Zhang Ming: China Should Seize New Opportunities to Internationalise the Renminbi

CASS economist calls for a substantial increase in Chinese government bond issuance, expanded supply chain financing, and stronger cross-border payment systems to boost the renminbi's global reach.

China should seize an opportunity to expand the international role of the renminbi as confidence in US financial assets comes under pressure and the Japanese yen loses ground as a global funding currency, said to Zhang Ming, Deputy Director of the Institute of World Economics and Politics, Chinese Academy of Social Sciences (CASS), and Deputy Director of the National Institution for Finance and Development.

In a speech delivered at Shanghai Jiao Tong University on 24 September, Zhang argued that China should expand the use of the renminbi in commodity pricing and invoicing, substantially increase the issuance of RMB-denominated government bonds to provide global investors with safe assets, develop the renminbi as an international funding currency, and strengthen cross-border payment and settlement mechanisms.

Zhang also explained how China’s approach to currency internationalisation differs from that of the United States. The United States supplies dollars to the rest of the world through current account deficits and draws them back through financial account surpluses. China, by contrast, supplies renminbi overseas through financial account deficits and brings the currency back through current account surpluses.

The transcript of Zhang’s speech was published on his personal WeChat public blog on 16 October 2026.

货币国际化的中国路径

A Chinese Path for RMB Internationalisation

Good afternoon, everyone. I found Professor Pan Yingli’s and Yang Changjiang’s remarks very enlightening. Earlier this year, I wrote several pieces on RMB internationalisation, arguing that a window of opportunity may have opened for its faster development, at a time when the international monetary system is itself undergoing rapid change.

Miao Yanliang recently published an excellent book entitled 货币的秩序 (The Order of Money). His previous book, 信心的博弈 (The Game of Confidence), is, in my view, the best book on central banking published over the past decade. He and I share several similar perspectives on the evolution of the international monetary system.

I would like to address two issues. First, the international monetary system may have reached a point of accelerated change. Second, the strategy for RMB internationalisation needs to be updated once again. Many of my views are similar to those expressed by Professor Pan and Professor Yang.

So far, the international monetary system has gone through four regimes: the classical gold standard, which began around 1870; the gold bullion and gold exchange standards; the Bretton Woods system; and the Jamaica system.

These concepts are familiar, so I will briefly explain only the gold bullion standard and the gold exchange standard. Under the gold bullion standard, only large sums of money could be exchanged for gold. In effect, convertibility was restricted because central banks had limited gold reserves. Under the gold exchange standard, a country’s currency could not be converted directly into gold. Instead, it was pegged at a fixed exchange rate to the currency of a country on the gold standard, allowing it to be converted into gold indirectly.

As you can see immediately, the Bretton Woods system was essentially a dollar-based form of the gold exchange standard. Other countries pegged their currencies to the US dollar, while the dollar was pegged to gold and remained freely convertible into gold.

I will not elaborate on the evolution of these four regimes, but there is one underlying trend worth emphasising. Throughout this evolution, the link between currencies and gold progressively weakened. Initially, currencies were fully backed by gold, but this relationship gradually loosened until the Jamaica system brought about a complete separation. Correspondingly, international currencies became increasingly dependent on credit and confidence.

Let us briefly examine the characteristics of the current international monetary system.

First, the US dollar serves as the dominant global currency. Other currencies also play international roles, but their importance is nowhere near that of the dollar.

Second, the United States supplies dollar liquidity to the rest of the world through persistent current account deficits, thereby meeting global demand for international liquidity.

Third, gold no longer serves as the system’s monetary anchor. The new anchor is confidence in the independence of the Federal Reserve’s monetary policy. In other words, market participants assume that the Federal Reserve will, at a minimum, pursue monetary policies that are responsible for the US economy. This expectation constrains excessive money creation and helps maintain the stability of the dollar’s exchange rate.

Fourth, some recent academic studies offer a new interpretation of the system. Under the Jamaica system, the United States effectively provides macroeconomic insurance to the rest of the world. Other countries primarily hold US Treasury securities, while the United States mainly holds risky assets overseas.

