Wang Yongli on U.S. dollar hegemony and digital RMB
The former Vice President of the Bank of China says there is no viable alternative to the USD, and China must approach the RMB internationalization cautiously.
Wang Yongli is the Co-Chairman of the Board of Digital China Information Service Group Co Ltd, former General Manager of China International Futures Co(CIFCO). and former Vice President of the Bank of China (BOC), one of the four largest commercial banks in China. He also served as the first Chinese mainland member of the board of SWIFT.
Wang gave a lecture titled 透过美元看世界金融战 “Viewing the Global Financial War Through the Lens of the U.S. Dollar” on November 15, 2024 at Chongyang Institute for Financial Studies, Renmin Univerisity of China. The lecture transcript is available on the Chongyang Institute’s official WeChat blog.
Below is the first half of Wang’s lecture. For those of you not having enough time to read through the whole thing, here is a summary:
Wang Yongli, former Vice President of the Bank of China, analyzed the position of the U.S. dollar as the world’s dominant currency and its implications for China’s monetary strategy. He pointed out that many countries, including China, have sought to internationalize their currencies and reduce reliance on the dollar, but these efforts face significant challenges. Despite China being the world’s second-largest economy and the largest trading nation in goods, the RMB’s share in global payments remains low, only around 4%, compared to the dollar’s nearly 50%. The RMB’s share in global reserves is also minimal, at just over 2%, while the U.S. dollar, despite declining from its peak, still accounts for nearly 60%.
Wang explained that the international status of a currency is not determined solely by a country’s GDP or trade volume but by comprehensive national strength, which includes education, research and development, governance, legal infrastructure, military power, diplomatic influence, and openness to the global economy. Even if China surpasses the U.S. in GDP, this does not automatically translate to a stronger currency, as the dollar’s dominance is underpinned by America’s economic, military, and political influence, which was solidified after World War II. The U.S. dollar’s status was institutionalized through the Bretton Woods system, where the dollar was pegged to gold, and other currencies were pegged to the dollar. Even after the system collapsed in 1971, the dollar retained its global position due to America’s financial strength, military presence, and leadership in shaping international institutions.
Some argue that China should require all its exports to be settled in RMB to force its internationalization, as Russia did with its energy exports after the Ukraine war. Wang dismissed this idea as unrealistic, explaining that trade payment currencies are determined by market acceptance and negotiation power, not unilateral decisions. The party with stronger bargaining power dictates the currency of settlement, and in cases where neither party’s currency is widely accepted, they resort to the U.S. dollar or another dominant international currency.
He emphasized that de-dollarization efforts by various countries are often reactive, driven by restrictions imposed by the U.S., such as financial sanctions. Many nations still prefer the dollar due to its unparalleled global liquidity and security. Even Russia, after being sanctioned, did not fully reject the U.S. dollar but sought to maintain access where possible. This underscores the entrenched role of the dollar in global finance.
Wang highlighted that the internationalization of the RMB requires deep and broad financial markets, free capital flows, and strong institutional frameworks. Without these, the RMB cannot become a major international reserve currency. He noted that while China has mechanisms such as QFII and RQFII for limited capital movement, these programs only allow tens of billions in capital flows, which is far from what is required for true currency internationalization. A major concern is managing financial risks—China must ensure that increased financial openness does not lead to instability, as large capital inflows and outflows can create market shocks.
While some suggest a return to a gold-backed system or a new Bretton Woods-style agreement, Wang argued that these ideas are misguided. The limited supply of gold cannot keep pace with the growth of global trade and wealth. A rigid commodity-backed currency system would stifle economic expansion and lead to crises caused by monetary scarcity. The shift from commodity-based money to fiat currency was a necessary evolution, allowing economies to expand without artificial monetary constraints.
He also warned about the risks of over-reliance on financialization, citing the U.S. as an example. While finance-driven economic growth has benefited the U.S. elite, it has also led to increased wealth concentration, social inequality, and the decline of manufacturing. The U.S. is now attempting to reindustrialize, but the process is difficult and may face unforeseen consequences. If China pursues RMB internationalization without careful planning, it could also face similar risks, where financial expansion weakens the real economy.
Regarding the possibility of a supranational currency replacing the U.S. dollar, Wang was skeptical. He explained that international reserve currencies are backed by national power and influence, not just technical mechanisms. Even in a globalized world, governance remains nation-based, making it difficult to create and enforce a truly neutral global currency. Efforts to introduce such a system, like Keynes’ Bancor proposal at Bretton Woods or modern cryptocurrency-based alternatives, have failed due to the dominance of sovereign interests.
