Zhang Ming: A Chinese model for currency internationalisation is taking shape

Manufacturing strength and growing overseas investment are giving Beijing a path different from the United States's.

The dollar’s rise has long suggested a familiar path to currency internationalisation: run trade deficits, supply the world with liquidity and draw the money back through deep financial markets.

Zhang Ming, Deputy Director of the Institute of World Economics and Politics, Chinese Academy of Social Sciences (CASS), and Deputy Director of the National Institution for Finance and Development, suggests that China is pursuing a different model, one rooted in the strength of its manufacturing sector rather than the dominance of its financial markets. That strength could allow China to sustain current-account surpluses even as Chinese companies, banks and investors send more capital abroad. Supplying renminbi through financial-account outflows and drawing it back through current-account surpluses, he argues, is emerging as a distinctively Chinese path to currency internationalisation.

This article was first published on 15 June in Issue No. 12, 2026, of China Forex, a publication overseen by the State Administration of Foreign Exchange (SAFE), China’s foreign-exchange regulator.

Zhang has kindly reviewed and authorised the translation.

—Yuxuan Jia

货币国际化的中国路径

The Chinese Path to Currency Internationalisation

One view holds that the renminbi internationalisation will remain constrained as long as China continues to run a current-account surplus. The reasoning is that a country must run current-account deficits to supply its currency to the rest of the world.

The United States is often cited as the leading example. It supplies dollars to the global economy through persistent current-account deficits while attracting those dollars back through sustained surpluses in its non-reserve financial account. This combination of a current-account deficit and a financial-account surplus has underpinned the global circulation of the dollar.

The United States’ persistent financial-account surpluses reflect the competitiveness of its financial markets. On the one hand, U.S. markets can supply large volumes of global safe assets—most notably U.S. Treasury securities—to meet other countries’ demand for reserve investments. On the other hand, they offer a broad range of higher-return risk assets, particularly U.S. equities, to meet the investment needs of private-sector investors around the world.

The well-known concept of “petrodollar,” for example, describes how oil-exporting countries reinvest in the United States the dollars they earn from oil exports.

However, the model of supplying dollars through current-account deficits is subject to the Triffin dilemma. To meet global demand for dollar liquidity, the United States must continue to run current-account deficits. Yet persistent deficits also increase its net external debt.

As that debt approaches a level investors consider difficult to sustain, concerns may grow that the U.S. government will seek to reduce the real burden of its liabilities through a sharp depreciation of the dollar. There is therefore an inherent tension between supplying the rest of the world with sufficient dollar liquidity and preserving the stability of the dollar’s value.

U.S. net external debt has now risen to more than 90% of nominal GDP, compared with only 20% when the global financial crisis erupted in 2008.

There is no single prescribed path to currency internationalisation. A country seeking to expand the international use of its currency must choose the approach best suited to its resource endowments and competitive strengths.

For China, advancing renminbi internationalisation through a combination of a current-account surplus and a non-reserve financial account deficit may be both more realistic and more sustainable.

On the one hand, Chinese manufacturing is highly competitive globally. Its strength lies not only in price competitiveness, but also in product reliability, comprehensive industrial supply chains, and the ability to respond quickly to changing market demand.

China now accounts for roughly one-third of global manufacturing value added. Given its continued strength in both traditional and emerging manufacturing industries, the country is likely to maintain a current-account surplus for a considerable period.

On the other hand, Chinese companies, financial institutions, and households all have strong incentives to expand their activities overseas.

For Chinese companies, the combination of China-U.S. trade frictions and intensifying geopolitical tensions has made the global diversification of supply chains increasingly necessary. As more Chinese companies invest and establish production facilities abroad, China’s outward FDI may continue to exceed inward FDI.

Chinese financial institutions and households also have considerable demand for global asset allocation as they seek to achieve a better balance between risk and return. Given China’s vast pool of domestic savings and the resulting demand for internationally diversified securities portfolios, outward portfolio investment may continue to exceed foreign portfolio investment in China.

In addition, because Chinese interest rates are now significantly lower than those in the United States, overseas demand for renminbi-denominated financing has increased markedly. As a result, the “other investment” component of the balance of payments is also likely to remain in deficit, making China a net provider of cross-border credit to the rest of the world.

Indeed, China’s balance-of-payments structure in recent years has increasingly exhibited precisely this pattern: a current-account surplus combined with a financial-account deficit. Direct investment, portfolio investment, and other investment have all recorded deficits to varying degrees.

Supplying renminbi to the rest of the world through financial-account outflows, while allowing the currency to flow back to China through current-account surpluses, is emerging as a distinctively Chinese path to currency internationalisation.

Compared with the U.S. model, persistent current-account surpluses would increase China’s net external assets. Over the medium term, this could reinforce expectations of renminbi appreciation and help China avoid the Triffin dilemma to some extent. The Chinese path may therefore prove more sustainable than the U.S. model.

The United States itself followed a similar path during the early years of the Bretton Woods system, combining current-account surpluses with financial-account deficits.

Under the Marshall Plan, for example, the United States extended loans to European countries, which then used the funds to purchase American machinery, equipment, and other goods needed for postwar reconstruction.

This historical experience suggests that currency internationalisation may proceed in two stages.

In the first stage, a country’s principal competitive advantage lies in manufacturing. It therefore promotes the international use of its currency through a combination of current-account surpluses and financial-account deficits.

In the second stage, as the relative competitiveness of its financial markets rises and that of its manufacturing sector declines, the country shifts towards a model based on current-account deficits and financial-account surpluses.

The internationalisation of the renminbi is currently in the first of these two stages.