Why China wants to avoid global monetary hegemony

While still seeking international reserve currency status for the renminbi.

Much ado is being made right now about Xi Jinping’s ambitions to transform the renminbi into a global reserve currency, potentially ousting the US dollar from its hegemonic position in the world monetary system.

The source of this uptick in Western discussion of renminbi internationalisation is a recent Financial Times article entitled “Xi Jinping calls for China’s renminbi to attain global reserve currency status.”

That article, and others that followed swiftly in its wake, cited remarks made by Xi in an article published on 31 January by Qiushi - the Communist Party’s theoretical journal.

The article “Walking the Path of Financial Development with Chinese Characteristics and Establishing a Great Financial Nation” (“走好中国特色金融发展之路，建设金融强国”) is in turn based largely upon a speech delivered by Xi at a meeting of the Central Financial Work Conference in October 2023 - over two years prior.

Xi is quoted as saying that a “great financial power” must possess a “great currency that is widely used in international trade and investment and on forex markets, and possesses global reserve currency status.”

The source of the Qiushi piece firstly indicates that China’s plans for greater renminbi internationalisation have been brewing for quite some time, and do not mark an abrupt departure from course for Beijing.

The timing of its publication further indicates that China’s plans for renminbi internationalisation are now gathering greater impetus, no doubt due to Donald Trump policy decisions since the start of his second term in office as US president.

The Chinese Politburo’s proposal for the 15th Five Year Plan - the blueprint for China’s economic and social development from 2026 to 2030 - calls for “driving renminbi internationalisation, raising capital account opening and establishing a sovereign and controllable renminbi cross-border payments system.”

Further scrutiny of China’s economic discourse would indicate, however, that Beijing views renminbi internationalisation as a timely - and necessary - strategic response to US policy, as opposed to a play for global monetary dominance which would impose upon it needless burdens and costs.

“Dollar weaponisation” as driver of renminbi internationalisation

A highly prevalent view within China is that this greater push for internationalisation of the renminbi is a natural and inevitable response to mounting tensions between Beijing and Washington ever since Trump’s first term in office.

Domestic pundits such as Lian Ping (连平), director of the China Chief Economist Forum, make frequent reference to the need to counter what they refer to as “weaponisation of the dollar” by Washington, as embodied by its demonstrable propensity to apply financial sanctions against Russia and Iran.

“Accelerating the internationalisation of the renminbi isn’t just an economic necessity - it’s even more a critical means for raising national financial security and strategic sovereignty,” Lian said during the keynote speech delivered at the 2025 Yicai FInancial Value Summit held in November last year.

Lian expects the period of the 15th Five Year Year Plan to provide especially propitious conditions for driving greater international usage of the renminbi, as part of Beijing’s efforts to shore up China’s strategic economic interests.

Chief amongst these conditions is what he believes to be declining confidence in the US as world leader, in the wake of Trump’s mercurial tariffs war, which has prompted major Western powers to make surprise overtures towards Beijing.

Xi Jinping’s push for capital markets to play a greater role in China’s financial system is another factor that will support renminbi internationalisation over the upcoming five years.

Beijing’s plan is for capital markets to give much needed support to the funding of innovative tech companies, while also creating wealth effects for retail investors which could help to boost domestic consumption.

Should capital controls be suitably relaxed, this plan will provide international investors with a broader smorgasbord of yuan-denominated assets, as well as convenient opportunities to profit from the rise of the Chinese tech sector.

Finally, Lian expects rapid expansion of trade relations with other nations - especially in ASEAN and Latin America, to continue, as China’s export sector seeks to compensate for potential roadblocks to trade with the US and EU.

This growth in multi-polar trade will provide far greater opportunity for renminbi settlement during cross-border transactions, as well as support use of the renminbi for the purchase of critical goods and commodities.

“The renminbi’s share in energy and mining deals is steadily rising - including for oil, natural gas and iron ore transactions,” Lian said.

Renminbi internationalisation will spur the rise of Chinese finance

In addition to serving as a strategic necessity, top economists in China also see internationalisation of the renminbi as having positive impacts on the financial system - in particular the ongoing process of reform and opening.

Miao Yanliang (缪延亮), chief strategist with China International Capital Corporation (CICC) and formerly the chief economist of the State Administration of Foreign Exchange, views renminbi internationalisation as a powerful engine for driving the maturation of China’s financial sector and addressing its long-standing defects.

“The development and openness of China’s financial system is inadequate,” Miao wrote in a recent opinion piece entitled “Raising the Status of the Renminbi as Reserve Currency” (提升人民币储备货币地位) published by CICC.

In addition to spurring the development and openness of China’s financial sector, Miao expects renminbi internationalisation to drive improvements to credit and risk assessment systems, as well as mechanisms for dealing with bond defaults.

He sees renminbi internationalisation as having especially strong benefits for China’s debt markets on two key fronts.

Miao firstly expects it to push regulators to improve liquidity conditions on China’s bond market, by dealing with the issue of a lack of market makers.

“Because of the lack of market makers, if the market sees a large-scale withdrawal, it’s very easy for liquidity events to arise,” he writes.

Miao wants China’s bond market to gradually shift towards a mature two-tiered structure that segregates the market for dealers from the market for investors, while expanding the scope of participants in the market for treasury bond futures to augment liquidity conditions.

At a deeper level, Miao sees the participation of a greater number of foreign investors in China’s bond market as pushing Beijing to deal with embedded defects in the credit ratings system.

These include distorted incentives arising from China’s use of the same issuer-paid commission model that caused problems in the US prior to the Global Financial Crisis, as well as the presence of “implicit guarantees” and “soft budget constraints” for local government issuers, making it difficult for investors to apply a unified framework to the pricing of credit.

Monetary hegemony is too burdensome for Beijing

Despite all the positive collateral benefits that China could derive from pushing for renminbi internationalisation, other top pundits caution against overstepping the mark and seeking outright monetary hegemony.

At the end of January Zhang Chun (张春), professor of finance at Shanghai Jiaotong University, issued a public warning against the perils of China pursuing global monetary dominance on its own.

“In the event that the US dollar rapidly declines, China should still not try to be number one, or seek monetary hegemony,” Zhang said in an interview with Guancha.

Zhang sees renminbi hegemony as having dire impacts upon China’s real economy that would outweigh the strategic advantages it confers.

“If China claims monetary hegemony, then it will immediately encounter the same problems as the US,” he said.

“The currency will be greatly overvalued, people will all buy up the renminbi, and as a consequence, the competitiveness of China’s export sector could disappear.

“It would be better for us to put the real economy first - as monetary hegemony definitely has negative impacts on the development of the real economy.”

Zhang instead advocates divvying up the burden of serving as global reserve currency with the US - an arrangement which would shore up China’s economic security without saddling it with needless disadvantages.

“In actuality, China could shift towards sharing the burden of costs between the renminbi and the US dollar,” he writes.

“Becoming the monetary hegemony or the chief international currency certainly has many great advantages, but it also requires bearing very great costs.

“If a nation bears these costs, it will eventually run into the problems that the US has.

“As a consequence, I do not believe that China should pursue the path of monetary hegemony.”