In 1971, as the international monetary system was on the brink of collapse, U.S. Treasury Secretary John Connally told a group of worried European finance ministers that the dollar was “our currency, but your problem.” The dollar had become that system’s official reserve currency in 1944, under the Bretton Woods agreement, making signatories subject to the whims of U.S. monetary policy. Even after Bretton Woods collapsed and many currencies floated freely, the dollar continued to dominate. In the last half century, U.S. currency power has only expanded, as more countries have integrated into the global economy and therefore grown to depend on the dollar. China, reliant on export-driven growth, is foremost among them.

Reckoning with the possibility that Washington could someday make the dollar China’s problem, Beijing is now crafting its own solution. In a January 2024 speech, Chinese leader Xi Jinping made this effort explicit, instructing senior provincial and ministerial officials to accelerate China’s transformation into a “leading financial power.” A strong currency, he specified, was one of the essential foundations of that power. When Qiushi, the Chinese Communist Party’s flagship journal, published the full text of the speech in 2026, the standard Xi had in mind became clearer: for a currency to be considered “strong,” it must be widely used in international trade, investment, and foreign exchange markets and be recognized as a global reserve currency.

Xi’s call is the latest episode in a long history of efforts by major powers to reduce their dependence on the dollar-centered global financial system. In 1965, French Finance Minister Valéry Giscard d’Estaing famously described the disproportionate advantages that dollar dominance confers on the United States as “exorbitant privilege”; the same year, France began aggressively converting a substantial share of its dollar reserves into gold, contributing to the collapse of the Bretton Woods system. In 1999, the Japanese government released a report on how to promote wider international use of the yen. That same year, the launch of the euro gave Europe what would become the world’s second most important international currency, affording it greater monetary autonomy even as the European Central Bank carefully danced around any suggestion that it might challenge the dollar.

What distinguishes Xi’s ambition is that China, unlike Europe or Japan, possesses the economic heft, military capability, and political will to rival the United States’ geopolitical power. Not since London commanded a global empire has another country’s currency stood a realistic chance of competing with the dollar. A global financial transition from “In God We Trust” to “Where the Party Leads, We Follow” can no longer be dismissed as fantasy.

The internationalization of the renminbi would afford China a measure of financial survivability should the United States ever choose to wield the dollar as a punitive weapon, as it did against Russia after the country’s full-scale invasion of Ukraine, in 2022. The United States controls both the supply of the dominant global reserve currency and many of the critical financial infrastructure chokepoints through which it circulates. Washington, if it so desired, could severely restrict China’s access to dollar liquidity by making the cost of doing business with Chinese institutions prohibitive, for example by indicting or sanctioning a major Chinese bank. Any such measure would shock the Chinese financial system, raise transaction costs for trade, and deliver a major competitive blow to China’s export sector, which accounts for roughly one-fifth of its GDP.

Survivability, however, is only a prerequisite for credible deterrence. To deter the United States from using the dollar weapon, Beijing requires a financial second-strike capability. It must be able to redirect a substantial share of global trade and finance to a renminbi-based network. The durability of that shift depends on healthy global demand for an anchor asset priced in renminbi. For China, the most likely source of such an anchor asset lies in its dominance of the green economy.

Xi does not necessarily want the renminbi to replace the dollar. His 2024 speech advocated strength, not hegemony. Placing a respectable second, or even a consequential third, would suffice to break the dollar’s effective monopoly and constrain the United States’ ability to impose financial sanctions unilaterally, while saving China the effort and cost of sustaining currency supremacy. From Beijing’s perspective, the mission is to establish the renminbi as the Pepsi to the dollar’s Coca-Cola: never the market leader, but serviceable in a pinch and more than capable of keeping the dominant incumbent honest.

The near-universal acceptance of the U.S. dollar arguably benefits China more than any other country. The Chinese economy relies on exports, and Chinese goods priced and financed in dollars can reach ready buyers almost anywhere. The resulting profits can then be invested almost anywhere and converted into liquid funds on short notice. This suits Beijing: China enjoys the benefits of global liquidity without bearing the burdens of sustaining it. To preserve the global dollar system, the United States must tolerate foreign ownership of an ever-expanding volume of dollar claims as countries conduct ever more business in the currency. U.S. markets are exposed to international volatility, and foreigners hold some influence over U.S. corporations. The Federal Reserve, which issues the dollar, backstops the system, expanding its balance sheet during periods of financial stress, when governments and private companies hoard dollars to ensure they can continue to pay their debts and buy goods. This openness and exposure has posed little threat to the U.S. economy because foreign shareholders have generally sought to operate within, rather than change, U.S. business norms, and U.S. banks have earned tidy profits intermediating the world’s capital flows through New York and London.

China’s leaders have no desire to make any such tradeoff. Maintaining a global renminbi system would be fundamentally at odds with China’s state-led economic model. For the renminbi to replicate the dollar’s functions, China would have to create broad, two-way financial channels through which foreign holders of renminbi could reinvest that money into the Chinese economy. The resulting capital inflows would fundamentally reshape China’s domestic financial markets. It would be impractical for Beijing to confine foreign investors to a narrow group of approved assets, as it does now. Once foreign investors were allowed into China’s markets in force, they would arbitrage the distortions created by financial repression and politically directed capital allocation. Such competition would undermine one of Beijing’s most effective means of securing the loyalty of China’s business class: controlling who gains access to capital, on what terms, and for what purposes.

For many wealthy Chinese citizens, including some members of the Communist Party itself, the dollar is an indispensable form of political risk insurance.........

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