RMB Internationalization Advances Steadily as Financial Account Outflows and Current Account Inflows Form a Virtuous Cycle: CASS's Zhang Ming

As changes quietly unfold in the international monetary system and multipolarity becomes a continuing topic of discussion among markets and academia, new paths for RMB internationalization are drawing broad attention. What will the future international currency landscape look like? How long will the dollar's weakness last? What role will the renminbi play? Will the recent RMB appreciation pressure persist? To explore these questions, Securities Times reporter interviewed Zhang Ming, Deputy Director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences (CASS), on what is new in the RMB internationalization strategy of the 'new-new trinity' and how China can address the broader Triffin dilemma.

The dollar index may have entered a downward cycle

Securities Times: With the 10-year China-US Treasury spread so wide, why has the RMB staged an appreciation this year that is independent of the dollar?

Zhang Ming: The exchange rate is determined by supply and demand in the FX market. Analyzing FX supply and demand requires looking at two accounts — the current account and the financial account. The China-US spread is now deeply inverted, exceeding 300 basis points. By conventional logic, China should see large-scale capital outflows that depress the RMB. Looking at the financial account alone, the renminbi is indeed under depreciation pressure. But China's goods trade surplus approached 1.2 trillion dollars in 2025, a record high. Netting out the services deficit, China's current account surplus last year exceeded 700 billion dollars, while the financial account deficit was more than 800 billion dollars — the two largely balanced out. That is the fundamental reason the RMB has not depreciated against the dollar despite the deeply inverted spread.

Securities Times: The US Treasury announced it will step up its bond buybacks. Can that really curb the high and still-rising long-end US yields?

Zhang Ming: US Treasury Secretary Bessent's worry is that rising long-end yields endanger US fiscal conditions and debt sustainability.

US government debt now exceeds 120% of GDP. At that debt level, rates of 1%-2% or even 2%-3% are manageable; once rates enter the 4%-5% range, federal fiscal pressure becomes severe. Assuming a federal debt ratio of 130% and that rates on the debt stock adjust with market rates, each 1-percentage-point rise in rates adds interest costs equal to 1.3% of nominal GDP.

Markets broadly view further rises in long-end US yields as unsustainable, and some have begun debating whether the Treasury market could eventually 'crash.' Treasuries are the most important safe asset and collateral in global financial markets; if anything goes wrong there, markets worldwide would be hit.

Markets are also skeptical about the sustainability of Treasury buybacks. First, the Treasury does not print money — that power belongs to the Fed — so the resources it can deploy are quite limited. Second, the only actor that can truly stabilize long-end rates is the Fed, which would mean returning to the old path of quantitative easing — buying long-term bonds to inject liquidity directly. But Fed Chair Warsh's policy label is precisely 'rate cuts plus balance-sheet reduction,' and the Fed has signaled possible QT next year — the exact opposite of Treasury buybacks.

These two points together have deepened market doubts, and that is the underlying reason US long-end yields keep rising.

Securities Times: How long will the impact of this round of Treasury market turmoil last?

Zhang Ming: My personal judgment is that the impact will not be short. The root of this round of rising Treasury yields is rising inflation, and a key driver of inflation is the US-Iran conflict, which looks hard to defuse in the short term; oil and other commodity prices are unlikely to return to pre-conflict levels in the short to medium term. Against this backdrop, once inflation expectations become entrenched, the Fed will find it hard to enter a rate-cutting cycle, and with fiscal deficits expanding, US Treasury yields will face upward pressure for a considerable time.

History suggests that once the dollar index enters a downward cycle, it lasts about a decade. The dollar peaked around 2023, when the index hit 115, and has been trending down amid volatility since. If history repeats, the dollar's downward cycle that began in 2023 could run until around 2033, possibly accompanied by US long-end yields consolidating at elevated levels.

The central bank does not intervene proactively but retains the ability to act at any time

Securities Times: If the weak-dollar trend persists, will the RMB face rising 'passive appreciation' pressure? What opportunities and challenges does that bring for China, and how should China respond if a weak dollar persists?

Zhang Ming: For a considerable time ahead, the dollar index may stay relatively weak, but the probability of a sharp decline is not high, and the RMB is not necessarily set for significant appreciation against the dollar. At least through the second half of this year and possibly the first half of next year, a two-way fluctuation within a certain range is the more likely scenario for USD/CNY.

The dollar index is a composite measure of the dollar against a basket of developed-country currencies, and Europe's and Japan's economic problems are currently bigger than America's. So even if the dollar index weakens, it is unlikely to fall below 90 in the short term; a slow decline amid volatility is more likely.