When global financial markets experience turbulence, the prices of risky assets fall while those of US Treasuries rise. This effectively means that the United States is paying insurance claims to the rest of the world. Conversely, when financial markets prosper, risky asset prices rise while Treasury prices fall, meaning that the United States is collecting insurance premiums from the rest of the world.

Fifth, the United States also assumes responsibility for providing global public goods. Examples include international payments and settlement infrastructure, including CHIPS and SWIFT, as well as institutions such as the International Monetary Fund (IMF), the World Bank (WB), and the World Trade Organization (WTO).

What challenges does the dollar-based monetary system face? These challenges have become increasingly pronounced since 2000. I would summarise them in three areas.

The first is the generalised Triffin dilemma.

The traditional Triffin dilemma refers to the contradiction between the need for the United States to supply an increasing amount of dollar liquidity as the world economy expands and its limited gold reserves. In other words, providing sufficient global dollar liquidity was incompatible with maintaining the dollar’s free convertibility into gold.

What, then, is the generalised Triffin dilemma?

The United States supplies dollars to the rest of the world through persistent current account deficits. However, sustained deficits lead to a continuous increase in its net external liabilities. Once those liabilities reach a certain threshold, market participants begin to suspect that the United States will seek to reduce its net external debt by depreciating the dollar.

Consider the US national balance sheet. Its external assets are largely denominated in foreign currencies, while its external liabilities are mostly denominated in dollars. When the dollar depreciates against other currencies, the value of US net external liabilities falls.

The generalised Triffin dilemma thus refers to the tension between providing sufficient dollar liquidity to the rest of the world and maintaining a stable dollar exchange rate.

The second challenge is the negative spillover effects of US monetary policy.

Although the Federal Reserve effectively functions as the world’s central bank, it formulates monetary policy solely according to domestic economic conditions in the United States. Consequently, its policies generate substantial negative spillovers for other economies.

When the Federal Reserve cuts interest rates repeatedly, emerging markets experience capital inflows, currency appreciation, economic expansion, and rising asset prices. Conversely, when the Federal Reserve raises interest rates repeatedly, emerging markets face capital outflows, currency depreciation, heavier external debt burdens, and falling asset prices.

If their economic and financial fundamentals are relatively weak, emerging markets may face currency or debt crises, which could escalate into broader economic and financial crises.

The third challenge is the increasingly prominent weaponisation of the US dollar over the past decade.

For example, following the outbreak of the Russia-Ukraine conflict, the United States froze Russia’s foreign exchange assets.

How can one sovereign state freeze another sovereign state’s foreign exchange assets? In essence, the US government declared that it would no longer honour principal and interest payments on US Treasury securities held by Russian official investors. This amounts to a selective default on US government debt.

This may well be the most consequential event in global financial markets in recent years. The United States itself has undermined the reputation of US Treasuries as the world’s foremost safe assets.

Until recently, the prevailing view was that holding US Treasuries exposed investors only to price fluctuations caused by changes in interest rates, while the risk of default was virtually inconceivable. Yet following the outbreak of the Russia-Ukraine conflict, that risk became a reality.

This, in fact, is the fundamental logic underlying the rise in gold prices over the past several years.

Another example concerns SWIFT. Although SWIFT is headquartered in Europe, the United States can exert pressure on the organisation to exclude Russian and Iranian financial institutions from its network.

These sanctions do not necessarily make it impossible for the affected institutions to conduct international trade. Rather, they significantly lengthen the time required to complete transactions. Payments that previously took one or two days may now require two or three weeks, or even longer.

Since Donald Trump returned to office last year, several of his policies have further intensified the pressures on the existing international monetary system. This is why the system appears to have entered a period of accelerated transformation.

First, Trump’s reciprocal tariffs will exacerbate the generalised Triffin dilemma.

The purpose of these tariffs is to reduce the US trade deficit. So far, however, they have not succeeded, as the deficit has not declined significantly.

But what if the reciprocal tariffs did succeed? If the US trade deficit narrowed, it could lead to a global shortage of dollar liquidity, given that the United States supplies dollars to the rest of the world through trade deficits. In other words, reciprocal tariffs could exacerbate the generalised Triffin dilemma.

Second, Trump’s persistent pressure on the Federal Reserve could undermine the independence of US monetary policy.

