Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

The writer is founder and chief economist of Enodo Economics and a senior fellow at Asia Society’s Center for China Analysis

When Xi Jinping’s speech on building a powerful financial country was published as formal Communist Party doctrine in January 2026, a predictable debate followed. Can the renminbi challenge the dollar?

The answer, almost universally, was no. The evidence was largely correct: the renminbi has only 1.9 per cent of global reserves, a share that has barely moved in a decade; China has a closed capital account; and Beijing has a credibility deficit earned through years of arbitrary regulatory intervention. Case closed. But this misses what China is actually doing, why it might matter even if the renminbi never becomes a reserve currency, and what the journey itself does to the cost of staying in the dollar system.

Start with the infrastructure. China’s push for renminbi internationalisation began as a security project. Beijing watched the US monitor and then weaponise dollar access and concluded that dependence on dollar infrastructure was a strategic vulnerability. The priority was control: building payment plumbing that China owned. The Cross-border Interbank Payment System, launched in 2015, was clunky, costlier than the dollar alternative and sustained by pressure on state banks.

That calculus is changing. Project mBridge, a cross-border central bank digital currency platform built on distributed ledger technology developed by the People’s Bank of China, processed $56bn in transactions by late 2025, a 2,500-fold increase from its $22mn pilot in 2022. Transfers that once took days can complete in seconds, cutting costs dramatically.

Cips also increasingly uses its own messaging, and mBridge does not touch Swift. So Swift-based payment shares can understate renminbi usage as more settlement moves on to infrastructure that Swift cannot see. The clearest evidence comes from trade finance. While the renminbi’s share of global payments is still only about a modest 3.1 per cent, its share of the global trade finance market is roughly 8.5 per cent. That divergence matters. Trade finance is where working-capital and funding-currency choices are made, and where network effects weaken first.

Payment and trade finance migration, however, does not automatically translate into renminbi holdings. That is why the next phase of China’s effort focuses on deeper, broader and more liquid capital markets: developing its fixed-income market, expanding its Bond Connect scheme that allows foreign fund managers to trade in Chinese debt via Hong Kong, and creating pools of renminbi outside China through banks and financial hubs. Progress is real but slow.

Yet even before that chapter is written, payment migration has consequences. The dollar’s low financing cost is not just a function of US interest rates. It reflects scale, habit and constant transactional use. When trade settles in dollars, firms earn dollars, hold dollar working capital and recycle balances through banks and markets. If renminbi settlement becomes materially cheaper and a meaningful share of trade migrates, companies no longer need to generate or hold dollars as routinely. The organic dollar liquidity created by trade shrinks, making dollar funding scarcer for those who still need it.

This shows up not through higher Treasury yields but through wider spreads in transactions and higher all-in dollar borrowing costs for non-US firms. An 8.5 per cent share of global trade finance does not upend the dollar system. But it can matter at the margin.

The effect is amplified if China’s role as a structural supplier of dollar liquidity diminishes. For years, China’s surpluses recycled into Treasuries and global funding markets, quietly subsidising dollar liquidity outside the US. Cheaper renminbi settlement reduces that supply. Dollar funding does not collapse. It becomes more episodic, more stress-sensitive and more expensive at the margin, long before US borrowers feel the impact.

None of this requires the renminbi to replace the dollar. It requires only enough transactions to migrate for the dollar’s network advantages to erode at the edges. The infrastructure exists for that to happen and non-Chinese institutions are beginning to use it. HSBC Hong Kong joined CIPS as a direct participant in October 2024, followed by other Asian, African and Gulf banks. Investors waiting for reserve data to confirm what is happening may find the cost of dollar funding has already shifted beneath them.