Digital Renminbi viewed as "strategic weapon" for accelerating downfall of US dollar hegemony

Chinese economists highlight impact of Trump's trade war on Washington's debt.

In this briefing:

• A chorus of Chinese economists says Trump's Liberation Day tariffs are accelerating the downfall of "US dollar hegemony."

• They highlight the rise in yields on US Treasuries resulting from the trade war, which will severely worsen Washington's debt woes.

• Some commentators view the Digital Reminbi - the Chinese central bank's blockchain-driven digital currency - as a "strategic weapon" for further driving the downfall of US dollar dominance.

• Since Liberation Day (2 April), China has seen the launch of major initiatives to drive the Digital Renminbi's international adoption.

  

Chinese economists view trade war as demise of dollar hegemony

Since the launch of Trump's Liberation Day tariffs, China's state-owned media has published a flurry of opinion pieces from some of the country's leading economists that forecast the demise of US dollar dominance.

The People's Daily - the official newspaper of the Communist Party - has been particularly active in purveying this viewpoint.

On 7 May, the People's Daily cited the comments of Lu Zhe (芦哲), chief economist at Dongwu Securities, on the weakening of the US dollar's status as a result of both deficit spending and Trump’s tariff aggression ("东吴证券芦哲：美元霸权渐难维持，世界经济格局正在重塑").

"US debt pressure is now a shock for the foundations of trust in the US dollar," Lu said.

"The series of policies under Trump 2.0 has become the biggest threat to the 'Petro-dollar System.'"

Lu said that Washington will find it "increasingly difficult to maintain US dollar hegemony," as the trade war worsens the "Triffin dilemma" for Washington - a reference to the conflicts of interest arising from supplying the global reserve currency.

One of the most prominent economists forecasting a marked weakening in US dollar dominance is Zhang Ming (张明), deputy-head of the Financial Research Institute at the highly prestigious Chinese Academy of Social Sciences (CASS).

On 29 April, the People's Daily carried an opinion piece by Zhang highlighting the role of US deficit spending and debt in "shaking the foundations for US dollar hegemony" ("美债震荡动摇美元霸权根基").

Zhang pointed in particular to the sharp rise in US Treasury yields induced by Trump's tariff hikes, and the profound challenges this creates for Washington's fiscal position.

"The rise in bond yields will markedly increase the US government's principal and interest repayment pressures, and further worsen the fiscal deficit," Zhang wrote.

"With a large volume of US Treasuries set to mature this year, the US government will continue to issue Treasuries.

"The current cost of issuing Treasuries is undoubtedly far higher than it was in the past.

"[This will] continue to trigger concerns from the market about the sustainability of US debt."

According to Zhang, the immediate consequence will be further erosion of the US dollar's hegemonic position.

"The credit of US debt has been severely damaged, and in the end it's the foundations of US dollar hegemony that have been shaken," he wrote.

"In other words, global investors will have an increasingly intense desire to invest in other secure assets.

"[They will] increasingly shift towards other secure assets that possess ample liquidity, comparatively high returns and possess sufficiently large scale."

Digital Renminbi as "strategic weapon" in Sino-US currency war

In addition to weakening the status of the greenback, some Chinese commentators say Trump's trade war will create breakthrough opportunities for the adoption of the Digital Renminbi - the blockchain-driven digital currency developed by the Chinese central bank.

One opinion piece doing the rounds on Chinese social media points specifically to the Digital Renminbi as a "strategic weapon" in the Sino-US currency conflict ("数字人民币跨境结算的突围战略：特别提货权SDRC数字金融结算系统创新对抗贸易战的全局价值与行动路径").

Li Jian (李健), director of the Ningbo Free Trade Zone Cross-border Supply Chain Management and Settlement Technology Co., Ltd. (宁波保税区跨境供应链管理与结算科技有限公司), highlighted the role of technological innovation in enabling the Digital Renminbi become a rival to the greenback and reduce dependence on a US-dominated cross-border payments system.

"As Sino-US trade frictions worsen, against the background of the reshaping of global supply chains, the innovations of the Digital Renminbi cross-border settlement system have already emerged as a strategic weapon for China to break through US dollar hegemony and shape a new trade system," Li wrote.

China unveils initiatives to ramp up Digital Renminbi adoption

Less than a month after Trump launched his Liberation Day tariffs on 2 April, Chinese authorities unveiled major initiatives to accelerate the adoption of the Digital Renminbi for cross-border payments.

Chief amongst thtem is capitalizing upon Shanghai’s status as a rising centre of international finance to drive usage.