Chinas Vision for a Multi-Polar Global Currency Order: A Shift Towards a More Competitive System

In a keynote speech at the annual Lujiazui Forum in Shanghai, the Governor of the People’s Bank of China, Pan Gongsheng, outlined his vision for the future of a new global currency order after decades of dollar dominance. He predicted that a more competitive system will take root in the years to come, with a few sovereign currencies co-existing, competing, and checking and balancing each other. Pan noted that there have been discussions around the world on how to reduce excessive reliance on a single currency, and the yuan’s global status has risen in recent years. Confidence in the US is waning after months of President Donald Trump’s erratic policymaking, and investors have been trimming dollar holdings of late. This has prompted European Central Bank President Christine Lagarde to talk about a potential “global euro moment.” Since Trump reclaimed the White House this year, the dollar has lost more than 10% of its value against the euro, pound, and Swiss franc and is down against every single major currency in the world. Pan referenced comments from the ECB, saying that the US dollar’s dominance is increasingly uncertain and the euro may play a more important role globally. Lagarde made a rare visit to Beijing last week and held talks with Premier Li Qiang, as China’s No. 2 official called for greater cooperation between his country and the ECB. China has been positioning the yuan as a rival to the US dollar, an extension of efforts by President Xi Jinping to build China into a financial power with a currency that’s stable enough to play a rising role in global trade. The tariff risks this year have intensified that initiative, with some US exporters asking for settlement in alternative currencies, including the yuan, to contain the impact of the dollar’s swings. Pan announced several measures that will be implemented in Shanghai to open up China’s financial markets and promote its currency’s global reach. These include setting up an operations center to advance the digital yuan’s internationalization and exploring yuan futures trading, which would increase the variety of products available for currency traders. The PBOC will also encourage trade companies to issue offshore bonds in the city. Pan also addressed countries whose currencies are widely used around the world, calling on them to shoulder their responsibilities by pushing for economic structural reforms and strengthening domestic fiscal discipline and financial regulation. The global monetary system’s evolution toward a more multi-polar pattern can make it more resilient and beneficial to global financial stability, according to Pan. It can also push countries to improve their policy discipline, he said. One of the options is to promote a super-sovereign currency, and International Monetary Fund reserve assets known as special drawing rights (SDRs) have been considered a choice. However, there’s a lack of consensus on promoting SDRs as an international currency, and there needs to be more regular and larger issuance of them to achieve it since the asset is now primarily used in times of crisis. Pan also reiterated a call for reforming the IMF’s quotas, which determine contributions and voting rights at the institution, to better reflect the rising share of emerging economies in world output. The global cross-border payment system is becoming more diverse as an increasing number of countries promote settlement with their own currencies.