At the beginning of the new year, Chinese state media published an article by the Chinese Communist Party leader Xi Jinping, urging the establishment of a “strong currency” to elevate the Chinese Yuan to the status of an international reserve currency. A former Chief Economist of the IMF stated that Xi Jinping’s article signals that the Chinese Communist Party will accelerate the internationalization process of the Chinese Yuan.
“I believe China needs to do this to counter the geopolitical economic influence of the United States. The Yuan, like the Chinese (Communist) military, is an important tool used by the Chinese Communist Party to counter US strength. Xi Jinping understands this. Europeans are also beginning to understand this,” Harvard University Economics Professor and Morris C. Boas International Economics Chair Professor Kenneth Rogoff told Epoch Times.
Rogoff served as Chief Economist of the International Monetary Fund (IMF) from 2001 to 2003. He is a member of the National Academy of Sciences and the American Academy of Arts and Sciences. He has long been one of the top twelve most frequently cited economists and is also an International Chess Grandmaster.
On January 31, the Chinese Communist Party leader published a commentary in the party’s official newspaper “Qiushi,” stating that China needs to establish a “strong currency” that can be widely used in international trade, investment, foreign exchange markets, and achieve reserve currency status. These comments were originally part of a speech by Xi Jinping to senior regional officials in 2024.
Rogoff stated, “This speech indicates that he recognizes that China needs to become a reserve currency as soon as possible. He is signaling to officials and regulatory agencies that he wants to accelerate the process.”
However, Rogoff pointed out that there are many obstacles to the internationalization of the Yuan, and it is more difficult to accomplish this transformation than anything else.
“There are many obstacles, but I think the most important is that China (Communist) must fully open its government bond market to international investors. It doesn’t need to open all markets, and it doesn’t necessarily need to open the stock market (although opening the stock market would help), but it is crucial that investors can freely trade government bonds,” Rogoff said.
Opening up the Chinese Communist government bond market will increase the supply of Yuan-denominated assets and is crucial for foreign central banks and investors holding reserves. However, despite the fact that the Chinese Communist government has opened the bond market to foreign investors, trading is still restricted by regulatory, capital control, and liquidity barriers. Foreigners face restrictions on using futures for hedging, may be subject to capital repatriation restrictions, and need to register with the Chinese central bank.
Rogoff stated that for the Yuan to become an international reserve currency, it must also be freely traded without any capital controls on currency transactions.
“These are quite basic changes that China (Communist) needs to make. It must allow the Yuan to float freely,” he said. “What it most needs to do is not intervene in the buying and selling of bonds, nor levy taxes, impose controls, or restrictions on the amount people can buy and sell Yuan. If people can’t freely use a currency, it can’t become a reserve currency. And the true meaning of freely using a reserve currency is trading bonds.”
Currently, the Chinese Communist party implements a “closed” capital account and tightly regulates Yuan exchange. Onshore Yuan transactions are subject to a daily 2% fluctuation limit set by the Chinese central bank. Individuals are not allowed to conduct foreign exchange transactions exceeding $50,000 annually. Companies engaging in large foreign exchange transactions must provide relevant documents. The State Administration of Foreign Exchange (SAFE) supervises capital flows, limiting funds entering and leaving China.
Rogoff pointed out that the Chinese Communist’s strict financial controls benefit vested interest groups, hence there is much political resistance to the internationalization of the Yuan. Rogoff believes that “this is more difficult to achieve than anything else.”
“Current systems favor enterprises benefiting from the directed credit system in China, especially state-owned enterprises and supported emerging industries, which can borrow at lower rates for overseas investments. It also benefits exporters, as they can profit from relatively weak exchange rates, but this harms consumers as they have to pay higher prices for imported goods,” he said.
Nevertheless, in order to compete with the US, the Chinese Communist Party is striving to establish the Yuan as a global reserve currency. Rogoff believes that making the Yuan a reserve currency is its inevitable choice in terms of geopolitical economics and geopolitics.
Xi Jinping wrote in his article in “Qiushi” that for the Yuan to achieve internationalization, China needs to establish a “strong central bank” capable of effective currency management, globally competitive financial institutions, and an international financial center capable of “attracting global capital and influencing global pricing.”
However, the authoritarian system of the Chinese Communist Party contradicts the incubation conditions for the internationalization of the Yuan.
Rogoff pointed out that a crucial step in the internationalization of the Yuan is to instill confidence in investors. “Strengthening the rule of law in China will encourage foreign investors to believe that their funds are safe.”
However, in reality, the Chinese Communist Party’s practice of prioritizing power over the law is scaring off foreign investors, leading to a continuous decline in investment. According to the US State Department’s “2025 Investment Environment Report,” foreign investment in China fell by 27.1% in 2024, the largest drop since 2008.
US and other foreign companies have expressed growing concerns about doing business in China for various reasons. These include China’s weak economic growth, restricted business environment, and the Chinese Communist government increasingly using legal and regulatory means as diplomatic leverage or targeting foreign individuals and companies violating the political red lines of the Chinese Communist Party.
Senior Fellow at the Cato Institute Doug Bandow wrote that a society practicing totalitarian politics and social control cannot allow markets to truly develop freely. Xi Jinping’s push to revert China back to the era of Mao Zedong exacerbates people’s sense of pessimism.
Xi Jinping is intensifying dual control over the party and individuals. He exhibits Stalinist methods, with the government explicitly warning the public to resist “Western values.” Many prestigious universities and research centers with global aspirations are becoming increasingly disconnected from their international peers.
Cornell University Economics Professor and Director of the IMF Research Department’s Monetary and Capital Markets Department Eswar Prasad wrote, “Without significant reforms to its system and political structure, the Yuan cannot attain the status of a ‘safe haven currency.'”