US-China Competition and the Chinese Renminbi: a Strategy of Resilience First

China has been working hard for more than twenty years on building a more favourable position for itself in the global financial order, with the objectives of increasing the role of the CNY (Chinese Yuan), and of making itself less vulnerable to US pressures. Since the installation of a new administration in January 2025, the United States has been aggressively seeking to redefine its commercial, financial and strategic interactions with the rest of the world, and with China in particular. Current disputes and negotiations with China revolve so far more around tariffs, market access and export restrictions than about currency, but with the US keen to defend the dollar’s position at the heart of the international financial order, and with China having tried for decades to increase the international role of the CNY, currency-related questions will unavoidably move closer to the centre of the agenda. This article will look at how China defines its own strategic objectives at this critical time, and how it prepares itself for a potential showdown with the US.

Looming Frictions Over Currencies: What Does the US Want ?

The new US administration under Donald Trump has not yet formally formulated a doctrine about the future of the international financial order. A sure thing is that the President himself sees value in the coercive power deriving from the dominant position of the USD, going as far as threatening with punitive tariffs countries who would take actions undermining this position. Another idea promoted by a number of influential officials or advisers is that the way the financial order is currently wired leads to an excessively strong dollar, which is detrimental to the interests of American businesses. This indicates that the US preference would be to maintain the current order and the dominant role of the dollar, but with a lower exchange rate. This is explained very clearly in a memo by Stephen Miran, a key economic advisor to Trump, which advocates negotiating a "Mar-A-Lago" accord, a reference to the Plaza Accord of 1985 which resulted in a massive revaluation of the Japanese Yen. As pointed out by François Godement in an earlier paper for Institut Montaigne, "many of its far-fetched predictions have now turned into actions by the Trump presidency".

No matter what the overall US doctrine eventually turns out to be, the question of the currency will come to the table sooner or later, and the US is likely to try to obtain from China actions leading to a revaluation of the CNY. The reason why the currency issues have not been discussed earlier (at least publicly) is in Miran’s logic that the US first needs to put itself in a strong bargaining position by imposing tariffs before it starts discussing exchange rate; from China’s standpoint, it is also early in the game, and there is no point playing its cards now because the real objectives of the US are not fully clear yet.

How China See the International Financial Order 

For a long time China was not overly concerned about the world financial order, in which it was not an active participant. It began modernising its currency management system as soon as reforms began in 1979. It started with the commercial account, with FX transactions underlying commercial transactions almost fully liberalised by 2005. It left controls in place for the capital account, so as to be able to avoid excessive inflows (hot money) or outflows (capital flight), and keep the ability to set important parameters such as the FX rate or domestic interest rates at the levels it saw fit with the requirements of its economy, without pressure from the outside world. Even after WTO accession in 2001, China’s focus was on managing capital inflows and outflows, not on challenging the role of the USD or globalising the RMB.

In addition, China became extremely worried about its significant portfolio of US securities in the context of the Great Financial Crisis of 2008-2009. By 2009, China had gotten very frustrated about the functioning of the world monetary system with the USD at its centre. 

Taking Stock of Continuities and Changes in China’s Approach

The current Governor of the People’s Bank of China (PBOC, China’s central bank), Pan Gongsheng, took the opportunity of the Asian Financial Forum held in Shanghai in June 2025 to state for an international audience China’s views on the future of the international financial order and the roles of the Chinese Yuan (CNY) and the US Dollar (USD) in this order (see his speech here). Pan’s speech contained some significant clarifications and highlighted evolutions in China’s approach, which had been laid out publicly for the last time in 2009 by Zhou Xiaochuan, the then governor of the PBOC, in an essay published on the site of the Bank for International Settlement (BIS).

Pan first made sure to keep the International Monetary Fund (IMF) on China’s side by paying lip service to the idea floated fifteen years ago by Zhou of increasing the role of Special Drawing rights (SDRs, an international reserve asset created by the IMF and defined by a basket of currencies), even though he also acknowledged there are too many technical obstacles and no consensus for it to happen in the short term. With a review by the Trump administration of US membership in international organisations including the IMF due to be released any time soon, and a new round of discussions on the IMF’s governance long overdue, Pan positioned China as a defender of the IMF in case it is attacked by the US like other international institutions have been. He also reiterated its wish for adjustments to members’ voting rights so as to better reflect the reality of the world economy and the increased weight of developing economies.

Pan repeated earlier Chinese talking points about the inherent dangers of a system dominated by a unique currency: potential conflicts of interest for the country issuing the global currency, which may not share at all times the same challenges and objectives as the rest of the world; unavoidable exposure for the world’s other countries to potential economic problems in the issuing country, linked among other things to the necessity for central banks around the world to hold large amounts of securities for reserves purposes; and last but not least the risk of weaponisation of the leading currency by its issuer, for example through the instrumentalization of payment systems. This issue has become even more salient today due to the sanctions on Iran and Russia, but it was already a major concern at the time of US sanctions on Iraq.