Trump was particularly dissatisfied with Jerome Powell because Powell was unwilling to stimulate economic growth and boost the stock market by cutting interest rates.

Trump subsequently replaced the Federal Reserve chair, but Kevin Warsh turned out to be more independent than he had anticipated. In his first remarks after taking office, Warsh made it clear that although Trump had appointed him, he would make his own decisions.

Nevertheless, the broader concern remains that presidential pressure on the central bank could compromise the independence of Federal Reserve monetary policy.

As I mentioned earlier, that independence serves as the monetary anchor of the current international monetary system. Once its credibility is damaged, restoring it will be extremely difficult.

Third, the weaponisation of the dollar could become even more aggressive.

In 2024, a “Miran Report” attracted considerable attention. Stephan Miran, a senior adviser to Trump, wrote the report while working at Hudson Bay Capital in the United States. The first part of the report discusses reducing the US trade deficit through trade warfare, while the second focuses on reducing it through financial warfare.

How would this work? It would involve three steps.

The first would be to pressure countries with trade surpluses to allow their currencies to appreciate significantly against the US dollar. If they agreed, this would be a new Plaza Accord. But what if surplus countries refused to let their currencies appreciate?

The second step would be to force them to swap their existing holdings of US Treasury securities for new securities with ultra-long maturities and exceptionally low interest rates — a compulsory debt swap. But what if they refused to make the swap?

The third step would be to impose withholding taxes on principal and interest payments on US Treasury securities held by surplus countries.

The latter two measures would essentially amount to outright selective defaults on US Treasury debt. In other words, the United States would use the repayment of its Treasury debt as a weapon to put pressure on countries with trade surpluses.

Although these aforementioned Trump administration policies are effectively undermining the foundations of US financial dominance, there is one policy that I consider particularly consequential: abandoning plans for a digital dollar while vigorously promoting the development of US dollar stablecoins.

Put simply, stablecoins represent an entirely new system for cross-border payments and settlement. By enabling peer-to-peer transactions through blockchain technology, they can completely bypass the traditional CHIPS-SWIFT infrastructure.

Several concepts have attracted considerable attention recently, including asset tokenisation, the tokenisation of real-world assets (RWAs), and decentralised finance (DeFi). US dollar stablecoins have already become the dominant currencies used for pricing and settlement in these areas.

Dollar-denominated stablecoins account for more than 95 per cent of the stablecoin market. This means that the dollar’s dominance in the digital world is far greater than in traditional financial markets.

How have other countries responded to these Trump administration policies?

First, they have collectively reduced their holdings of dollar-denominated assets. Since April last year, global markets have repeatedly witnessed simultaneous sell-offs in US equities, bonds, and the dollar, an exceptionally unusual phenomenon. The only explanation is that foreign investors are collectively selling dollar assets.

Second, other countries have begun encouraging bilateral settlement in local currencies.

Third, they are searching for alternative safe assets beyond US Treasury securities.

Fourth, they are actively developing digital currencies, particularly central bank digital currencies.

Fifth, they are also exploring new international payment and settlement mechanisms outside the CHIPS-SWIFT system.

Now let me turn to RMB internationalisation. I will begin with some historical background.

The People’s Bank of China (PBOC) began promoting RMB internationalisation in 2009. At the time, it recognised that the extraordinarily accommodative monetary policies adopted by the Federal Reserve following the subprime mortgage crisis could lead to a substantial depreciation of the dollar, thereby undermining the value of China’s foreign exchange reserves. This was the immediate motivation behind the PBOC’s efforts to promote RMB internationalisation.

The principal objectives of RMB internationalisation include the following.

First, to reduce dependence on the US dollar in foreign trade and investment, thereby reducing the need to continue accumulating foreign exchange reserves.

Second, to lower foreign exchange transaction costs and exchange rate risks for Chinese enterprises.

Third, to lower borrowing costs for Chinese enterprises by enabling them to raise funds overseas in renminbi.

Fourth, to bring the renminbi’s international standing into line with China’s position in the global economy and international trade.

Fifth, RMB internationalisation serves as an external commitment device. Once established, this commitment can help drive domestic structural reforms.

Since 2009, the progress of RMB internationalisation can be characterised by three stylised facts.

