The Chinese do not speak often, as the Confucian tradition dictates, but when they do, they do not babble. Pan Gongsheng, head of the People’s Bank of China (PBOC), gave a landmark speech at the Lujiazui 2025 forum, held from June 18 to 19 in Shanghai’s financial district. He presented China’s vision for the future of the international monetary system, calling for an end to the dollar’s monetary dominance.
Replacing US dollar dominance with monetary multipolarity
In a sharp critique of the US dollar’s dominance in the global monetary system, Pan called on the global financial system to “weaken its excessive reliance on a single sovereign currency and its negative effects.”
China’s central bank governor advocates instead the creation of a multipolar global monetary system, where a “small number of strong sovereign currencies engage in mutually beneficial competition.”
“The multipolar development of the international monetary system will help increase its resilience and more effectively maintain global economic and financial stability.”
Pan positively quoted a report by Christine Lagarde, president of the European Central Bank, who said that uncertainty around the dollar’s dominance is growing and that the euro could be expected to play a more important role in the global monetary system.
The burden of the global reserve currency
One of Pan’s main arguments for a multipolar monetary system is the burdensome responsibilities and constraints imposed on each individual state that takes on the role of global currency provider.
These have been pointed out, as we have written in the Liberal Globe many times, by the economic staff of US President Donald Trump, who is seeking to change the bilateral terms of trade with all of the country’s partners – in this analysis, there is therefore a convergence between China and the US.
Compared to domestic policy objectives – Pan points out – this can create conflicts of interest that exacerbate global financial risk, while at the same time undermining the stability and security of the global economic and trading system.
These include:
1. Conflicts of interest. “When the interests of the reserve currency nation conflict with its role as a provider of a public good, it will place greater emphasis on its own interests. This will undermine the provision of the public good.
2. Risk arising from flaws in fiscal policy and financial regulation. “As internal economic structural contradictions continue to accumulate, financial risk will spread globally or even develop into a global financial crisis.”
3. Geopolitical weaponization of the reserve currency regime. “When geopolitical conflicts, national security issues, or even wars arise, the international reserve currency is easily turned into a weapon or tool,”
For this reason, Pan argues that it is preferable for many countries to shoulder the burden of providing international money, rather than a single state.
China’s preferred option: the IMF’s special drawing rights
China is currently promoting greater internationalization of the yuan by controlling the currency’s exchange rate so that it does not suffer losses in competitiveness, in an effort to increase its international economic power, as well as as an emergency mechanism to circumvent any sanctions from Washington.
Given the explicit refusal of a single nation-state to hold the global reserve currency, however, Pan does not argue that the Chinese yuan will replace the US dollar in its hegemonic monetary role.
Instead, he sees the Special Drawing Rights (SDRs) issued by the International Monetary Fund (IMF) as the best solution to the challenge of providing a medium of international trade that is not dependent on a single nation-state.
“In theoretical terms, the SDR can effectively overcome the inherent problem of the international reserve currency being a single sovereign currency,” Pan said. “It provides stronger stability and can better assume the role of a global public good (ed. that of a global reserve currency)… it can adjust global liquidity and provide assistance in times of crisis and has the characteristics of a supranational monetary unit.”
The SDRs were first created by the IMF in 1969, to address the shortage of foreign exchange reserves in the form of gold bullion or dollars. Strictly speaking, SDRs are units of account that represent a claim on currency held by IMF member countries.
Their value is based on a basket of international currencies that is reviewed by the IMF once every five years. As of August 2023, this basket consists of five currencies – the US dollar (43.38%), the euro (29.31%), the Chinese yuan (12.28%), the Japanese yen (7.59%), and the British pound sterling (7.44%).
Pan’s position on the use of the IMF’s SDRs as a global reserve currency follows that of his predecessor, former governor of the People’s Bank of China Zhou Xiaochuan.
Zhou had primarily advocated the use of the SDRs in a speech in March 2009, shortly after the global financial crisis began.
For Pan, China’s role in providing the global reserve currency would be limited to the participation of the yuan as one of the constituent currencies of the SDRs.
For this reason, Pan sees the yuan’s increasing prominence in the SDR basket as one of the two landmark developments in the international monetary system over the past 30 years, alongside the introduction of the euro.
“The yuan has steadily risen internationally since the 2008 Global Financial Crisis and has become the second most important trade and financial currency in the world,” Pan said. “It is now third in the IMF’s SDR basket in terms of weighting.”
Obstacles to the SDR’s overthrow of the dollar
Pan does not believe that replacing the existing dollar hegemony with a multipolar monetary system is an easily achievable goal, pointing out significant obstacles on the road to its adoption.
“We still face insufficient international consensus and political incentives to make SDR a global currency,” he said. “Currently, the scale, depth and liquidity of the market are also insufficient.” In order to promote the role of SDRs as a global currency, Pan supports the gradual expansion of their use, including:
–Increasing the normalization and scale of SDR issuance. “Currently, the IMF’s allocation of SDRs is mainly for crisis response and mainly involves single large-scale issuances.”
–Expanding the scope of use. “[We should] actively encourage the private sector and various market entities to make extensive use of SDRs for international trade, investment and financing activities, and issue bonds denominated in SDRs, upgrade the role of SDRs as a reserve asset, and establish SDR settlement mechanisms suitable for large-scale use.”
The above describes the Chinese roadmap for the regulatory order under development.