Seen from China, the recent US administration’s behaviour, involving acting outside of the frame of international institutions, arbitrarily and erratically imposing tariffs, indulging in the use of financial sanctions, or adopting irresponsible fiscal policies, perfectly illustrates the dangers to international financial stability that China has repeatedly pointed out. China knows it will have many sympathetic listeners on this topic, and will not waste any opportunity to point out how the US is undermining the order it has itself built. 

Pan knows this, and he also knows his room for manoeuver is limited in respect of the liberalisation of the capital account, the most efficient measure he could take to promote the internationalisation of the RMB. China has been burnt before. Governor Zhou’s remarks in 2009 had signaled China’s intention to reduce the gap between its ambitions and the reality of the international stature of the CNY, by announcing a progressive easing of capital controls, with full convertibility presented as the endgame. Things did not work as planned, as China was hit in 2015 by a massive and rapid loss of reserves of almost 1,000 billion US Dollars, triggered by a miscommunication to the market about the management of the CNY’s exchange. This highlighted the risks of fully opening the capital account, and China’s leaders decided they were not willing to assume these risks. The capital account opening policy was not formally ditched, but China curtailed its ambitions and some of the previous liberalization measures were rolled back. Today, China is if anything keener on control in any form than ten years ago, and the current financial fragilities of its economy make it more worried than ever about the risks of capital flight.

This approach of course severely curtails the possibility of the use of the RMB to rise substantially. It does not however prevent China from continuing its efforts in other directions, doing whatever it can, short of removing capital controls, in order to reduce its vulnerabilities to a US-dominated financial order, and to benefit from the development of new financial technologies. Pan indeed emphasized that China has actually doubled down on some of the things it had started doing since 2009, like the provision of CNY liquidity to central banks through currency swaps, or the promotion of Hong Kong as an offshore market for the CNY. In the field of infrastructures, China’s initiatives include the building of CIPS (a payment infrastructure that can be an alternative to US-dominated CHIPS and SWIFT) and the development of the e-CNY, the first fully operational Central Bank Digital Currency (see here for details). A key point about these new infrastructure, incidentally, is that they are designed to be free from US interference, although this is not what Pan chose to highlight.

New Digital Infrastructures on the Way?

Presently the e-CNY is a purely domestic and retail-oriented digital currency. Technically it is a success: transactions worth more than CNY 700 trillion have been settled since it was launched formally in 2022, which is a big amount in absolute terms, although only a small fraction of total domestic retail payments. Alipay and Tencent are ubiquitous and the e-CNY hardly visible, as any recent visitor to China can attest. The authorities probably see the real value of the e-CNY not in the domestic market, where there are strong alternatives available, but more in cross-border payments, where alternatives remain relatively inefficient and not immune from foreign interference due to their reliance on traditional infrastructures and networks.

The e-CNY’s present relevance as a tool for de-dollarisation and sanction-avoiding is however limited, notwithstanding widely-spread speculation in the media to the contrary. Digitalisation does not in itself solve the question of what countries which accumulate CNY do with it and how they could invest it, be it fiat or digital CNY. Wholesale payments are much more important than retail ones for international payments, and there are many technical and legal issues to be solved before digital currencies can be used on a large scale across borders (for a technical explainer, see here). On this front however, progress may be on the way. China is driving an international project called mBridge, together with the central banks of Hong Kong, Thailand and the UAE (and Saudi Arabia just joining the club) aiming at making possible a cross-border usage of digital currencies for wholesale payments. mBridge has officially reached "Minimum-Viable-Product" (MVP) stage, meaning that a prototype has been found to be technically viable, and that work is starting on real-life applications. It would indeed be a very significant development if mBridge was to really take-off, much more concrete than anything discussed within BRICS countries, as it represents a completely new infrastructure for wholesale cross-border payments, operating outside of SWIFT and of the traditional correspondent banking networks.

Whatever the truth, there has been very little public communication on mBridge after the MVP announcement, and its real degree of advancement is uncertain.

Interestingly, this happens at the same time as the US has made it illegal for the Fed to even study the feasibility of any Central Bank Digital Currency (CBDC) project, illustrating the depth of the gap between the two countries’ visions of the future of the world’s financial systems. Crypto-currencies is another area where the gap is obvious. China imposed a complete ban on crypto-currency activities in September 2021. This came as a reaction to the shock of the announcement by Facebook of the Diem/Libra project in 2019 and in the context of growing concerns within the Party about the potential influence of the corporate giants of the digital businesses. Control remains a crucial consideration for the Chinese authorities in the field of currencies, digital or otherwise. With hindsight, however, a total ban may have seemed a bit rash, and in March 2025 the Hong Kong authorities, with the full support of China and the PBOC, passed a bill authorising and regulated the issuance of stable-coins (digital crypto-assets designed to replicate the properties of fiat currencies), and their issuers are usually required to back the stable-coins they issue with equivalent amounts of fiat assets, cash or securities; they are considered less dangerous for financial stability than other crypto-assets. The Hong Kong Monetary Authority soon clarified that it would consider approving various types of stablecoins, including CNY-backed ones. This is a clever move by China: using Hong Kong as a sandbox for experimentation allows it to keep abreast of developments and innovations in the crypto area, but with the possibility to intervene and stop any development it would not approve of. It also mitigates the downside for China of leaving the field free for the US, which actively supports the development of crypto businesses and has just approved the Genius Act, a piece of legislation providing a very favourable environment for stablecoins. China may also hope that if successful the development of CNY-backed stablecoins will stimulate the demand for assets needed for collateralisation (such as Chinese Government bonds), similar to what the US is thinking in respect of USD-backed stablecoins.