Wang also discussed China’s digital RMB (e-CNY) and its potential impact on monetary policy. He noted that while digital RMB could improve transaction efficiency, its current classification as M0 (cash equivalent) is flawed. Unlike physical cash, digital RMB operates more like a deposit system with real-time balance updates. However, its international impact will be limited unless China further opens its financial system and enhances RMB liquidity.
In conclusion, Wang stated that while the hegemony of the U.S. dollar is widely criticized, no viable alternative has emerged. China must continue its economic and financial reforms, but RMB internationalization should be approached cautiously, with an emphasis on stability, regulatory strength, and market trust. Simply desiring a stronger RMB without the necessary systemic changes will not achieve true financial leadership.
You’re highly recommended to go through his entire speech because this is the coolest and best-informed discussion in China on the USD hegemony, the remote possibility of replacing the USD, central bank digital currency, etc. And, frankly, most discussions on social media about these subjects are not worth your time.
As in many Chinese occasions, the word 战争 war is used figuratively.
All emphasis are ours.
Please stay tuned for the 2nd part of his speech.
Wang Yongli has kindly reviewed the translation and summary before publication.
中行原副行长王永利：美元霸权从哪里来，到哪里去
Wang Yongli, Former Vice President of the Bank of China: Where Does U.S. Dollar Hegemony Come From, and Where Is It Headed?
Good evening, everyone! Dean Wang Wen of Chongyang Institute recently approached me with the idea of finding an opportunity to communicate with all of you, considering the current international situation—the U.S. was becoming increasingly domineering, issues like U.S. dollar hegemony, currency wars, and financial wars were gaining more traction, and especially with the U.S. presidential election going on, when the outcome was not as clear then as it is now and people were concerned about what might happen if Trump were to take office.
This was the topic assigned to me by Dean Wang—the financial war, specifically the U.S. domineering actions, U.S. dollar hegemony, the trend towards de-dollarisation, supranational currency, the future of the Federal Reserve, and how to respond to these issues.
It must be acknowledged that the U.S. dollar does indeed hold hegemony. The U.S. is waging currency wars and increasingly employing the dollar payments system to impose stringent sanctions on countries it deems unfriendly or hostile. This has heightened the awareness of an increasing number of nations, prompting responses such as the development of BRICS currencies and the BRICS Pay.
Although this is indeed an objective reality, it is essential to look beyond the surface to understand its implications and formulate appropriate responses. Therefore, I would like to take this opportunity today to discuss with all of you: Viewing the Global Financial War Through the Lens of the U.S. Dollar.
I. How to View the U.S. Dollar's Position as the No.1 International Currency
Currently, many countries are contemplating de-dollarisation and promoting the internationalisation of their national currencies to replace the dollar. However, this is not as straightforward as it seems. For example, some argue that China is already the second-largest economy and the world's largest trading nation in goods. So why has the RMB's share in global payments only reached about 4%, peaking at around 4.7%, compared to the U.S. dollar's approximately 47%, and over 50% at its height?
The RMB's share in global reserves is currently just over 2%, whereas the U.S. dollar once reached 70% and has now decreased to just over 58%. The RMB's share is even lower than that of the euro, which accounts for around 22-23%, and at its peak, could reach between 30% and 40% of global payments.
The combined share of the U.S. dollar and the euro in global payments used to be over 80%, and their share in global reserves was also above 80%. The shares of other currencies are significantly smaller, with few exceeding 5%. Why does such a substantial gap exist? Why is the RMB’s share so low? Can the Chinese government rapidly increase the internationalisation level of the RMB?
For example, after the Russia-Ukraine conflict, Russia mandated that all oil and natural gas exports to unfriendly countries be settled in rubles. Many questioned, with frustration, why China did not implement a similar policy requiring all exports to be settled in RMB to significantly boost its internationalisation. While this argument seems to serve as an outlet for people’s anger, it fundamentally deviates from reality.
When selecting a currency for cross-border trade payments, using the local currency theoretically helps mitigate exchange rate risks and lower transaction costs. However, this benefits one party while increasing costs and risks for the other, turning the choice into a matter of negotiation. Ultimately, the party with stronger bargaining power determines the currency. Sometimes, if neither party’s currency is widely accepted internationally, they may choose a commonly used international currency for pricing and settlement.
