China’s central bank throws weight behind new, emerging global currency system

China’s top monetary official said the global financial system is moving away from the US dollar, and China wants to push the renminbi into a more dominant role.

Speaking on stage at a financial forum in Shanghai, Pan Gongsheng, governor of the People’s Bank of China, said the world is entering a new phase.

After decades of US control over international currency flows, Pan said a “multi-polar international monetary system” is emerging. He warned about the dangers of “excessive reliance” on one currency and said the global economy may soon be run by several sovereign currencies that keep each other in check.

According to the Financial Times, Pan said the rise of the euro and China’s own renminbi since the 2008 financial crash were the biggest changes to the global system in the last 20 years. He described the renminbi as already being the world’s second-largest trade finance currency and third-largest for payments.

The message was simple: the renminbi isn’t coming — it’s already here. And China is ready to go further.

China builds out global payments and currency infrastructure

Pan’s comments followed a statement by Christine Lagarde, president of the European Central Bank, who said the “dominant role of the dollar” is “no longer certain.” She suggested the euro might take up more global space. But while Europe talks, China acts. 

On the same day Pan gave his speech, six foreign financial institutions — including OCBC Bank in Singapore and Eldik Bank in Kyrgyzstan — announced they were joining CIPS, China’s alternative to the Swift payment system.

China also announced a new digital renminbi operations center in Shanghai, expanding its digital currency program internationally. And in a move to link mainland and offshore money markets, authorities in Hong Kong and Shanghai signed an agreement to cooperate on how renminbi-denominated assets are managed and traded.

Pan also said China and the ECB had signed a new memorandum of understanding on central banking, including a plan for regular dialogue on policy. He argued that dollar dominance makes the global system unstable during political or military conflict. 

“When geopolitical conflicts, national security interests or even wars occur, the international dominant currency is easily instrumentalised and weaponised,” Pan said. He also spoke about Special Drawing Rights, or SDRs — a currency basket maintained by the IMF — as a possible solution to dependence on a single currency.

Zhu Hexin, deputy governor of the PBoC and head of the State Administration of Foreign Exchange, said China will expand the Qualified Domestic Institutional Investor scheme, which lets investors in China buy assets overseas.

China slams G7 over trade attacks and currency criticism

Tensions between China and the West are rising in every direction. During the same week as Pan’s speech, the Group of Seven nations issued a statement demanding that China “refrain from market distortions and harmful overcapacity.”

The joint declaration, backed by Canadian Prime Minister Mark Carney, also criticized Beijing’s rare earth exports, its economic practices, and its actions in the East and South China Seas.

China’s Ministry of Foreign Affairs spokesman Guo Jiakun dismissed the statement as “irresponsible,” “manipulative,” and a “smear.” He said it violated international norms and interfered in China’s internal business.

Guo rejected claims that China was flooding global markets or distorting competition. He said the accusation of overcapacity was just a “pretext for trade protectionism” and an excuse to block Chinese growth.

Guo also called out Ursula von der Leyen, the European Commission President, who described current trade conditions as another “China Shock.” She accused China of using control over rare earth exports and subsidized industries to damage competitors in key sectors. “As China’s economy slows down, Beijing floods global markets with subsidized overcapacity that its own market cannot absorb,” she said.

That triggered another rebuttal. Guo said, “China’s industrial subsidy policy has always adhered to the principles of openness, fairness and compliance.” He said Beijing had always acted within WTO rules and argued the European Union had walked away from economic dialogue.

Talks for an economic meeting between China and the EU were canceled due to lack of progress on trade issues.

Guo ended by calling for cooperation, not conflict. “We hope that the EU can work with China to jointly create an open, transparent and non-discriminatory business environment to promote the common development and mutual benefit of both sides,” he said.

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