Xi Jinping revives yuan reserve currency campaign
Chinese President Xi Jinping is reigniting his enduring goal to establish a “strong currency” capable of competing with the US dollar, amid growing skepticism in global markets regarding the dollar’s supremacy and increasing financial risks worldwide. According to a report, China is set to develop a “strong currency” aimed at achieving widespread use in international trade, investment, and foreign exchange markets, with the goal of attaining global reserve status. Excerpts from a 2024 speech by Xi, published on Saturday by Qiushi, the ruling Communist Party’s top theoretical journal, underscored the goal. Xi delivered his remarks during an address to provincial and ministerial officials regarding China’s strategy to establish itself as a global financial powerhouse. Excerpts from Xi’s speeches are frequently republished to emphasize enduring national priorities. This time, attention on currency strength arises as global financial markets encounter volatility and confidence in the US dollar exhibits indications of strain. Xi has consistently emphasized in previous addresses that China needs to diminish its dependence on foreign currencies and enhance the yuan’s status on the global stage as a component of comprehensive financial reform. Xi pledged to reduce financial risks and enhance the strength and global acceptance of China’s currency. This has heightened anticipations that China will accelerate its initiatives to advance the yuan on a global scale. “What constitutes a strong financial nation?” Xi had stated. “First, it should have a powerful currency, widely used in international trade, investment, and foreign exchange markets, holding the status of a global reserve currency.” These remarks originated from a speech delivered by Xi in 2024 and were published on Saturday by Qiushi magazine, as reported. Xi stated that China’s financial system has grown increasingly complex, with risks now more interconnected. As a result, the prevention of risks has emerged as “an eternal theme”.
“If finance becomes preoccupied with self-circulation and self-expansion, it will become water without a source or a tree without roots, inevitably leading to a crisis,” Xi stated. He also emphasized the importance of a robust central bank and effective financial institutions capable of managing risks effectively. The excerpts outlined what Xi characterized as the essential attributes of a financial powerhouse — “a strong economic foundation”, global leadership in technology and industry, and a currency that is widely used and trusted across the world. “He said a strong financial system also needs an effective central bank, a sound monetary policy, strong risk control, globally competitive financial institutions and international financial centres with pricing power.” Xi also stated that although China ranks among the world’s largest economies regarding banking assets, foreign exchange reserves, and capital markets, it remains “big but not strong.” He stated that establishing a genuinely robust financial system would require time, as reported. Beijing has been advocating for the internationalization of the yuan for more than a decade, and the currency is now increasingly utilized in China’s trade settlements. However, its global reach continues to be constrained.
According to the report, China’s Cross-Border Interbank Payment System processes approximately 700 billion yuan, equivalent to around $100 billion, on a daily basis — significantly less than the nearly $2 trillion managed each day by the dollar-based Clearing House Interbank Payments System. Debt denominated in yuan constitutes a mere 0.8 percent of the global market. In the face of trade tensions with the US, the yuan has maintained its strength over the past year. This stands in stark contrast to the significant depreciation observed during Donald Trump’s first term, a period characterized by market speculation that Beijing permitted the currency to weaken as a countermeasure to tariffs. Despite this, numerous analysts assert that the yuan continues to be undervalued. In a report dated January 5, analysts from Goldman Sachs indicated that the currency might be trading approximately 25 per cent below its fair value in relation to the dollar, according to the report.
