Summary of Key Points
This article focuses on the "reconstruction of the monetary system under great power rivalry and the path to the internationalization of the RMB." By examining historical parallels (the alternation of British and American hegemony and the evolution of the monetary system), it analyzes the current international environment (counter-globalization and the weaponization of the US dollar). It argues that the essence of Sino-US competition is for each country to "address its own issues internally" rather than engaging in a zero-sum game. The way forward for the internationalization of the RMB lies in avoiding the old hegemonic path, promoting high-quality domestic development, de-geopolitization, and exploring the possibility of a supranational currency. The ultimate goal is to provide diverse public goods for the world, rather than becoming a new hegemonic currency.
I. Historical Parallels: The Alternation of British and American Hegemony and the "Cyclical Code" of the Monetary System
Zhang Yansheng uses history from the 19th to the 20th century to illustrate that monetary hegemony does not happen overnight, and openness is always accompanied by crises:
- The Rise and Fall of British Hegemony: In 1820, China's GDP accounted for 32.9% of the world's total, but Britain became the hegemon through the Industrial Revolution, free trade, and the gold standard (established in 1870). However, the two World Wars from 1914 to 1945 led to the collapse of the gold standard, marking the end of British hegemony.
- The Rise of the United States: The US became the world's leading industrial power in 1894 but did not establish dollar hegemony until 1945—taking 50 years! The key was that the US used isolationism to avoid wars and accumulated gold during these conflicts (holding 62% of the world's gold reserves after World War II). It also used the Lend-Lease Act to compel allies to pay in dollars and gold, gradually undermining the foundation of the British pound.
- Implications: Monetary dominance is a result of long-term national strength, and warfare occurs not only on the battlefield but also in financial and strategic choices.
II. The Current Environment: The Collapse of the Old Order and the "Weaponization" of the US Dollar
The world today is not in an era of openness but rather one of high risk due to counter-globalization and geopolitical conflicts. The US is attempting to overthrow the old order it established:
- From "Rules" to "Transactions": In the past, the US provided free public goods (such as security and open markets); now, it demands equal payment—asking other countries to bear the cost of security and imposing tariffs on trade openness. This reflects its desire to no longer act as a "free benefactor."
- The Weaponization of the Dollar: The US uses the dollar as a tool to pressure rivals (e.g., by freezing their foreign exchange reserves), which has led to the decline of the euro, pound, and yen. This suggests that the internationalization of the RMB could become the next target for suppression.
- Risks: The shift from a "rule-based" to a "transaction-based" global monetary system poses systemic risks, such as countries avoiding using the dollar and causing chaos in global trade settlements.
III. The Essence of Sino-US Competition: Who Can Better "Address Their Own Issues Internally"
Zhang Yansheng emphasizes that great power rivalry does not involve directly defeating each other but rather weakening oneself. The core of Sino-US competition lies in the ability to carry out internal reforms:
- Problems Faced by the US: High debt (national debt exceeding $33 trillion), hollowing out of its manufacturing sector, and social divisions.
- Problems Faced by China: Needing to transition to high-quality development, make breakthroughs in technological innovation, and improve its domestic market.
- Critical Understanding: The internationalization of the RMB is not intended to replace the dollar as a new hegemon. The US dollar's hegemony has led to issues like the Triffin Dilemma (excessive printing of dollars leading to devaluation and insufficient supply). China aims to provide diverse public goods (such as through the Belt and Road Initiative and its national debt as a safe asset) to counter global imbalances.
IV. The Path to the Internationalization of the RMB: Two Approaches to Avoiding Hegemonic Traps
In the face of external pressure, the correct path for the internationalization of the RMB is to "strengthen internally while innovating externally":
- The First Step: Seek a voice within the existing dollar system—e.g., increasing the use of the RMB in trade settlements and foreign exchange reserves, and making Chinese national debt a global safe asset (similar to US Treasury bonds but without adopting hegemonic practices).
- The Second Step (more important): Explore the possibility of a supranational currency—e.g., upgrading the SDR (Special Drawing Rights) and developing digital payment systems that are independent of sovereign countries.
- Avoiding Traps: Establish three mechanisms: a balance between currency and safe assets, a profit-and-loss compensation mechanism to share risks when using the RMB, and a coordination mechanism to prevent conflicts between great powers.
V. The Three Possible Futures for the Monetary System: Which One Should We Choose?
Zhang Yansheng analyzes three potential outcomes and suggests that China should pursue the third option:
- The Worst Scenario: A world divided into two systems, one based on the dollar and another on non-dollar currencies, leading to mutual isolation and economic collapse (e.g., doubling trade costs).
- The Doubtful Option: Multipolarity: The past 50 years have shown that the US will suppress any currency that challenges the dollar (the euro and yen have failed), making multipolarity unlikely. This could result in China taking on unnecessary responsibilities.
- The Ideal Option: A supranational currency, following Keynes' plan from 1944—creating a currency independent of any single country's control. China should promote a community with a shared future for mankind and explore this path through digital currencies and SDR upgrades, rather than becoming a new hegemon.
Conclusion
Zhang Yansheng's main point is clear: The future of the monetary system depends on whether great powers can solve their own problems and are willing to provide mutually beneficial public goods for the world. The ultimate goal of the internationalization of the RMB is not to replace the dollar but to offer a fairer and more stable global currency option—this is China's contribution to global modernization.