By Yang Xuefeng

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At present, under the impact of factors such as deep adjustments in the global balance of economic power, frequent geopolitical crises, the “weaponization” of finance, and the accelerating pace of technological progress, the existing international monetary system is unable to cope with complex and rapidly changing external challenges and is undergoing continuous evolution.

I. Stylized Facts: The Basic Landscape of the Current International Monetary System

In the process of global de-dollarization, the international monetary system has shown a trend of evolving from the hegemonic system of unipolar dollar dominance formed after the collapse of the Bretton Woods system toward a parallel pattern of multipolarization, regionalization, and digitalization. The dollar’s core position remains, but its hegemonic status is gradually being eroded.

1. Reserve Currency: De-dollarization Continues to Deepen, and a Multipolar Coexistence Pattern Is Gradually Taking Shape

Data from the International Monetary Fund (IMF) show that the dollar’s reserve share has declined from 69.74% in 2000 to 56.42% in 2025, with a clear long-term downward trend. Even though there were periodic rebounds during this period, the long-term downward trajectory remains unchanged. This long-term non-cyclical decline can be explained by central banks’ construction and rebalancing of reserve portfolios based on market efficiency and asset security under the existing institutional system.

The trend toward diversification of reserve currencies is becoming increasingly obvious. In the process of building diversified reserves, central banks have included non-traditional international currencies in their portfolios, broadening the options for international reserve currencies. The share of non-traditional international currencies in international reserve currencies has risen from 2.48% in 2017 to 6.13% in 2025. Although the absolute share is still not high, it has increased by nearly 1.5 times.

The substitution effect of gold reserves is significant. From 2022 to 2025, global central banks’ net gold purchases exceeded 4,000 tons, and official gold reserves surpassed U.S. Treasury bonds for the first time. The logic behind this is both the increased demand for central bank asset allocation under the trend of weakening dollar credit and a strategic reconstruction of sovereign states’ control over financial assets under financial sanctions.

2. Settlement Currency: Dollar Settlement Is Retreating, and Local Currency Settlement Is Rising Trendily

In 2025, the dollar accounted for 56% of global trade settlement. Its dominant position remains, but its leading advantage is declining. The dollar’s advantage in trade settlement comes from the dollar-denominated and dollar-settled system for mainstream global commodities (such as crude oil, gold, copper, soybeans, etc.), especially the petrodollar system. This system has provided strong support for the dollar in maintaining its core position in the international monetary system.

Although the petrodollar system has been impacted in recent years, and some oil-producing countries, oil-consuming countries, and countries subject to U.S. sanctions have continuously advanced de-dollarization in oil settlement—for example, China and Russia use renminbi and rubles in oil settlement, and China and Saudi Arabia use dollars and renminbi in oil settlement—the scale of non-dollar oil settlement is still too small compared with global petrodollar settlement to shake the dollar’s oil settlement position. However, de-dollarization of oil settlement means the reconstruction of the oil settlement system, that is, the transition from a dollar monopoly settlement system to a multi-currency coexistence settlement system. In the long run, the shift in the balance of currency settlement, or in other words the substitution of other currencies for the dollar, will continue to continuously shake the dollar’s trade settlement position.

3. Payment Currency: Position Remains Solid, but Payment Infrastructure Is Becoming Multi-threaded

Data from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) for May 2026 show that the dollar accounted for 50.73% of global payments, a slight increase from 50.49% at the end of 2025. On the one hand, this comes from dollar trade settlement. Dollar trade settlement must be realized through dollar payments for funds to land; as much dollar trade settlement as there is corresponds to as much dollar payment. On the other hand, the dollar accounts for nearly 90% of global trade financing, slightly more than 80% of global trade financing, and together with the safe-haven demand for dollar assets, these financial transactions greatly support the dollar’s payment share.

