Bank of China says Trump is driving the US dollar's downfall
Liberation Day on par with Nixon's depegging of the dollar from gold.
The top economist at one of China’s big state-owned banks says Trump’s second term in office is having a transformative impact on the global monetary system, by despoiling the credibility of the US dollar as reserve currency.
Guan Tao (管涛), chief economist at Bank of China’s investment banking wing, has called for Beijing to take advantage of the “rare opportunity” this creates, to drive further internationalisation of the Chinese renminbi and augment China’s global financial clout.
Liberation Day seen reshaping global monetary order
Guan writes that Trump’s tariffs are having as momentous an impact on the global monetary system as Nixon’s depegging of the dollar from gold in 1971 - a move which spelt the downfall of the Bretton Woods system that had been in place since the end of the Second World War.
“America’s bullying, unilateral economic and trade policies have not only shocked the global trade system, they have also accelerated the re-forging of the international monetary order,” Guan writes in a recent opinions piece (“管涛：国际货币体系重置中的机遇与挑战”).
“The reciprocal tariff policy is comparable to the Nixon shock of 1971, when the Nixon administration announced the removal of the gold peg and levied a 10% import tax.
“This paved the way for the collapse of the Bretton Woods system.”
Guan points out that since the launch of Trump’s Liberation Day tariffs at the start of April, the US dollar has seen its share of global foreign reserves post an abrupt decline to a new 30-year low.
Data from the IMF indicates that as of the end of the second quarter, the US dollar’s share of forex reserves publicly disclosed by the world’s monetary authorities had fallen to 56.32% from 57.79% at the end of the first quarter, for a 1.47 percentage point decline.
Guan also highlights a plunge in purchases of US-dollar assets by government investors in the wake of Liberation Day, based on figures from the US treasury department’s Treasury International Capital (TIC) report.
“In the second quarter of 2025, official foreign investors excluding international organisations made US$510 million in net purchases of US financial assets, including treasuries, agency bonds, corporate bonds and stocks, for a drop of 94.4% from the previous quarter,” he writes.
Dollar imperilled by Trump’s Fed attacks
China stands apart from most other major economies in practising the unified coordination of fiscal and monetary policy, by making the country’s central bank subordinate to the Chinese government’s top ruling body - the State Council.
Standard practice in advanced economies is for monetary and fiscal policy to be subject to rigorous separation. The independence of the central bank is supposed to be strictly maintained, in order to shield it from the influence of elected officials who could abuse the control of monetary policy to prime the economy during campaign seasons.
Despite China itself lacking an independent central bank, Guan Tao has joined other Chinese commentators in arguing that Trump’s attacks on the Federal Reserve pose a threat to the prestige of the dollar.
In September, Wang Qing (王青), chief macro-analyst at Golden Credit Rating, highlighted “the intensity of [Trump’s] attacks on the Fed’s independence” as a factor behind the rise in bullion prices.
Beijing’s top policymakers were concerned about Trump’s attacks on the Fed’s independence, and the possibility he could resort to coercive measures to unstopper monetary policy, which could have a dire impact on China’s copious troves of dollar-denominated assets.
Guan Tao says this situation creates a credibility issue for US monetary policy that is bound to further weaken the greenback’s standing.
He goes so far as to argue that Trump’s attacks on the Fed’s independence could make the current shift in the global monetary order even more momentous than the collapse of the Bretton Woods system at the start of the 1970s.
“This latest development goes a step further, as the credibility of the dollar - the independence of the Federal Reserve itself, also faces a grave threat.”
The dollar’s decline paves the way for the renminbi’s rise
In Guan’s view, the international monetary system is characterised by network effects, path dependency and legacy inertia, given that global investors only reluctantly shed their habitual trading practices.
For this reason, major changes in the global monetary system depend just as much upon the decline of incumbent powers as they do upon the emergence of catch-up competitors.
Guan thus sees Trump’s second term in office as creating a golden opportunity to rig the global financial system in China’s favour.
“The USA’s self-destructive, beggar-thy-neighbor trade policies are collapsing American exceptionalism and widening the cracks in the dollar’s credibility,” he writes.
“This provides a rare opportunity for the rise of other currencies.”
Guan advocates that Beijing take advantage of this rare opportunity to drive greater internationalisation of the renminbi - a move he considers an integral part of China’s ambitions to transform itself into a “financial superpower.”
“A strong currency ranks first among the six key core elements of a financial superpower,” Guan writes
“The renminbi achieving international status commensurate with China’s economic influence and steadily advancing its internationalisation are essential aspects of China’s accelerated development into a financial superpower.”
He outlines a raft of measures needed to enhance the offshore appeal of the renminbi, including:
Further driving the systemic opening-up of China’s financial sector.
Accelerating the “post-border opening-up” of domestic rules, regulations, standards and regulatory procedures, with the goal of making them consistent with international practices.
Further accelerating the development of China’s domestic financial market.
Strengthening the “functional carriers” for cross-border renminbi investment and financing.
Further accelerating innovations in cross-border renminbi financial products, systems, and technologies, to better serve the high-quality development of the “Belt and Road” initiative and the “going abroad” strategy of Chinese enterprises.
Further enhancing the competitiveness and influence of Shanghai as an international financial center.
Further consolidating and elevating Hong Kong’s status as an international financial center.