On Saturday, Chinese President Xi Jinping made it public: he wants the renminbi, China’s currency, to become a “powerful currency” that ultimately replaces the dollar as the global reserve currency – that is, the one most held by central banks worldwide.
The remarks, shared in the Communist Party’s flagship journal, were originally part of a speech Xi delivered privately to regional officials in 2024. So why did Xi release them now? It may have something to do with the dollar weakening since US President Donald Trump returned to office.
“The news appeared in the party journal called Qiushi, which signals strong intent,” said David Meale, Eurasia Group’s practice head for China.
But, given that the renminbi accounts for less than 2% of global currency reserves, is this remotely realistic?
There’s a debate over whether the dollar’s status as the global currency is even under threat. On the one hand, the value of the dollar has declined by roughly 12% since Trump returned to office last year. The share of USD in central bank reserves is at a two-decade low. And some countries are turning away from the dollar in commodity trading, buying sanctioned Russian oil with their local currency.
The dollar has lost some of its strength due to the US president’s tariffs and his foreign policy, as well as mounting polarization in the US, all of which have created uncertainty around the dollar. The ramifications stretch beyond currencies: gold prices have shot up as investors seek a safe haven elsewhere.
“Whereas a few years back, one would have been hard-pressed to foresee a world without dollar dominance,” Steven Kamin and Mark Sobel, two former federal officials, wrote recently in the Financial Times, “now one can readily imagine such a disorder emerging in the coming decades.”
Yet the dollar remains the behemoth of the currency world. It accounts for 57% of global currency reserves. It remains essential to foreign-exchange trading and foreign currency debt issuance. Emerging market economies – China aside – rely heavily on it, lending them security in times of stress.
“The dollar is not going to stop being the world’s reserve currency,” said Rob Kahn, Eurasia Group’s managing director for Global Macro. “It’s still the primary liquid market.”
But suppose that the greenback’s slide continues, creating space in the long run for the renminbi to become the new global reserve currency. What would China have to do to make this happen? And what would the ramifications be?
Firstly, Beijing would have to open its capital account, meaning it would end limits on foreign investment and allow Chinese households to move money abroad. China would also have to make the renminbi easily convertible into gold or other currencies – Right now, the People’s Bank of China manages the currency, rather than letting it float freely. The country would also need to let the renminbi appreciate, something that it has stymied for fear of its exports dropping.
Some of this is unlikely to happen in the near term, according to Kahn, since Xi won’t be willing to give up such control and will be reluctant to undermine its export-heavy economy. Pangea-Risk’s Head Asia Forecasting Saif Islam concurs, but expects some changes in the longer run.
“We are likely moving toward a slightly more multipolar system in which the renminbi plays a bigger supplementary role, rather than replacing the dollar,” Islam told GZERO in a statement. “It will take a long time and considerable institutional reforms before investors and central banks start to see the renminbi as a genuinely safe, liquid, and reliable alternative to the dollar.”
If this all did happen, the ramifications would be massive. The US enjoys major benefits from having the global reserve currency. It cuts the chances that the US faces a currency crisis – something other countries have faced, notably Argentina. It also lowers costs for US borrowers and, not to mention, offers significant geopolitical power, as the US can enforce sanctions by blocking countries from using international payment systems like SWIFT. That leverage was on display when certain Indian and Chinese refineries stopped buying Russian oil after Washington sanctioned Moscow’s two largest crude producers last year.
If the renminbi replaced the dollar as the global reserve currency, all these benefits would instead accrue to China – this explains why some financial observers have been so critical of the Trump administration’s policies.
“[Trump’s] policies are undermining people’s confidence in the investment environment, and it’s hurting the dollar,” said Kahn. “I don’t think that’s a good thing for the US at all.”