Although the dollar’s share in international payments has not yet changed significantly, the global cross-border payment system, namely the two-tier architecture system mainly composed of SWIFT and the Clearing House Interbank Payments System (CHIPS), is being impacted by multi-threading. These shocks come from security demands arising from the abuse of the global cross-border payment system in geopolitical conflicts. With the outbreak of the Russia-Ukraine conflict in 2022, the United States used its control over the global cross-border payment system to cut off Russia’s dollar settlement channel in order to strike its economy. Sovereign states have reassessed the risks of relying on a single global cross-border payment system and urgently need to seek safe and alternative cross-border payment systems, such as discussions among BRICS countries on the feasibility of the “BRICS Bridge” payment platform, China’s acceleration of building the renminbi cross-border payment system, and the euro area’s acceleration of promoting the launch of the digital euro. As safe and alternative global cross-border payment systems are gradually implemented and used, a multi-threaded pattern of the international payment system has initially taken shape.

II. Theoretical Logic: The Internal Mechanism of the Evolution of the International Monetary System

Today, international currency is developing along a trend of diversification, but its institutional foundation still belongs to the Jamaica system. Compared with the Bretton Woods system, the Jamaica system made two important adjustments: first, it reset the monetary anchor and abolished the fixed parity between gold and the dollar, replacing the “gold anchor” with a “fiat credit anchor.” While completely freeing the dollar’s issuance, it also solved the problem of gold runs; second, exchange rate arrangements became diversified, and member countries could arrange exchange rates independently, thus resolving the problem of speculative currency attacks under fixed exchange rates. Through this institutional arrangement, the “Triffin Dilemma” under the Bretton Woods system—the dilemma between increasing dollar supply to meet global liquidity demand and maintaining the fixed dollar-gold parity—was broken. However, the Jamaica system produced a “new Triffin Dilemma,” namely the contradiction between meeting the dollar demand for international liquidity and maintaining dollar credit.

The U.S. current account deficit exports dollars, and capital flows back to the capital market, forming a perfect cycle. This cycle is basically the solution to the “new Triffin Dilemma.” However, its cornerstone is maintaining dollar credit. The maintenance of dollar credit is the result of multiple dimensions working together, such as monetary policy independence, financial market depth, fiscal deficit scale, foreign policy stability, financial sanctions, and the level of fintech development. Changes in various factors will affect dollar credit to different degrees. In recent years, U.S. foreign policy and financial sanctions have become the main drivers weakening dollar credit.

First, U.S. anti-globalization policies have damaged the nodes of the dollar credit network. President Trump implemented a series of anti-globalization policies, such as imposing tariffs, withdrawing from international organizations, and building exclusive small circles. To some extent, the implementation of these policies restricts the development of global trade liberalization and promotes the reshaping of the global trade landscape. The dollar is a beneficiary of global trade liberalization. The market fragmentation and rising protectionism brought about by changes in the trade landscape objectively loosen the path dependence effect dominated by the dollar’s network externalities and narrow the scope of the dollar’s use. As a result, its share in pricing, payment, and settlement is gradually compressed, whether in the use of the dollar in bilateral trade between the United States and other countries or in the use of the dollar in trade between countries other than the United States.

Second, financial sanctions have shaken the cornerstone of dollar credit. The manifestation of financial sanctions is the weaponization of the dollar, that is, the United States uses its dominance over international dollar clearing and control over U.S. Treasury bonds to long-term implement sanctions against Russia, Iran, North Korea, and other countries, such as freezing dollar assets and cutting off dollar clearing channels (removing them from the SWIFT system), to achieve its geopolitical policy goals. The weaponization of the dollar means that the dollar assets held by various countries have no security at all. Once the security attribute as a global public good is stripped from the dollar, dollar credit becomes worthless. Therefore, the United States’ abuse of dollar hegemony not only causes other countries around the world to lose confidence in dollar credit but also prompts them to think about rebuilding the future international monetary order. The rational choice in thinking about how to reduce dependence on the dollar is to choose an international currency that can replace the dollar and has sufficient security attributes. This is also the fundamental reason why “de-dollarization” has become a global consensus.

III. Response Strategies: Pragmatic Paths in the Evolution of the International Monetary System

Looking back at the continuously evolving international monetary landscape, we see that the decline of monetary hegemony is a long-term process. In this process, China’s strategic principles are: first, reduce excessive dependence on a single sovereign currency and enhance China’s cross-border payment and overseas asset security; second, China actively participates in the reform of the international monetary system and contributes Chinese wisdom to it.