First, although substantial progress has been achieved, the renminbi still lags behind the Japanese yen and the British pound, let alone the US dollar and the euro.

Second, progress in the financial sector has been slower than in the trade sector.

Third, progress in the renminbi’s role as an invoicing currency has lagged behind its development as a settlement currency.

The data also reveal a pronounced cyclical pattern in RMB internationalisation.

The first cycle lasted from 2009 to the end of 2017, reaching its peak in the first half of 2015. The second cycle began in 2018 and continues today, with RMB internationalisation still on an upward trajectory.

Why has this process been cyclical? On the one hand, short-term economic and financial cycles have played an important role.

The first factor is expectations regarding exchange rate appreciation or depreciation.

Why did RMB internationalisation peak in the first half of 2015? Because following the exchange rate reform of 11 August 2015, market expectations shifted from renminbi appreciation to depreciation.

The second factor is the interest rate differential between China and the United States.

Around 2015, the US economy was performing strongly, prompting the Federal Reserve to begin raising interest rates. Meanwhile, the Chinese economy was facing downward pressure on growth, and the PBOC began cutting interest rates. As a result, the China-US interest rate differential narrowed, reducing the attractiveness of RMB-denominated assets.

The third factor is the increasing visibility of domestic financial risks.

At that time, a series of internet finance products began experiencing defaults and failures, prompting international investors to demand higher risk premiums on RMB-denominated financial products.

On the other hand, the cyclical pattern of RMB internationalisation has also been shaped by changes in the PBOC’s strategy.

During the first cycle, the PBOC adopted what I would call the original three-pronged strategy: to encourage the use of the renminbi for settlement in cross-border trade and foreign direct investment; to actively develop offshore RMB financial centres, particularly in Hong Kong; to establish bilateral local currency swap agreements between the PBOC and central banks in many other countries.

This three-pronged strategy had a coherent underlying logic.

First, during the initial stages of currency internationalisation, very little renminbi was circulating outside China. Encouraging RMB payments for imports and outward direct investment therefore helped supply renminbi liquidity to overseas markets.

Second, once renminbi liquidity had been supplied abroad, it was important to encourage non-residents to hold the currency over the longer term. Developing offshore financial markets provided them with RMB-denominated assets in which to invest.

Third, what would happen if overseas demand for renminbi exceeded the available supply? Foreign central banks could activate their bilateral currency swap arrangements with the PBOC to obtain additional renminbi liquidity and meet market demand.

This strategy successfully promoted RMB internationalisation during the first cycle, but it also had three shortcomings.

First, it placed greater emphasis on the renminbi’s settlement function than on its invoicing function.

For individual enterprises, the currency in which a transaction is denominated is ultimately the most important factor in managing exchange rate risk. Suppose an export contract is denominated in US dollars but settled in renminbi. If the dollar depreciates, the exporter will still bear the exchange rate risk.

Therefore, the renminbi’s function as an invoicing currency is, to a considerable extent, more important than its function as a settlement currency.

Second, offshore RMB markets offered a limited range of financial assets, with relatively unattractive yields and insufficient liquidity.

Third, during the first cycle of RMB internationalisation, China’s interest rates and exchange rates had not yet been fully market-oriented. As a result, significant gaps remained between onshore and offshore RMB interest rates and exchange rates, creating opportunities for market participants to engage in arbitrage.

Such interest rate and foreign exchange arbitrage was often carried out under the guise of cross-border RMB settlement. As a result, the rapid growth in cross-border RMB trade settlement during that period was, to some extent, driven by speculative activity.

In 2018, RMB internationalisation entered a new cycle. Available evidence also suggests that the PBOC made a clear adjustment to its strategy for promoting currency internationalisation.

I refer to this revised approach as the new three-pronged strategy, which was designed to address the shortcomings I have just discussed.

First, China began vigorously developing the renminbi’s role in commodity pricing and invoicing.

In March 2018, China established a market for RMB-denominated crude oil futures in Shanghai. To date, trading in this market accounts for approximately 5 per cent of global crude oil futures trading.

Second, beginning around 2017 and 2018, China accelerated the opening of its onshore financial markets to foreign institutional investors. Foreign investors’ holdings of onshore RMB-denominated financial assets rose rapidly, from RMB 3 trillion to RMB 10 trillion by 2021.

