China pitches digital yuan to challenge dollar-led global currency system

To curb overreliance on a single currency, China is pushing for a multi-polar currency system with the digital renminbi at its centre

China has stepped up its efforts to reshape the global monetary order by promoting the renminbi as part of a "multi-currency system" that reduces the dominance of the US dollar.

 

At the Lujiazui Forum in Shanghai this week, People’s Bank of China Governor Pan Gongsheng said the international system is shifting towards a structure where several sovereign currencies coexist and counterbalance each other. Pan said global overreliance on a single currency creates systemic risks and compromises the fiscal stability of one country. He pointed to the renminbi’s growing role, citing its position as the world’s second-largest currency in trade finance and third-largest in global payments.

 

“These issues can overflow into the world in the form of financial risks, and even evolve into an international financial crisis,” Pan said. 

 

Renminbi’s gradual ascent post-2008

Pan framed the evolution of the monetary system as part of a broader trend that began after the 2008 financial crisis. Since then, the renminbi has steadily gained ground, especially in Asia and among developing countries with strong trade links to China.

 

He called for modernising cross-border payment systems using digital technologies, including China’s central bank digital currency (CBDC), to reduce reliance on what he described as outdated infrastructure dominated by the dollar.

 

The remarks come amid continued US-China tensions, despite a tentative pause on Trump-era tariffs. Pan warned that dominant currencies are often used as political tools, especially for sanctions, raising global interest in alternatives.

 

Infrastructure to support yuan-based trade

To support its strategy, China is expanding the infrastructure around renminbi-based transactions.

 

Beijing has increasingly settled its trade—particularly with nations such as Russia and Iran—in renminbi. These deals are often processed through smaller Chinese banks with limited exposure to US financial sanctions, allowing trade to continue without the associated dollar risks.

 

While the dollar remains the leading global currency by a wide margin, China’s approach targets incremental adoption in developing economies. The strategy emphasises “regionalising” the renminbi rather than full globalisation along Western lines.

 

Barriers to renminbi globalisation

Nonetheless, significant challenges remain. China’s strict capital controls continue to limit the renminbi’s utility in global finance, and its persistent trade surplus means most renminbi sent abroad quickly return in exchange for Chinese goods or to repay loans.

 

To address these limitations, the central bank is also looking to expand the Qualified Domestic Institutional Investor (QDII) scheme, enabling more onshore investors to access foreign assets. Regulators say the expansion aims to meet rising domestic demand for overseas investment opportunities.

 

Financial cooperation and strategic agreements

Meanwhile, Hong Kong and Shanghai authorities signed an agreement to enhance cross-border financial cooperation, especially in the management of renminbi-denominated assets. Pan also cited renewed interest in leveraging the International Monetary Fund’s Special Drawing Rights (SDRs) to reduce dependence on any single national currency.

 

The initiative aligns with similar sentiments from European leaders. European Central Bank President Christine Lagarde recently remarked that the dollar’s global dominance was “no longer certain”, suggesting an opening for the euro to grow in global finance.

 

By expanding renminbi-related infrastructure and fostering stronger financial partnerships, China is laying the foundation for a long-term shift in global trade and finance—one where no single currency holds a disproportionate sway.

 

(With inputs from Reuters)