China pushes for a multipolar currency order as dollar dominance shows cracks in a fragmented world economy

China wants to challenge the predominance of the U.S. dollar in the global financial system, and is trying to push for a multipolar currency framework that can reduce the reliance on the dollar, The New York Times reported.

As per the news report, the governor of China’s central bank, Pan Gongsheng, who appeared in the Lujiazui Forum in Shanghai, emphasized on the large-scale monetary risks associated with over-reliance on a single currency, without directly referring to the dollar. 

The Lujiazui Forum is an annual financial summit in Shanghai where global leaders discuss financial reform, cooperation, and policy.

The governor warned that because there is over-reliance at present on a single currency, the risk of a financial crisis becomes contagious, affecting and spilling over into multiple countries, despite having a local, concentrated origin. Pan’s comments come on the back on ongoing tensions between the Asian giant and the U.S., especially due to President Donald Trump’s insistence to upend the global financial system through his tariff policy. Most importantly, as NYT reports, Trump and his administration has been trying of late to weaken the dollar in order to boost the U.S.’ exports and make them more competitive. The dollar has already depreciated this year, which includes a 11% drop against the Euro.

“In the future, the global monetary system could continue to evolve toward a situation where a few sovereign currencies co-exist, compete and check and balance each other,” Pan said during his address, reported Bloomberg.

An important point to be noted here is that China’s currency, the renminbi, remains tightly pegged to the dollar, causing it to fall in tandem and making Chinese exports more competitive, particularly in Europe. Despite its growing international use, the renminbi still trails far behind the dollar and euro in global trade transactions.

Pan also criticized the “weaponization” of a dominant currency during geopolitical conflicts, highlighting China’s opposition to U.S. sanctions targeting allies like Russia, Iran, and North Korea.

China continues to purchase oil from these countries through smaller banks and firms that operate with minimal reliance on the dollar.

Crucially, Pan noted in his speech that due to geopolitical uncertainty, the dollar’s predominance appears to be shaking, and a future may not be inconceivable where instead of the dollar, Euro can play a more vital role in global economics.

As reported by NYT, Pan’s strategy to shore up the renminbi as against the dollar involves adopting new financial technologies to make cross-border payments easier, such as creating a digital currency, which makes transactions in currencies other than the dollar easier.

This approach aims to modernize the global financial infrastructure, which often depends on outdated systems tied to the dollar.

However, China faces significant challenges in elevating the renminbi to a truly global currency.

But China has a considerable trade surplus, and most of the Chinese currency that is circulating abroad is used usually to buy Chinese goods.

Additionally, strict capital controls limit the free movement of renminbi, deterring foreign investors who seek a reliable store of value.