Chinese President Xi Jinping has greenback envy. He revealed last week that one of his top priorities is replacing the dollar with the Chinese renminbi as the world’s leading global reserve currency. Fortunately, Xi is in no position to achieve his vision absent self-sabotage by the United States and free market reforms he is hesitant to undertake.
Xi seeks to capitalize on the dollar’s value slipping to a four-year low and gold recently hitting an all-time high amid uncertainty caused by President Donald Trump’s tariffs, threats to Federal Reserve independence and myriad geopolitical crises.
For all its economic and military clout, China’s renminbi, also known as the yuan, is a currency pygmy. It accounts for 2 percentof global reserves, compared to 57 percent for the dollar.
That’s quite a drop-off for the greenback, which accounted for 70-plus percent of global reserves in 2000. But the biggest beneficiary has been the euro rather than a currency from an authoritarian regime with strict capital controls.
China is banking on expanding its alternative financial network, called CIPS, to rival the Western-led, Belgium-based SWIFT system. CIPS, which launched in 2015, says it links more than 5,000 banks across 190 countries. Russia, blocked from the SWIFT networkafter the 2022 Ukraine invasion, is a major user.
But CIPS is still no match for SWIFT, which connects over 11,500 financial institutions in 220 countries and territories. Moreover, 80 percent of CIPS transactions rely on SWIFT’s messaging system to work.
China has had limited success promoting its currency for trade within the BRICS, a group which originally included Brazil, Russia, India, China and South Africa and has expanded to another half dozen midsize countries. But efforts to develop a BRICS currency stalled after Trump threatenedto impose 100 percent tariffs on any country that joined.
Becoming the world’s reserve currency would come with costs China is unwilling to bear. The biggest is making the renminbi freely convertible. China’s central bank tightly controls the value of the yuan, and the government strictly limits the amount of renminbi allowed to leave the country. It would also require more transparency and predictability around rulemaking and market interventions. That’s anathema to Xi.
A former French president once referred to the dollar’s global status as America’s “exorbitant privilege” because it allows lower borrowing costs. It achieved this special status organically because of trust in U.S. institutions, stable governance and open markets. That comes from history and experience, not an autocrat’s edict. The U.S. can squander those assets faster than China could ever seize them.
The post China’s ill-fated gambit to dethrone the dollar appeared first on Washington Post.