Unfortunately, due to the COVID-19 pandemic and intensifying China-US strategic competition, these holdings did not continue to rise rapidly after 2021.

Third, China began focusing on fostering genuine and sticky demand for the renminbi in specific regions, such as neighbouring countries, countries participating in the Belt and Road Initiative (BRI), and members of the Regional Comprehensive Economic Partnership (RCEP).

What does genuine and sticky demand mean? It refers to demand for the renminbi that is relatively insensitive to fluctuations in interest rates and exchange rates. When economic actors genuinely need renminbi for trade and investment, minor fluctuations in interest rates or exchange rates are unlikely to affect their willingness to hold the currency.

Let me give you a typical example. Suppose China develops an industrial park overseas. China first provides the host country with an RMB-denominated loan. The host country then uses the renminbi to pay Chinese engineering companies for construction work. After that, it uses renminbi to purchase machinery and equipment from China, and even raw materials and intermediate goods.

In this way, the renminbi supplied overseas through lending eventually flows back into China through exports of goods and services.

How can a country’s genuine demand for another country’s currency be measured? One indirect way is to examine the extent to which its exchange rate is influenced by that country’s currency.

Our econometric analysis shows that, between 2018 and 2023, the US dollar accounted for roughly half of the weight given to major currencies in determining exchange rates worldwide, while the renminbi accounted for only 8 per cent.

Among countries participating in the Belt and Road Initiative, however, the renminbi’s weight had already surpassed those of the euro and the Japanese yen, reaching approximately 25 per cent.

Within the RCEP region, the renminbi’s weight exceeded that of the euro but remained below that of the Japanese yen. In Southeast Asia, its weight reached as high as 37 per cent. It was also rising rapidly in South Asia and Latin America.

Overall, the PBOC’s new three-pronged strategy has made substantial progress on several fronts.

New challenges have now emerged.

These include the COVID-19 pandemic, China-US strategic competition, and geopolitical conflicts. These developments have created new challenges for RMB internationalisation: greater fragmentation of global industrial and supply chains, more frequent weaponisation of the US dollar, rising interest rates in advanced economies amid higher inflation, and new challenges posed by US dollar stablecoins.

How should China respond? My recommendation is to further expand the new three-pronged strategy that the PBOC has pursued since 2018. I call this the next-generation three-pronged strategy.

First, China should continue expanding the renminbi’s role in commodity pricing and invoicing while promoting RMB denomination and settlement across entire industrial supply chains in selected sectors.

Beyond crude oil, greater use could be made of the renminbi to price commodities such as iron ore, natural gas, non-ferrous metals, gold, and agricultural products. After all, China is among the most important buyers of all these commodities.

Why has this not yet happened? Because suppliers in these markets are highly concentrated, with only a handful of major companies dominating supply. Negotiations conducted separately by hundreds or thousands of Chinese enterprises are unlikely to achieve meaningful results.

Therefore, industry associations should play a greater role. By representing Chinese enterprises collectively in negotiations with major international suppliers, industry associations would be better positioned to secure favourable prices while also seeking a higher proportion of transactions denominated in renminbi.

Chinese enterprises have now become highly competitive, and many are already serving as leading firms in the middle and downstream segments of various industrial supply chains. These leading firms could encourage upstream and midstream enterprises to denominate and settle transactions in renminbi.

What could serve as a lever to drive this process? Supply chain financing could play that role.

The logic is straightforward. Among the major economies, China currently has the lowest interest rates. RMB-denominated loans would offer borrowers highly attractive financing terms.

Second, in the financial sector, two established roles in the international monetary system are coming under strain: US Treasuries as global safe assets, and the Japanese yen as an international funding currency. The renminbi should seize this opportunity to develop into a currency that can provide safe assets to global investors and serve as an international funding currency. I will return to this issue shortly.

Third, China should adopt a multi-track approach to developing the renminbi’s cross-border payment and settlement functions.

The first track is the Cross-Border Interbank Payment System (CIPS), which has developed rapidly. However, one major challenge is the relatively small number of foreign banks participating directly in the system.

The second track is Project mBridge, a multi-central bank digital currency platform developed jointly by the PBOC and several other central banks.