This shows that a country’s comprehensive national strength, global influence, and international standing shape a currency's international status. Only the currency of the most powerful nation—those that offer the best combination of security, liquidity, and profitability—has the potential to serve as an international reserve currency.
Comprehensive national strength is not limited to economic power, nor does GDP growth solely define it. While GDP rankings indicate the size of a country’s economy, they do not fully capture its overall economic strength. Economic strength results from long-term historical development, whereas GDP reflects only the added output of a single year. Therefore, even if a country experiences rapid GDP growth and eventually surpasses others, this does not necessarily mean its economic strength, including accumulations from history, is stronger.
More importantly, comprehensive national strength also includes education, research and development (talent and technology are decisive factors in international competition), good governance, legal environment, the ability to attract global talent, capital, and resources, as well as strong military and diplomatic power. These are all components of comprehensive strength. However, even a nation with considerable national strength may fall short if it is highly closed off and lacks sufficient international influence. Openness and integration into the world are also essential. From this perspective, a currency from the second-largest economy and the largest trading nation does not automatically become the second most important international currency—it may still lag far behind.
In the case of the United States, although its GDP surpassed that of the United Kingdom in the late 19th century, the U.S. dollar did not immediately surpass the British pound, which remained the dominant international currency at the time. Today, the U.S. remains the world’s largest economy. Its advanced education and research capabilities, along with strong natural and social foundations enable it to attract substantial global talent and capital.
After World War II, the U.S. held over three-quarters of the world’s gold reserves. To this day, the U.S. still holds the largest official reserves at 8,133 tons, while China only holds 2,264 tons. Additionally, the U.S. wields significant military power, leading NATO and operating military bases in numerous countries. It also played a key role in establishing and leading major international organisations and shaping global rules after World War II, cementing its status as the country with the most global influence. Following the dissolution of the Soviet Union, U.S. dominance further expanded.
Unless this geopolitical landscape undergoes a fundamental shift, de-dollarisation and replacing the U.S. dollar will remain extremely difficult. This is the first factor that must be considered objectively.
Many countries today promote de-dollarisation, but in reality, this is often a response to U.S. restrictions on their ability to use the dollar. A case in point is the recent speculation that the U.S. Treasury Department might lift sanctions on 11 Russian banks excluded from SWIFT after 2022. In response, the Russian president promptly stated that Russia does not reject the U.S. dollar.
In fact, as long as the U.S. dollar remains accessible, it continues to be the preferred choice due to its unparalleled acceptance as a unit of account and medium of exchange. It is only when access to the dollar is restricted that countries are forced to explore alternative options.
In July 1944, the United States led 44 countries in signing the Bretton Woods Agreement, establishing a system in which the U.S. dollar was pegged to gold, while other currencies were fixed in relation to the dollar. This arrangement established the dollar’s status as the international reserve currency.
This outcome was inevitable in the post-World War II era when the UK’s comprehensive national strength and global influence had declined sharply. The UK’s gold reserves were severely depleted, making it difficult to sustain the British pound as an international currency. As a result, then existing international monetary system fell into disarray, severely hampering the economic activities necessary for global trade and investment.
After many countries abandoned the gold standard, the U.S. dollar became the new anchor. By pegging the dollar to gold and other currencies to the dollar, the system partially restored the gold standard’s global monetary framework, playing a crucial role in facilitating the rapid expansion of international trade and investment. Without a stable currency, transactions and investments would have been highly inefficient, if not unimaginable. However, this arrangement was ultimately a temporary and pragmatic solution born out of necessity.
Although many still nostalgically call for the restoration of the Bretton Woods system or propose versions like Bretton Woods 2.0 or 3.0, the original system was essentially a partial revival of the gold standard. Given the limited supply of gold, it could never keep pace with the growing value of global tradable wealth, making its long-term sustainability impossible. The collapse of the Bretton Woods system was inevitable.
Even today, some advocate for a return to the gold standard, such as proposals for a BRICS currency backed 40–60% by gold, with the remainder pegged to major member currencies. These ideas all reflect a fundamental ignorance of fiat money.
