Amid the escalating trade tensions between China and the United States, last week saw the biggest weekly increase in the yield of the US Ten-Year Treasury Bonds since 2001, causing anxiety among investors. However, US Treasury Secretary Scott Bessent recently denied speculations of significant foreign selling of US bonds, stating that they can increase repurchase sizes if needed. In China, outspoken economist Xiang Songzuo bluntly stated in a lecture that the US dollar is unlikely to collapse. Regarding whether the Chinese Yuan could replace the US dollar, Professor Xiang Songzuo remarked that the Yuan hasn’t even achieved free convertibility yet.
There has been a viral online spread of a recording of Xiang Songzuo’s speech on the US-China trade war. Some voices in China have raised concerns about a “US dollar collapse,” to which Xiang Songzuo responded by saying that the US dollar will not collapse.
Xiang Songzuo explained, “We typically understand a currency collapse as a sudden devaluation of one currency against another, like a 30% depreciation. For instance, when Russia first occupied Crimea, the Russian Ruble depreciated by 30% within a week, which is considered a collapse. However, the US dollar won’t collapse. The reason is simple: there hasn’t been any currency in the world that can replace the US dollar’s status. This is a very unique advantage for the United States.”
He outlined five major factors that solidify the US dollar’s foundation:
“Firstly, it has a constitutional and legal base that protects private property rights, making it relatively safe. Secondly, its economic scale is large enough. Thirdly, its technological innovation capabilities. Fourthly, its educational level.”
Xiang Songzuo emphasized the fifth reason why the US dollar is unshakeable, stating, “It’s actually more important because of the breadth and depth of its financial markets, unmatched by any country in the world. Just think, the US stock market now accounts for about half of the global market value. The total global stock market value is approximately $120 trillion, with the US representing half of that. Its bond market is also immense. This explains why most of the world’s foreign exchange reserves, including China’s, are invested in US bonds.”
He cited examples of why countries like China, Hong Kong, Taiwan, Singapore, Saudi Arabia, and Japan have invested large amounts in US bonds, reiterating that the US debt is essentially the world lending money to the Americans. Currently, foreign-held US treasuries exceed $10 trillion.
“If China were to have foreign investors willing to lend the country 100 trillion RMB annually, what does that concept mean? How many foreign investors are buying Chinese Yuan bonds currently? Not many. Don’t listen to those who claim that ‘the US is finished’ or ‘the US is going bankrupt.'”
“If China borrows tens of billions of US dollars in foreign debt, it might go bankrupt, why? Because you can’t print US dollars yourself. But the US debt is in its own currency; it is the country of the US dollar. How could it go bankrupt?”
“My conclusion is that there is no issue of a US dollar ‘collapse’ because it’s not targeting anyone, and no one can replace it.”
Xiang Songzuo indicated that it remains uncertain which country could replace the US in the future. As for China, it hasn’t even achieved free convertibility of the Yuan yet.
He also stressed that surpassing the US in GDP or becoming the world’s top economy does not automatically make a country a world leader. It’s not that simple.
“The fundamental goal of a country’s economic development is not to show off or become the top dog in the world. It’s to ensure every citizen can escape poverty, have care in old age, education, housing, and medical care. This is the fundamental purpose of a country’s economic development.”
He added, “Even if your GDP surpasses the US or becomes the number one globally, it doesn’t mean you are the world leader. Leadership is not just determined by economic scale but by higher levels such as your creativity, influence on the world, humanistic spirit, and whether your technology and artistry can lead the world. That’s the source of being respected by the world.”
Xiang Songzuo expressed strong dissatisfaction with economists who constantly discuss when China will surpass the US. There are still many impoverished people and issues like eldercare and healthcare not being addressed in China. Why are you not concerned about these matters?
Xiang Songzuo, a former professor at Renmin University of China and director and deputy director of the Institute of International Monetary Research at Renmin University of China, was censored in 2019 for questioning the overestimation of China’s GDP growth figures.