Finally, China has also taken steps to decrease its exposure to the USD. It has been an important buyer of gold in the market. Available data show that its purchases of US Treasuries have decreased over the last few years. Precise quantification is difficult, as the PBOC stopped publishing a breakdown of its reserves since 2018, but also because it appears that it has also mandated some of its large state-owned banks to hold treasuries on its behalf. These banks then may hold them through various sub-accounts with other international non-Chinese banks, so that even if we are not sure whether China’s exposure has decreased in absolute terms, these assets would be more difficult to seize in a scenario of open conflict.

Results Appear Modest so Far, but There is More Than Meets the Eye

At first glance it may seem that China does not have much to show for its efforts: according to a currency globalisation index calculated by the Fed, the US Dollar scores 70 (on a scale of 0 to 100), and the CNY less than 5, with only small progress in the last ten years.

Narrower indicators confirm this general trend: the share of the CNY in global payments according to SWIFT is slightly less than 3% as of July 2025, and has actually slightly decreased in the last two years. The CNY accounts for only around 2% of global central banks reserves, versus close to 60% for the USD and 20% for the Euro. The main area where the CNY has progressed is trade finance, with a share of close to 6% as of 2025 compared to only 2% in 2021 in transactions processed through Swift. The CNY has just overtaken the Euro and ranks second, far behind the USD, still arch-dominant with a share above 80%. The progression of the CNY reflects that a growing part of China’s international trade is conducted in CNY (including a one-off effect after Russia started selling its oil to China in CNY rather than USD). The usage of the CNY among third parties remains however negligible.

China has only limited room to accelerate the adoption process of the CNY, and arm-twisting or cajoling does not work with everybody. The main reasons why CNY adoption is so slow is that the barriers to change are formidable, and the dollar well entrenched. The dollar benefits first from powerful network effects: when several systems are in competition, the more dominant a system becomes, the more it makes sense for users to join this system. There is also a natural inertia which encourages users to keep on doing what they are used to doing: users will not adopt a new system (or a new currency) if shifting only provides them only with marginal benefits. The combined effect of these two factors is that the perceived benefits of a change need to be very material. In the case of the CNY and of the new payment rails China is building, the "user case" is simply not strong enough at this point. The slow adoption of the e-CNY in the domestic market mentioned above illustrates the dynamic at play here: it may work perfectly well, but what is the point of adopting it when Alipay already offers a very satisfactory experience, and one’s day-to-day life is organised around it? It is the same for central banks or corporations mulling over adjusting their currency habits.

China’s efforts however are not completely wasted. Even if CNY actual usages have not increased that much yet, China has at least established credible alternatives, or is in the way of doing it in the case of digital currencies. Countries or corporations who were mainly using the USD for their transactions ten years ago are still doing so, but compared to ten years ago they have an option of using CNY should they wish to do so, which they did not have before. What China has bought itself is resilience, in case its access to the USD and its related infrastructures was compromised or threatened.

Energy producing countries, contrary to expectations, have not rushed into using the CNY instead of the USD in their transactions with China after 2022 (apart from those like Russia and Iran who had no choice), in spite of the psychological shock caused by the sanctions on Russia. There may be many reasons for this but an important one is likely that switching would have led them to accumulate CNY and increase its weight in their reserves, and therefore left them exposed to new uncertainties in respect of the management of these reserves. In a context where tensions between China and the US would increase, with financial sanctions being threatened or imposed, the trade-offs of a switch would change, as using CIPS (or MBridge when it becomes operational) would allow them to keep on selling their oil but with a lower risk of being hit by sanctions. The very existence of these new financial "pipes" makes a difference.

King CNY? a Long Way to Go…

Many different trade-offs and outcomes are possible for the forthcoming negotiations. The US has the upper hand in financial terms with the coercive power of sanctions, but does not enjoy with China the kind of strategic and military leverage it had over Japan at the time of the Plaza Accord, or that it has today over Europe. During the 2000s, when facing US demands that it revaluates its currency, China did it but only in a limited way and at its own pace. Since that time it has made itself less vulnerable to pressure by building alternatives and opening options. The only sure thing is that each side can inflict a lot of pain to each other.

The reactions of the markets after Trump announced sweeping tariffs on the so-called "Liberation Day" were a warning signal in this respect: US interest rates rose and the exchange rate came under challenge. This was the first time in a situation of global crisis when investors ran away from the dollar rather than looking at it as a refuge, showing the US had overplayed its hand. If the existing order started to crumble from inside, China would be positioned to pick up the pieces. 

Copyright image : Pedro Pardo / AFP
Pan Gongsheng, Governor of People’s Bank of China, during the second session of the 14th National People's Congress (NPC) in Beijing on March 6, 2025.