The Earth's reserves of precious metals like gold and silver are limited. The amount that can be supplied as currency is even more restricted. However, in theory, the value of global tradable wealth is infinite: besides natural and physical goods, there are also many artworks and virtual assets like Bitcoin. If the currency supply cannot keep up, exchange and transactions will be severely restricted; the development of the economic society, especially globalisation, will stagnate; it will even exacerbate conflicts, causing greater shocks. This is something that needs to be understood clearly.
II. Becoming an International Reserve Currency Comes with Advantages and Challenges
It’s important to understand that becoming an international reserve currency is not just about the benefits. I have repeatedly raised this issue on many occasions, including when China is promoting the internationalisation of the RMB. I always emphasise that China must approach currency internationalisation with a rational mindset. For example, Germany did not actively pursue the internationalisation of Deutsche Mark.
Being an international currency has its advantages, but it also comes with significant challenges. Take the U.S. dollar as an example. As the international reserve currency, the U.S. dollar has become an invisible world currency while the Federal Reserve has become the invisible central bank of the world. Any major adjustments in the Federal Reserve's monetary policy have a profound impact on the global economy and financial systems. This gives the U.S. the potential to pursue its maximum interests worldwide, even at the expense of other countries' interests, including actively and deliberately suppressing them. This is the so-called currency hegemony, which is obviously unreasonable.
However, when people criticise something, they always subconsciously wonder, “Why can you do this, and I can’t?” But this is not sufficient for supporting an alternative system.
When the Bretton Woods system was established in July 1944, the United States made a crucial international commitment: one ounce of gold was equivalent to 35 dollars, and the U.S. guaranteed that dollars could be exchanged for gold at that fixed rate.
After the Bretton Woods system was established, the U.S. provided substantial aid to Europe to build alliances and engaged in the Korean War and the Vietnam War, all of which required large amounts of currency issuance. This issuance quickly exceeded the total amount of over 8,000 tons of gold, which was pegged to the dollar at the rate of 35 dollars per ounce, leading to excessive currency printing. When this happened, doubts began to arise. France, led by Charles de Gaulle, ordered the exchange of dollars for gold and returned the gold to France. As a result, the U.S. faced a severe run on its gold reserves.
The United States incurred significant losses to maintain the dollar’s international status and uphold its commitment. Ultimately, in August 1971, President Richard Nixon announced that the dollar would no longer be convertible into gold. This decision was widely criticised worldwide, as the U.S. unilaterally broke its promise, reneged on its commitment, and abandoned the dollar’s gold peg.
After abandoning this commitment, the U.S. was no longer constrained by gold, allowing for even greater freedom in printing U.S. dollars. Many argue that this made it easier for the U.S. to use its monetary policy to exploit the world.
Subsequently, regional and global financial crises became more frequent. Notably, each time a crisis occurred, it appeared that the U.S. was still able to benefit from it, even though the initial problems may have originated in the U.S. This is a fundamental phenomenon that has been widely observed.
Why was the Bretton Woods system destined to collapse? It was not due to the Triffin Dilemma but rather because the gold standard—or the use of gold as money—was inherently unsustainable.
Strictly speaking, under the gold standard, paper money was merely a token for daily transactions, while the actual circulating currency was gold itself. If money were issued strictly in accordance with the gold standard, the supply of currency would inevitably be insufficient, as any physical commodity on Earth is finite. It is not limitless. And what happens when supply fails to meet demand?
When the Jiaozi Bureau in Chengdu, Sichuan, established paper currency a thousand years ago, it was backed by copper with an initial promise of a 38% reserve. When people trusted the currency, there was no bank run, and the currency functioned well. But once it was over-issued, and when wars, major natural disasters, or external conflicts arose, there was a risk of significant over-issuance, leading people to demand exchanges and causing the currency to collapse. This is a natural and inevitable problem of physical commodity-backed currency, a "shortage curse." And the absence of currency is very dangerous.
Currencies evolve through different stages, and each major phase brings significant progress. There are many driving factors behind this evolution, but the primary factor is that the supply of the previous form of currency could no longer meet the demands, prompting the search for more easily issued and manageable alternatives. As economies grow, so does the demand for currency, necessitating further advancements in the monetary system.
For a long time, people have believed that currency must be tangible and measurable. Even today, when discussing the gold standard or gold as money, many assume that currency must be backed by something concrete. However, this view is wrong and reflects a misunderstanding of currency.
For a currency to achieve internationalisation, a country must first open its markets and allow its currency to be freely convertible. Without this fundamental requirement, the currency cannot circulate either in or out.
