How China's central bank plans to topple US dollar dominance
A multi-polar monetary system preferable to dominance by a single sovereign currency.
Pan Gongsheng (潘功胜), the chief of China's central bank, just delivered a landmark speech at the 2025 Lujiazui Forum, held from 18 - 19 June in Shanghai's riverside financial district.
He outlined China's vision for the future of the international monetary system, calling for an end to uni-polar dominance of the global economy by a single sovereign currency.
Replacing US dollar dominance with monetary multi-polarity
In a pointed dig at the US dollar's dominance of the global monetary system, Pan called for the world to "weaken excessive dependence on a single sovereign currency and its negative effects."
The Chinese central bank governor instead advocates the creation of a multi-polar global monetary system, where a "small number of strong sovereign currencies engage in beneficial competition."
"In future, the international monetary system could continue to evolve towards a situation with the co-existence of a small number of sovereign currencies that engage in mutual competition and mutual restraint.
"The multi-polarised development of the international currency system will help to raise its resilience and more effectively preserve global economic and financial stability."
Pan favourably quoted Christine Lagarde, President of the European Central Bank, as saying that uncertainty surrounding the US dollar's dominant position was on the rise, and that the Euro could expect to play a more important role in the global monetary system.
The burden of supplying the world’s reserve currency
One of Pan's chief arguments for a multi-polar monetary system is the onerous responsibilities and constraints imposed upon any single nation that assumes the role of global currency supplier.
When weighed against their domestic policy goals, this can create conflicts of interests that exacerbate risk, while undermining the stability and security of the world financial system.
Pan stressed the nature of any international currency as a "global public good" - which means nation-states that provide them must be subject to certain constraints and duties vis-a-vis their own fiscal and economic policies.
"Irrespective of whether it's one or several sovereign currencies that serve as the leading international currency, these nations must all bear corresponding responsibilities, including strengthening their domestic fiscal discipline and financial regulation, and driving economic structural reforms,” Pan said.
"For a single nation's sovereign money to bear [these responsibilities] will intrinsically lead to certain intrinsic instability issues.”
These include:
Conflicts of interest. "When the reserve currency nation's own interests conflict with its role as the provider of a public good, it will give greater emphasis to its own interests. This will undermine its provision of the public good."
Risk arising from defects in fiscal policy and financial regulation. "As internal economic structural contradictions continually accumulate, financial risk will spill over globally, or even evolve into a global financial crisis."
The geopolitical weaponisation of reserve currency status. "When geopolitical conflict, national security considerations or even wars arise, the international reserve currency is readily turned into a weapon or a tool."
For this reason, Pan argues that it is preferable for multiple countries to bear the burden of providing international monies, as opposed to just a single nation-state.
China's preferred option: the IMF's special drawing rights
China is currently driving the greater offshore usage of the renminbi, in a bid to raise its international financial clout, as well as as a contingency mechanism for sidestepping any payments sanctions imposed by Washington.
Given his explicit aversion to a single nation-state providing the global reserve currency, however, Pan does not advocate that the Chinese yuan replace the US dollar in its hegemonic monetary role.
He instead considers the special drawing rights (SDRs) of the International Monetary Fund (IMF) to be the optimum solution to the challenge of providing an international medium of exchange that isn't dependent upon a single nation-state.
"In theoretical terms, the SDR can effectively overcome the intrinsic problem of the international reserve currency being a single sovereign currency," Pan said.
"It provides stronger stability, and can better undertake the role of a global public good...it can adjust global liquidity and provide assistance in times of crisis, and possesses the hallmarks of a supra-national international money."
SDRs were first created by the IMF in 1969, to deal with the scarcity of foreign exchange reserve assets in the form of gold bullion or greenbacks.
Strictly speaking, SDRs are units of account that represent a claim to currency held by IMF member countries.
Their value is based on a basket of international currencies subject to review by the IMF once every five years. Since August 2023, this basket has consisted of five currencies - the US dollar (43.38%), the Euro (29.31%), the Chinese yuan (12.28%), the Japanese yen (7.59%) and the British pound sterling (7.44%).
Pan's advocacy of using the IMF's SDRs as a global reserve currency follows the lead of his predecessor, former Chinese central bank governor Zhou Xiaochuan (周小川).
Zhou most notably endorsed the use of SDRs in a speech delivered in March 2009, shortly following the onset of the Global Financial Crisis.
For Pan, China's role in supplying the global reserve currency will be confined to the yuan's participation as one of the constituent currencies of the SDR.
It's for this reason that Pan considers the yuan's rising prominence in the SDR basket to be one of the two landmark developments in the international monetary system over the past 30 years, alongside the launch of the euro.
"The renminbi has steadily ascended in international status since the 2008 Global Financial Crisis, and has become the world's second most important trade and financing currency," Pan said.
"It's now third in the IMF's SDR basket in terms of weighting."
Barriers to SDRs toppling the greenback
Pan does not believe the replacement of incumbent dollar hegemony with a multi-polar monetary system to be an easily achievable goal, pointing to major barriers on the road to adoption.
"We still face insufficient international consensus and motivation at the political level when it comes to the SDR becoming a global currency," he said. "At present the scale, depth and liquidity of the market is also insufficient."
In order to advance the role of SDRs as a global currency, Pan advocates gradual expansion of their usage, including:
Increasing the normalisation and scale of SDR issues. "At present, the IMF's allocation of SDRs is mainly for crisis handling, and mostly involves one-off large-scale issues.”
Expanding the scope of usage. "[We should] actively drive the private sector and various market entities to make broad use of SDRs for international trade, as well as investment and financing activities; issue bonds priced in SDRs, elevate the role of SDRs as a reserve asset, and establish SDR settlement mechanisms suitable for large-scale usage."