Xi Jinping wants a “powerful” currency. Just ask him. He’ll tell you.
In January of 2024, while regaling provisional apparatchiks at a seminar convened to promote “high-quality financial development,” Xi asked what constitutes a “strong financial nation.”
No sooner had he asked than he offered an answer. Because Xi doesn’t actually ask questions. The interrogative everywhere and always sets up a declaration. A strong financial nation, Xi went on, “should possess a series of core elements,” one of which is a “powerful currency.”
Last week, Qiushi magazine (a Party mouthpiece) dug up, re-highlighted and otherwise made a big deal of Xi’s two-year-old comments, and because it’s a Party publication, that editorial choice was almost surely meant to signal something about a renewed effort to internationalize the yuan.
This is the time to do it: The sustainability of US hegemony’s being questioned, most pointedly in Washington of all places. Donald Trump’s keen to throw America’s weight around where it suits him (e.g., Greenland and South America), but he’s inclined to abdicate entirely where he sees no near-term, transactional benefit from US involvement.
That latter predisposition — to disengage on anything and everything that doesn’t accrue immediately to his own interests which he equates, mistakenly in a lot of cases, with America’s interests — leaves a vacuum. And you know how nature feels about vacuums.
Consider all of that some big-picture context for an ongoing rally in yuan, which is now the strongest against the dollar in almost three years. Note from the figure below that the currency’s appreciated by 5% since Trump took office for a second time.
The dollar weakened against the offshore yuan every week since Thanksgiving except two. The yuan’s 3% stronger over just the last four months.
Naturally, the color which accompanied most accounts of the yuan early this week centered around reports that Beijing told Chinese banks to manage their US Treasury holdings or in some cases to actively trim exposure to US debt.
Some suggested Tuesday that story’s overblown. “I call this ‘kinda fake news’ in the sense that this was standard risk management messaging to commercial banks especially in light of the Lunar New Year timing, when regulators traditionally urge banks to chillax on foreign holdings to ensure they have domestic liquidity to meet cash demand in front of the holidays,” a Nomura desk note said, calling the headlines “much ado about nothing.”
I tend to agree, but this particular “nothing” is part of a broader “something.” In a geopolitical arena increasingly defined by a new bipolarity, the flip side of de-dollarization innuendo is yuan internationalization whispers.
De-dollarization’s a glacial process, but as Trump himself points out fairly often, China doesn’t mind waiting. As Xi put it two years ago, in the same speech mentioned here at the outset, “Building a strong financial nation requires long-term, sustained effort.”