However, this presents a challenge: large capital inflows or outflows can exert significant pressure on the currency, including the financial market and financial management. Managing this requires balancing the free flow of currency while maintaining effective regulation and stable market operations.
For example, limited programs like Qualified Foreign Institutional Investors (QFII) or Renminbi Qualified Foreign Institutional Investors (RQFII) enable capital flows of tens of billions from the Hong Kong market to the mainland. If these amounts could destabilise China’s stock markets, then what China now has is clearly far from enough for an internationalized currency. What is truly needed are deep and broad markets, supported by robust regulatory mechanisms that enable capital flows while effectively managing risks and maintaining stability. The risks in this area are substantial.
More importantly, as the financial sector expands rapidly as a virtual economy, it attracts substantial social resources, including human capital, to the virtual economic sphere. Meanwhile, the real economy may become relatively weakened.
Why is the U.S. pushing for reindustrialisation and reviving its manufacturing sector? The reason is apparent: while finance offers easy profits, those gains primarily benefit a shrinking group of large capital firms and financial conglomerates, leaving an increasing number of people unable to participate. This leads to a concentration of resources in fewer hands, exacerbating inequality.
As a result, the so-called welfare state model—formed after World War II and characterised by a large middle class and small upper and lower classes in an oval-shaped structure—comes under severe strain.
The assets of the U.S. middle class have seen little to no growth since 1990. This is why, following the global financial crisis, many Americans began identifying themselves as part of the “99%,” arguing that the country’s wealth had been concentrated in the hands of the remaining 1%.
Later, after further analysis, leading university professors concluded that it is not even the top 1% but rather the top 1% of the 1%.
The way money operates today, particularly in financial transactions, enables the rapid trans’s rapid transfer and polarization within minutes. This makes it increasingly difficult to determine whether these assets truly belong to any specific nationality.
The U.S. financial market is global, with its stock, bond, and commodities markets open to international participation. Why do China concept stocks exist? Because Chinese companies also seek listings in the U.S. Similarly, not all investors in the U.S. market are American—people from around the world take part. Many Chinese dollar-denominated funds are also invested in U.S. financial markets.
From this perspective, if a country focuses too much on the advantages of currency dominance and financial dividends, it risks hollowing out its real economy. By the time this issue becomes apparent, it may already be too late to reverse the trend.
The U.S. is now determined to reindustrialise, but can it do it? The large-scale return of manufacturing requires massive investments in infrastructure and workforce training. At the same time, the U.S. is working to expel illegal immigrants—could this lead to severe social unrest?
It’s easy to dismantle an old system, but it’s very difficult to establish a new one and ensure it runs smoothly. Will this process bring unforeseen consequences? Only time will tell. From a broader societal perspective, excessive reliance on currency dominance, financial dividends, and the virtual economy—without a solid foundation of real wealth—is a dangerous path.
Therefore, it must be recognized that RMB becoming an international currency is not just about the benefits. If it's handled poorly, the challenges are immense.
III. Can the U.S. Dollar Be Replaced by a Supranational Currency
If other sovereign currencies cannot replace the U.S. dollar, can a supranational currency be created to substitute it? Many have been contemplating this idea because, in theory, currency is a crucial infrastructure. In theory, the international community should effectively constrain an international reserve currency to prevent the issuing country from excessively pursuing its interests at the expense of the interests of other countries or the international society.
However, the reality is that today's international reserve currencies result from competition based on comprehensive national strength and global influence. They are the currencies of the most powerful countries. Can other nations truly constrain them?During the U.S.-Soviet confrontation, the United Nations may have had some influence, but once one superpower collapsed, the world became unipolar. To be blunt, the actual influence of the UN nowadays is clear to all. Today, countries like Israel even turn a deaf ear to the words of the five permanent members of the UN Security Council.
The world is now facing a common issue: the globalisation of the economy and finance has far surpassed global governance capabilities. Governance is still primarily based on sovereign nations. Even though the European Union and the Eurozone exist, the states remain the dominant entities within them. A complete and effective international governance mechanism has not yet been formed. As a result, it is difficult to impose effective constraints on the most powerful countries. Consequently, issues such as interest rate wars, currency wars, and financial wars centred around the U.S. dollar are inevitable and increasingly severe.
Why has there been so much focus on the U.S. presidential election? Because of the United States’ immense international influence. Any country engaged in globalisation is inevitably connected to the U.S. Unless a nation is extremely closed off—though such a nation would struggle to develop—ignoring or avoiding U.S. affairs is simply not possible.