The third track involves cross-border payment and settlement services offered by Chinese internet platforms such as WeChat, Alipay, and TikTok. To some extent, privately operated cross-border payment and settlement platforms have significant advantages in terms of accessibility and their ability to adapt to users’ needs.

Next, I would like to focus on how China can develop the renminbi’s role in supplying global safe assets and serving as an international funding currency.

China should seize the current opportunity created by the global shortage of safe assets and the declining role of the Japanese yen as a funding currency to strengthen the renminbi’s position in both areas.

At present, safe assets are in extremely short supply worldwide. Confidence in US Treasury securities has weakened, while Japanese government bonds are even less attractive as safe assets. Against this backdrop, China needs to substantially increase the issuance of RMB-denominated government bonds.

Doing so would generate five benefits.

First, it would provide low-cost financing for the current round of fiscal expansion.

Second, it would create a source of low-cost, long-term funding for resolving local government debt problems and promoting the stabilisation and recovery of the real estate market.

Third, it would provide the financial system with new, high-quality collateral.

Fourth, it would supply international investors with new safe assets.

Fifth, it would help facilitate the transformation of the PBOC’s monetary policy framework.

Over the past two or three years, the markets for dim sum bonds, panda bonds, and offshore RMB loans have grown rapidly. The underlying reason is that RMB interest rates are the lowest among those of the major global currencies.

When a funding currency offers low interest rates, borrowers are more willing to borrow in that currency. China should therefore make RMB financing available to them.

What benefits would this bring? Under certain circumstances, financial activity can, in turn, encourage greater use of a currency in international trade. Let me give you an example.

Suppose a foreign enterprise issues a five-year RMB-denominated bond. It will then need to consider two risks: What if the renminbi appreciates significantly over the next five years? What if Chinese interest rates rise substantially?

The enterprise will therefore have a strong incentive to establish a natural hedge before the bond matures. In other words, it will need to hold a certain amount of renminbi.

How can it obtain that renminbi? When trading with Chinese enterprises, it may proactively request that transactions be denominated and settled in renminbi. This is an example of financial activity driving changes in trade practices.

In effect, arbitrage opportunities can generate genuine demand for the renminbi.

The current problem is that dim sum bonds and panda bonds lack sufficiently active secondary markets. How can secondary-market trading be stimulated?

Two elements are particularly important: market makers and bond indices. Once secondary markets become more active and accessible, dim sum bonds will serve not only as financing instruments but also as investment products.

Some observers argue that the prospects for RMB internationalisation are extremely limited. Their reasoning is that the United States supplies dollars to the world through current account deficits, whereas China consistently maintains current account surpluses and therefore cannot continuously supply renminbi liquidity to overseas markets. This argument is specious.

In my view, China is following the opposite path from the United States.

The United States supplies dollars to the rest of the world through current account deficits and draws them back through financial account surpluses. China, by contrast, supplies renminbi overseas through financial account deficits and brings the currency back through current account surpluses.

I would like to make three further observations about this Chinese model.

First, it is consistent with comparative advantage.

China is strong in manufacturing but relatively weak in finance, while the United States is strong in finance but relatively weak in manufacturing. China should therefore maintain a combination of current account surpluses and financial account deficits, whereas the United States follows the opposite pattern.

Second, the United States itself followed a similar approach during a particular period of its history, namely after the Second World War.

Under the Marshall Plan, the United States provided financing to other countries, which then used those funds to purchase machinery and equipment from the United States. During that period, the United States also supplied dollars abroad through financial account deficits and brought them back through current account surpluses.

Third, recall the generalised Triffin dilemma I discussed earlier. Persistent current account deficits lead to rising net external liabilities. This may cause market participants to expect the domestic currency to depreciate. Consequently, supplying dollars to the rest of the world and maintaining exchange rate stability can be difficult to achieve simultaneously.

China’s situation is different. Because China draws renminbi back through current account surpluses, those surpluses contribute to an increase in its net foreign assets. Therefore, supplying renminbi liquidity overseas is not inherently incompatible with maintaining the currency’s value.

In other words, China is developing its own pathway to currency internationalisation.

That concludes my remarks. Thank you.

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