the yuan vs. dollar rivalry like Pepsi vs. Coke, expert says — ‘never the market leader, but serviceable in a pinch’

China’s goal, according to China scholar Zongyuan Zoe Liu, is to build a yuan payment and trade network that can limit U.S. sanctions leverage—not to replace the dollar as the dominant reserve currency. As of June, China’s cross-border payment system had 1,829 participants reaching more than 5,200 banks in 191 countries, while foreign investors held 1.6% of China’s bond market in March versus 27% in the U.S. The article also cites the Iran war and possible yuan-denominated passage through the Strait of Hormuz as potential catalysts for erosion in petrodollar dominance, while presenting a future “green yuan” as contingent on China’s industrial dominance and broader access to yuan assets.

Analysis

The market mechanism is not “yuan replaces dollar,” but a gradual reduction in the cost of using U.S. financial sanctions for targeted trade. That is a long-horizon risk to dollar primacy, not an immediate reserve-asset substitution: without open capital markets and freely investible yuan assets, exporters can settle in yuan while still converting or recycling proceeds elsewhere. CIPS reach and swap lines alone do not solve that reinvestment constraint.

The more consequential path is narrower: if China can make critical minerals and clean-energy equipment difficult to substitute, yuan pricing could strengthen its exporters’ bargaining power and create recurring yuan demand. That would pressure competing suppliers and, at the margin, reduce dollar settlement in specific supply chains; it would not automatically displace dollar funding or safe-haven demand. The article’s petroyuan scenario is a tail risk contingent on verified Gulf oil-payment changes and sustained shifts in sovereign asset allocation—not just wartime rhetoric.

Near term, dollar-erosion headlines may overstate what payment rails imply for reserve demand. Over 1–3 months, watch for documented yuan invoicing in energy contracts, Gulf official-flow changes, and foreign participation in Chinese bonds. Over 6–18 months, the key tests are whether foreign holders can retain and freely reinvest yuan and whether non-Chinese suppliers lose pricing power. The PepsiCo/Coca-Cola anecdote is not evidence of a material earnings catalyst for either company.

Key Decisions for Investors

• No immediate directional FX trade on this article alone. Treat yuan settlement announcements as low-signal until confirmed by contract-level invoicing data and evidence that recipients retain yuan balances.
• Set an alert to reassess dollar exposure if Gulf oil contracts shift materially to yuan and sovereign flows show persistent reductions in U.S. assets. Until then, the reserve-asset thesis lacks confirmation; falsifier is continued dollar invoicing and stable foreign demand for U.S. assets.
• Monitor foreign holdings and trading access in Chinese bonds, plus yuan asset repatriation rules. A sustained rise in participation alongside credible capital-account liberalization would strengthen the structural yuan thesis; renewed controls or weak foreign demand would weaken it.
• Do not trade PEP versus KO from the restaurant anecdote: verify any measurable U.S. volume, distribution, or guidance impact first. The reported outlet change alone does not establish a material earnings effect.