This is especially true for China. It is essential to monitor changes in the U.S. dollar, the U.S., and its fiscal and monetary policies. Ignoring or evading these developments is not a viable option.
The idea of de-sovereignising and supranationalising currency has existed for a long time. In the 1960s, Friedrich Hayek argued that it was fundamentally unreasonable for currencies to be controlled by sovereign states. He believed that currency should be de-sovereignised and managed by the private sector, with the government playing only a regulatory role. Hayek contended that if governments directly controlled currency, there would be no entity to regulate the government itself, which he saw as highly unfair.
In his later years, Hayek dedicated himself to promoting a de-sovereignized currency. However, because this idea ran counter to the direction of monetary development, even a thinker of his stature ultimately failed to realize his vision. The de-sovereignisation of currency remains impossible.
Today, Hayek's ideas have been revived with the rise of Bitcoin and other cryptocurrencies. Yet, many seem to have forgotten the reasons behind Hayek’s failure.
Another concept is supranationalisation. During the 1944 Bretton Woods Conference, Britain’s chief negotiator and renowned economist John Maynard Keynes proposed a system in which currency allocation would be based on each country’s share of international trade. This system would introduce a supranational currency backed by multiple currencies, which he named the Bancor.
However, given the urgent need for a global currency, Keynes’s proposal was rejected by the participating countries of the Bretton Woods Conference. Instead, they accepted the U.S. proposal: the U.S. dollar would be pegged to gold, while other currencies would be pegged to the dollar. The International Monetary Fund (IMF) and the World Bank were further established to manage this system.
In the 21st century, particularly after the subprime mortgage crisis and the global financial crisis, Bitcoin emerged, followed by Ethereum. Ethereum introduced a key innovation: beyond smart contracts, it created a new application scenario—Initial Coin Offerings (ICOs).
The ICO model allows anyone who has downloaded the open-source ERC-20 to issue their own digital currency. However, fundraising was restricted to Bitcoin and Ethereum, as raising fiat money without a license is considered fraudulent. This created a unique application scenario, which drove the price of Bitcoin from under $300 at the start of 2013 to around $1,200–1,300 by the year’s end, delivering a strong shock to the market. Since then, supranational digital currencies have proliferated.
Cryptocurrencies can be categorised into two types. One type consists of pure blockchain assets, like Bitcoin, which have no direct connection to anything in the physical world.
Bitcoin’s blockchain includes only two functions. The first is mining. Every 10 minutes, a new block is mined, with miners competing to solve a cryptographic puzzle. Although the computation required to find a valid solution is complex, verification is relatively simple. The first miner to successfully solve the puzzle adds a new block to the blockchain, and this update is recorded across all network nodes.
The second function is peer-to-peer (P2P) transfers between nodes, which, along with mining and currency generation, define Bitcoin’s operation as a highly closed blockchain system.
Because Bitcoin operates on a closed blockchain, it has remained resistant to hacking and secure. However, its highly closed nature also presents a problem—Bitcoin does not directly solve real-world problems. It does not hold value until converted into fiat money through external exchange platforms. This is why, rather than mining, many smart people prefer to profit from setting up cryptocurrency exchanges. This is the nature of Bitcoin: an original, blockchain-based asset.
The second type of cryptocurrency consists of digital security assets issued through ICOs, which are effectively digitalised securities due to their fundraising nature. The U.S. Securities and Exchange Commission (SEC) has a clear regulatory stance: Bitcoin is classified as a digital asset and can be traded, though under strict regulation, whereas tokens issued through ICOs are considered digital security assets and must be strictly regulated by the SEC. Meanwhile, the Commodity Futures Trading Commission (CFTC) classifies digital assets like Bitcoin as commodities. It asserts jurisdiction over them, leading to an ongoing regulatory debate between the SEC and the CFTC.
As Trump returns to office, he could push for the deregulation of cryptocurrencies. However, if he were to consider using Bitcoin—which is highly volatile—as a national strategic reserve, a reserve asset to back the U.S. dollar, or even a replacement for the dollar to weaken the Federal Reserve’s role, it would be extremely dangerous. If the reputation of the U.S. dollar were to be weakened, I believe it could signal the end of U.S. global influence.
