China’s central bank chief has a vision for a more multipolar monetary system, preferably one in which the yuan plays a larger role on the global stage.
At a key policy forum earlier this week, Pan Gongsheng, governor of the People’s Bank of China, called for an international monetary system in which “sovereign currencies coexist and compete with checks and balances.”
Cautioning against what he described as the inherent instability of a system dominated by a single currency, Pan warned of the risks of a currency being weaponized in times of geopolitical tensions.
“Traditional cross-border payment infrastructures can be easily politicized, weaponized, and used as unilateral sanction instruments,” he said.
That came a day after the European Central Bank President Christine Lagarde touted a “global euro” moment.
“We are witnessing a profound shift in the global order: Open markets and multilateral rules are fracturing, and even the dominant role of the US dollar, the cornerstone of the system, is no longer certain,” she wrote in a blog post. This, she added, offers an opportunity for the euro to gain global prominence.
The greenback’s global status has come under scrutiny recently due to a combination of factors, including trade and political uncertainties stirred up by policies from the Trump administration.
The dollar faces credibility risks, with investors fearing a U.S. retreat from the economic policies that have underpinned it since World War II, DBS economists wrote in a May report.
Worries about a potential U.S. debt crisis have further fueled a selloff in U.S. assets.
For economists at Oxford Economics, the souring of global sentiment toward U.S. assets doesn’t yet signal the end of dollar dominance. Still, they reckon its reserve status could be undermined if pressure on U.S. assets persists over the longer term.
Analysts say Pan’s message doesn’t reflect a desire by China to replace the dollar as the world’s reserve currency, especially given the yuan’s relatively small share of global trade.
Rather, it suggests a renewed urgency among Chinese policymakers to de-risk from the dollar as they gear up for a prolonged geopolitical standoff with Washington.
Over-reliance on the greenback has sparked concerns not only in China but also across the Global South and even in Europe, said Allan von Mehren, China economist at Danske Bank.
“There is 1750651380 a window of opportunity where other countries look for dollar alternatives as well, which makes it easier for China to convince countries to have more of the bilateral transactions with China in the Chinese currency rather than the USD,” he said.
At this week’s forum, the PBOC announced a slew of measures–including the launch of an operation center for the digital yuan–aimed at boosting the currency’s international appeal.
On the same day, six foreign banks signed agreements to join China’s Cross-Border Interbank Payment System, an alternative to the Swift mechanism.
However, broader global adoption of the yuan won’t come easy. Chinese policymakers have been pushing for yuan internationalization for years, with limited success.
To expand its monetary influence, China needs a dynamic economy and regulatory predictability, Morgan Stanley economists said in a note this week.
China’s economy has recently experienced a worrying loss of momentum recently and Beijing has struggled to pivot to consumption-driven growth.
To restore global confidence in China’s growth, Beijing needs to overcome deflation by stepping up government borrowing to fund economic rebalancing and incentivize yuan use, the MS economists said.
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(END) Dow Jones Newswires
June 20, 2025 05:16 ET (09:16 GMT)
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