There have been many false dawns in China’s quest for the yuan to challenge other major currencies. But underpinning the explosion this time lies a torrent of capital flowing into China’s markets, fueled by a frantic search for returns with over $14 trillion of debt globally paying less than 0%.

That appetite for some of the highest-yielding government bonds in the Group-of-20 countries has elevated interest in China to fever pitch and is generating demand for liquidity from investors looking to finance and hedge their investments. It’s also spurring volatility and attracting speculators who overlooked the market for years.

“It’s certainly a top currency in terms of the flow that we’re seeing,” said Kevin Kimmel, New York-based global head of electronic FX at Citadel Securities, one of the world’s biggest market makers. “Trading activity in the yuan has increased significantly.”

Read More: China Eases Currency Controls in Move Toward Liberal Yuan

The shift comes as China continues to relinquish control — albeit slowly — of its tightly-managed currency, a linchpin of Beijing’s long-term plan to encourage its greater global use. China is considering easing restrictions on citizens investing in securities outside its mainland, a move that would facilitate two-way capital flows.

The so-called internationalization of the yuan is part and parcel of the government’s goal to wean itself off a reliance on the U.S. dollar, and what some see as a geopolitical challenge to the greenback’s supremacy. Reducing China’s reliance on the dollar has become more pertinent in recent years due to economic tensions with the U.S., a trend that will likely continue under the Biden administration.

For now, international investors are encouraged to use the offshore version of the currency, known by its CNH designation in markets.

While the offshore yuan is theoretically freely tradeable — meaning its price can fluctuate along with demand, economic data and geopolitical developments — it usually sticks fairly close to the onshore unit, abbreviated as CNY. And since that’s permitted to stray just 2% above and below a daily rate set by the central bank, China holds sway over the currency far beyond its borders — a quirk that may ultimately slow adoption.

Growth Spurt

Still, despite the limits, average yuan turnover in London jumped to a record $84.5 billion per day in October, according to a central-bank survey of the world’s biggest FX trading hub. In North America, daily volumes more than doubled compared to the same reporting period last year, to $7.8 billion per day. Exchange giant CME Group Inc.’s EBS says spot volumes on its platforms in London and New York are up 90% and 131%, respectively, from 2015 to 2020.

Along with this growth in the spot market, there is also buoyant demand from investors for instruments to hedge and trade their currency risk. Daily option volumes on the yuan in London rose to a record $11.7 billion in October, while an average of almost $12 billion of forward contracts changed hands each day, the most since 2019, according to Bank of England data.

Read More: Yuan Trading Is Finally Starting to Win Traction in Europe

“It’s been the intention to allow the currency to float more freely in the market,” said James Hassett, Singapore-based co-head of global emerging markets and G-10 linear FX at Barclays Plc. “That’s giving people more confidence to trade it.”

At the heart of this metamorphosis are foreign funds, which have steadily poured cash into China over the past year, adding to their bond holdings at the fastest pace on record in January. Many are chasing higher returns — China’s 10-year bonds yield 3.3%, compared with around 1.3% for equivalent U.S. Treasuries and less than 0% for German bunds. Others are adding to their holdings to build exposure to the nation’s assets, which were only recently included into some of the world’s biggest benchmark indexes.

Read More: China’s Bond Market Opening Set to Reshape the World of Finance

Amid this shifting landscape, market gauges show the offshore yuan’s projected price swings over a one-month horizon are now as wide as for the euro and the yen. While that’s partly a function of fluctuations for those major currencies dropping in the face of unprecedented central-bank action, yuan volatility is drawing in hedge funds and other fast-money investors looking to make a profit.

The extra liquidity has helped drive down the cost of transacting in the yuan to about $20 for every million dollars traded, according to Citadel Securities’ Kimmel. That’s similar to the pound and compares to about $10 for the euro-U.S. dollar cross, the world’s most liquid pair. It’s well below the spread on emerging-market currencies, which “typically exceed” $100 per million, he said.

The question is whether all this interest in the yuan can last, particularly if yields climb in developed markets like the U.S., ultimately diminishing the relative appeal of China. Some of the world’s biggest banks are betting demand will remain, with the likes of Deutsche Bank AG and Citigroup Global Markets Inc. boosting their China-dedicated personnel in hubs including London, New York and Singapore.

The moves echo HSBC Holdings Plc’s call last year for the yuan to be included in the top tier of foreign exchange. The classic Group-of-10 FX label — which includes smaller Scandinavian currencies in addition to behemoths like the dollar, euro and yen — is “outdated and misguided,” strategist Paul Mackel said.

Despite its still-small share of global trading — 4.3% as of 2019, according to the latest data from the Bank for International Settlements — the yuan commands an outsized role in the foreign-exchange market because its daily moves serve as a key indicator of global investor sentiment. Wells Fargo strategists including Erik Nelson argue that the Chinese currency may even be exerting influence on the broad dollar index.

‘Paradigm Shift’

The offshore yuan may be “pulling more weight in the battle for global currency supremacy,” the strategists wrote in a note to clients this month. “If we continue to see signs that USD/CNH is having more influence on broad dollar moves, this could be a significant paradigm shift in FX markets,” they wrote.

Yet Beijing’s ambitions to make the yuan a truly global currency still face some very real challenges.

The currency’s share in central bank reserves is just about 2%, compared to almost 21% for the common currency and just over 60% for the U.S. dollar. That’s a woefully low percentage given the size of its China’s economic output. At less than 3%, the renminbi’s share in global payments is just a fraction of its bigger rivals, despite increased use.

Read More: Yuan’s Popularity for Global Payments Hits Five-Year High

But it’s the age-old issue of restrictions on the movement of capital across Chinese borders that remains one of the biggest headwinds the currency faces, according to Bipan Rai, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in Toronto.

“China has made a lot progress on this front, but it’s still not quite at the level of free capital flow that you tend to see in other developed markets,” Rai said. “That might be some ways away.”