Another potential type of cryptocurrency consists of Central Bank Digital Currencies (CBDCs) issued by several national central banks. After the rapid rise in the value of Bitcoin and Ethereum, in 2013, during the G20 Finance Ministers and Central Bank Governors Meeting, countries suddenly realised the potential risks of digital currencies and decided that they too needed to create digital currencies.
Initially, many countries downloaded Bitcoin or Ethereum’s open-source codes to model their own CBDC, but they made a fundamental error in their logic. Bitcoin and Ethereum are decentralised and supranational, whereas CBDCs, no matter how they evolve, are digital, intelligent versions of sovereign currencies. If this basic logic is not understood, the project will inevitably hit a dead end.
Consequently, many countries have halted their CBDC developments. Debates are still ongoing regarding their precise role: should CBDCs function as retail currencies for public use, wholesale currencies for financial institutions, or a hybrid of both?
After 2017, China officially defined its digital RMB (e-CNY) as being based on M0. However, this classification is definitely flawed. M0 refers to cash in circulation—physical currency consisting of paper banknotes and coins. But digital RMB is more like a deposit system with an account-based structure. Unlike traditional transactions recorded as income, expenditure, and final balance, the digital RMB updates balances instantly with each transaction through multi-tiered digital wallets.
A key feature of the digital RMB is its hierarchical management system. Each transaction resets the payment credential, providing only balance information without revealing excessive transaction details.
Everyone understands that once cash is withdrawn from a bank, if it is lost, stolen, or destroyed, the bank bears no responsibility. However, the bank must be held accountable if unauthorised transactions occur in a bank account. The nature and management of digital RMB wallets align with this account-based model.
Can the digital RMB only replace cash? Its impact would be minimal if the digital RMB were strictly limited to replacing physical cash (M0). The total money supply in China exceeds 300 trillion yuan, while cash in circulation (M0) accounts for only about 12 trillion yuan—roughly 3%. This is a tiny proportion.
Initially, many assumed that the rise of mobile payment platforms would drastically reduce the amount of cash in circulation. However, cash usage has continued to grow. Why? Beyond serving as emergency funds, cash has several unique functions. Like Bitcoin, it is often used in grey areas where only cash can avoid full traceability or oversight.
Unlike cash or Bitcoin, the digital RMB—like conventional bank deposits and transfers—is fully traceable and regulated, with transaction records stored and monitored. Therefore, the digital RMB remains a sovereign currency.
Some people ask: Isn’t the euro a supranational currency? The euro is not a supranational currency; it is a regional sovereign currency. Unlike Special Drawing Rights (SDR) or Facebook’s Libra, which are tied to multiple currencies, the euro is not backed by a basket of currencies.
Any currency structurally pegged to multiple sovereign currencies must coexist with those linked currencies simultaneously, making the management of two legal currencies highly complex. The euro, however, is different. Upon its official introduction, the original sovereign currencies of member countries were withdrawn, eliminating the need for a pegging mechanism. Therefore, the euro is not a supranational currency; rather, eurozone member states surrendered their monetary sovereignty to form a unified currency. However, since the euro is used by entities that are not fully sovereign, economic coordination within the eurozone remains complex to this day.
When the euro was first introduced, many thought it would replace the U.S. dollar, and its exchange rate against the dollar surged rapidly. However, it has since become clear that displacing the dollar is extremely difficult. This is also why SDR, which is based on the U.S. dollar and pegged to multiple currencies, has not become a truly circulating currency. Instead, it has remained a supplementary reserve asset within the IMF and its affiliated institutions, functioning primarily as an internal unit of account.
Additionally, stablecoins, which are pegged to a single sovereign currency, are not always maintained at a strict 1:1 backing but rather follow a fixed proportion. Many such stablecoins exist today, including USDT (Tether), USDC (USD Coin), and others.
In China, the legal currency is the renminbi, but this does not mean that various institutions or platforms—such as meal tickets in schools, shopping mall vouchers, or tokens and points on e-commerce platforms—can function as currency. These are restricted to their designated usage scope, and using them beyond that could undermine the regulation of legal tender.
That is why the People’s Bank of China Law and the Regulations on RMB Management explicitly state that no entity is allowed to issue currency that replaces the circulation of the RMB. Many imagined collecting shopping reward tokens to use across different platforms, but the People’s Bank of China would quickly intervene and put a stop.
What I want to say is that although the hegemony of the U.S. dollar is a shared concern, no supranational currency has been found to replace it.
 | A guest post by
|