1. Build and Improve the Financial Infrastructure for Renminbi Internationalization

The goal of building the financial infrastructure for renminbi internationalization is to construct an autonomous, controllable, widely covered, and efficiently cleared renminbi cross-border payment system (CIPS). The main current problem is that, in response to financial sanctions, China’s CIPS is usable but still cannot achieve complete autonomy and control. It is necessary to improve CIPS’s capacity for autonomy and control. CIPS and SWIFT are cooperative in cross-border renminbi clearing business. Under certain conditions, SWIFT can affect the normal operation of CIPS. Therefore, while using SWIFT’s global network advantages to expand CIPS network users, China should gradually enhance the technical independence of CIPS operations. At the same time, it is also necessary to fill gaps in the global layout of clearing banks. Strengthen the establishment of renminbi clearing banks in countries and regions with layout blind spots (such as Africa, the Middle East, Central Asia, and other blank areas) to form a “point-line-surface” full-coverage overseas renminbi clearing service network.

2. Build a Multilateral Network for the Use of the Renminbi

Currency network externalities affect the level of currency internationalization. The reason the dollar can stand out among international currencies depends more on inertial effects external to the network. At present, the renminbi’s “circle of friends” is increasingly expanding, but it more often serves bilateral renminbi settlement between China and other countries and regions. The use of the renminbi among third countries is still in its infancy, and a multilateral interconnected renminbi network has not yet formed. To promote the use of the renminbi among third countries, on the one hand, it is necessary to promote the renminbi’s functions of pricing, settlement, investment, and financing among China’s neighboring countries and countries along the Belt and Road Initiative; on the other hand, China’s neighboring countries should be taken as a breakthrough point, relying on close economic and trade ties and a convenient renminbi interconnection network, to promote the renminbi’s use as a “public good” in trade and investment among third countries.

3. Build an Open and Developed Domestic Financial Market

Although the domestic financial market has made considerable progress in opening up and market construction, the global attractiveness of renminbi assets is still clearly insufficient, due to both opening mechanism problems and financial product problems. First, further accelerate the opening of the financial market and launch more distinctive financial products open to overseas institutions to meet overseas institutions’ renminbi asset allocation and hedging needs. Second, increase the supply of high-quality financial assets. Around the “five major articles” of finance, deepen supply-side reform of the financial market, increase the supply of technology and green financial products, promote the rapid development of the panda bond market, and use high-quality financial products to raise overseas institutions’ incentive to allocate renminbi assets, thereby increasing their allocation share of renminbi assets. Third, accelerate the construction of an offshore renminbi center in the Shanghai Pilot Free Trade Zone. Connect supply and demand between offshore and onshore markets, coordinate the development of offshore and onshore markets, and ultimately lay the market foundation for building a smooth domestic and international financial circulation mechanism for the renminbi.

4. Actively Participate in the Reform of the International Monetary System

The development of the international monetary system toward multipolarity objectively converges toward the coexistence of several sovereign currencies in a competitive equilibrium. As the world’s second-largest economy supported by a strong economic size, China should provide the world with safe renminbi reserve assets and an efficient and convenient global renminbi settlement network. To this end, it is necessary to further advance international financial cooperation at two levels. At the level of building a regional financial safety net, relying on the continuously increasing scale of renminbi swap agreements and the increasingly complete renminbi clearing network, inject renminbi liquidity when regional economic crises occur, and enhance the region’s ability to respond to crisis shocks. At the level of promoting reform of international financial governance, continue to promote reform of governance imbalances caused by the “veto power,” use voting mechanism reform to constrain the hegemonic behavior of hegemonic currencies, participate in the formulation of global financial rules, oppose the weaponization of financial infrastructure, and safeguard its neutrality and public good attributes.

Author: Yang Xuefeng, Associate Researcher at the Institute of World Economy, Shanghai Academy of Social Sciences

Original article: sass.org.cn

The International Monetary Fund (IMF) is forecasting growth of 1.8% for the Greek economy in both 2026 and 2027, according to its World Economic Outlook report released on Tuesday. The forecast for 2026 is unchanged from the Fund’s previous report in April, while the projection for 2027 has been revised slightly upwards from 1.7%. In […]

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Growth potential across Central and Eastern Europe has fallen sharply from the levels seen around EU accession, with ageing populations, weak productivity, Chinese competition and slower German industry increasingly testing the region’s economic convergence.

