US considers global dollar strategy to curb China’s currency reach

The United States is quietly considering a new strategy to significantly expand the dollar’s presence in global markets, amid China’s growing efforts to challenge the greenback’s dominance.

People familiar with the talks say that senior Trump officials in the administration have convened a series of high-level meetings since August to explore how the United States can persuade more foreign countries to use the US dollar as their primary currency or reserve currency.

Discussion participants include the Treasury, the White House, and the President’s Council of Economic Advisers, as well as outside experts such as Steve Hanke, a Johns Hopkins University economist best known for his work on currency stabilization and currency denomination. 

Hanke reported that the policy discussions concerned were not to be mentioned, but rather that the matters were deliberative in nature. He added that Washington was becoming increasingly concerned over China’s de-dollarization aspirations, which entail using the yuan and other currencies for foreign commerce, thereby challenging the dollar’s global dominance. 

A spokesperson for the White House confirmed that the meetings with experts had indeed taken place and stated that the administration routinely receives input on significant economic issues. Nonetheless, the spokesperson stated that the administration had yet to make a final decision on the strategy.

Beijing’s currency diplomacy alarms Washington

China’s intention to oppose the US dollar persists as the country accelerates its global campaign to promote the yuan. This includes signing currency-swap agreements with its main trading partners and promoting local currency settlements to limit the dollar’s clout. 

Most recently, Beijing extended and doubled the size of its 360 billion yuan swap line with South Korea, a move analysts view as an essential aspect of wider efforts to promote the yuan internationally and create financial reserves against Western sanctions. 

Moreover, China has also expanded Chinese yuan oil and gas trading with Russia and the Gulf as another indicator of Beijing’s ambition to undermine the dollar’s primacy in world energy pricing. Bank for International Settlements data show that the yuan accounts for over 5% of global payments, its highest share to date. 

In Washington, the phenomenon raises concerns. Administration officials call it a “slow erosion” of one of America’s most valuable instruments: the unrivaled function of the dollar in the global financial order. 

A senior official with experience in the field stated that the issue was not merely economic, warning that the United States could lose many of its key tools and a significant portion of its influence in areas such as sanctions, trade, and diplomacy.

Targeting dollar adoption in struggling economies

Some in the administration explore ways to counter China’s economic influence by promoting “dollarization” in finance-vulnerable states. 

According to Hanke, they identified several emerging markets as likely candidates for the US dollar, comprising Argentina, Lebanon, Ghana, Pakistan, Egypt, Turkey, Venezuela, and Zimbabwe. 

In particular, Argentina remains a focal point. The country is currently facing another wave of currency instability, with the annual inflation rate exceeding 200% at the start of the year.

Argentina had a currency limit in place for over a decade, from 1991 to 2002, when it was abandoned during an unprecedented economic collapse. According to well-known economist Jay Newman, a former partner at Elliott Management, full dollarization of the Argentine economy may finally “break the cycle” of constant devaluations and massive capital flight.

Nevertheless, critics, such as the International Monetary Fund, warn that eagerness for dollarization puts a foreign policy issue into the hands of Washington. 

Moreover, in addition to physical currencies, the United States resumed its interest in the dollar’s global application in digital finance. Those close to the talks claim this administration deems the dollar-backed stablecoins and blockchain-based payment systems a convenient modern tool to secure the US dollar’s central international role. 

Hanke clarified that the Treasury is also researching how some of the recent advancements can assist the US in controlling the growing national digital currencies that have emerged in recent years.

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