The economic model that transformed Central and Eastern Europe after EU accession is losing momentum, according to the International Monetary Fund, which is warning governments that structural reforms are needed if the region is to continue narrowing the income gap with Western Europe.

Carlos Mulas-Granados, the IMF’s regional representative, said on Tuesday that medium-term growth potential across Central and Eastern Europe had declined to around 2.5 per cent, compared with roughly 5 per cent before countries in the region joined the European Union.

The slowdown does not mean that every economy is stagnating. Poland continues to grow faster than much of Western Europe, while the Czech economy has recovered from recent shocks. The concern is instead about the underlying rate at which these economies can expand once temporary fiscal stimulus, EU funding and post-crisis recoveries are stripped out.

Several of the forces behind the region’s earlier success are becoming weaker.

EU accession opened access to the single market, attracted foreign investment and integrated Poland, Czechia, Slovakia and Hungary deeply into European industrial supply chains. German manufacturers in particular moved production eastwards, taking advantage of lower labour costs, skilled workforces and geographic proximity.

That process generated rapid gains in productivity and incomes. It cannot simply be repeated.

Demographics are one of the most immediate constraints. Working-age populations are shrinking across much of the region while ageing increases spending requirements for pensions, health care and social support.

The IMF’s country assessments illustrate the problem. Its assessment of Poland says demographic pressures are mounting even as labour productivity remains comparatively strong, and calls for higher labour participation, better skills and deeper capital markets.

In Slovakia, the Fund expects growth of only 0.9 per cent this year and says adverse demographics and weaker productivity are weighing on the medium-term outlook. The economy remains particularly exposed to manufacturing and the automotive industry.

The Czech Republic faces a similar structural constraint. The IMF estimates its medium-term potential growth at around 1.8 per cent, with population ageing and modest productivity gains limiting further convergence.

External conditions have also changed.

Germany, the region’s principal industrial partner, has experienced prolonged weakness in manufacturing. Central European producers therefore face softer demand from the market around which many of their supply chains were originally built.

At the same time, China has moved from being primarily a source of imports and components to a direct competitor in sectors where Central Europe has substantial industrial exposure, including cars, batteries, machinery and electrical equipment.

That combination is particularly difficult for economies built around export-oriented manufacturing.

The problem overlaps with the wider European competitiveness debate. EU Today reported in July that only 15.7 per cent of the reforms recommended in Mario Draghi’s competitiveness report had been fully implemented at that stage, with important work still outstanding on capital markets, energy and investment.

For Central Europe, progress on those issues has a direct bearing on growth. Smaller national capital markets make it harder for companies to finance expansion. Fragmented energy systems add to industrial costs, while limited access to venture capital can restrict the development of businesses outside established manufacturing sectors.

There are significant differences between countries. Poland’s larger domestic market gives it more insulation from industrial weakness elsewhere and the IMF expects relatively strong growth. Hungary has faced a different combination of weak investment and fiscal constraints, while Slovakia’s dependence on car production leaves it particularly exposed to changes in the European automotive sector.

EU funding remains an important source of investment across the region, particularly for infrastructure and modernisation. But EU transfers cannot by themselves replace improvements in productivity.

The IMF’s argument is therefore less about an immediate recession than about the end of an unusually favourable period of convergence.

Central Europe entered the EU with lower wages, substantial scope to import Western technology and a powerful incentive for Western European manufacturers to move production eastwards. As those gaps narrow, future growth depends more heavily on innovation, skills, investment and domestic productivity.

The region is still converging with Western Europe. The question raised by the latest IMF warning is how quickly that process can continue once the economic advantages that powered its first two decades of EU membership become less powerful.

KARACHI: Fitch Ratings has assigned a ‘B-‘ rating to Pakistan’s proposed U.S. dollar-denominated bond, with a Recovery Rating of ‘RR4,’ the ratings agency announced. Pakistan plans to use proceeds from the bond for general budgetary and sovereign financing purposes, according to Fitch. The bond rating is aligned with Pakistan’s Long-Term Foreign-Currency Issuer Default Rating, while ... Read more

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