USD/CNY ultimately depends on the two economies' fundamentals — over the long run, the economy that grows faster sees its currency appreciate. Although China's real GDP growth far exceeds America's, China's nominal GDP growth may be lower than America's due to inflation. If that does not reverse, the probability of a sharp near-term RMB appreciation is low.

Securities Times: You forecast early this year that USD/CNY would trade between 6.7 and 7.0 this year. Would you update that view now? If appreciation expectations keep strengthening, when and how should the central bank intervene?

Zhang Ming: I now expect USD/CNY to trade between 6.5 and 6.9 within the year, mainly because the dollar index is still weakening. But at the margin, with the Fed hiking and US long-end yields possibly rising further, the room for RMB appreciation within the year is limited. Market appreciation expectations are also less strong than in the first half, and companies' willingness to convert dollars has softened recently, so expectations are generally stable.

The central bank adheres to the decisive role of market supply and demand in exchange rate formation and has visibly reduced unilateral FX intervention in recent years, but it still retains strong capacity to stabilize the exchange rate — roughly an attitude of 'benign neglect': the central bank does not intervene proactively but keeps the ability to step in at any time.

If the RMB appreciates so fast that it harms foreign trade, capital flows or asset prices, the central bank still has a full toolbox and rich experience to respond. Common tools include strengthening macroprudential management of capital flows and restarting the counter-cyclical factor.

The RMB could become the world's third-largest reserve currency within a decade

Securities Times: How should we understand that the dollar's standing seems solid despite continuous damage to dollar credibility? What indicators can we watch?

Zhang Ming: The evolution of the international monetary system is usually a slow variable. Although the dollar faces challenges, once overseas users have long been accustomed to using dollars, the dollar has strong institutional inertia and network externalities as an international currency. Absent a huge shock — a war, a major default — international investors will not easily switch the international currency they use.

Exchange rates are ultimately determined by economic fundamentals. The dollar has many problems now, but its competitors — the euro and the yen — are also mired in trouble, so the dollar has yet to meet a strong rival. Gradually expanding the renminbi's international use will still take time. The dollar will remain the world's most important reserve currency for a long time to come.

Securities Times: Against the backdrop of a multipolar international monetary system, how do you expect the RMB's international standing to evolve?

Zhang Ming: The international monetary system is gradually moving toward multipolarity, but the speed should not be overestimated. For a long time to come, the system will remain 'one superpower plus several strong players.' The dollar will stay the superpower currency, likely holding around 50% shares in international payments, invoicing and reserves for an extended period, and its standing could even strengthen.

The RMB is a beneficiary of the system's multipolarization. Over the next decade, the RMB's global currency share is expected to grow the fastest. The renminbi's international standing could well catch up with and surpass the yen and sterling across the board within about ten years, becoming the world's third-largest reserve currency.

Pursuing a currency internationalization path suited to China's national conditions and comparative advantages

Securities Times: You have proposed the 'new-new trinity' strategy for RMB internationalization. At this juncture, what is your updated assessment of the opportunities and challenges, and which pillar should be advanced first?

Zhang Ming: I still stand by the policy recommendations of the 'new-new trinity' strategy, though each pillar can be further refined.

The first pillar is vigorously promoting RMB invoicing and settlement for commodities. This year I have added a new suggestion: for global industrial chains led by Chinese companies, push hard for RMB invoicing and settlement across the entire chain. Some Chinese companies have become chain leaders of major global industrial chains and can promote RMB settlement among upstream and downstream partners through low-cost RMB-denominated supply chain financing.

The second pillar is seizing the window of global safe-asset scarcity to supply global investors with large amounts of high-quality RMB-denominated safe assets, especially RMB government bonds and central bank bills. This year I go further: take advantage of the loosening of the yen's status as a global funding currency and vigorously build out RMB liability products. RMB interest rates are now among the lowest globally, so we can first advance RMB internationalization through financial channels and then use that to push RMB settlement in trade. For example, a foreign company issuing a five-year RMB bond will worry about RMB appreciation and rising RMB rates five years out, so it will hold a certain amount of renminbi as a hedge before maturity — and will then require its counterparties to invoice and settle goods trade in renminbi.

The third pillar is building an independent, controllable cross-border RMB payment and clearing system: the Cross-border Interbank Payment System (CIPS) and the multiple central bank digital currency bridge (mBridge). I recently made a point that should not be overlooked: internet platforms — WeChat Pay, Alipay, Douyin — are organic components of the cross-border RMB payment and clearing system, with broad coverage and high penetration in practice. So we should pursue both tracks — advancing at the government level while fully leveraging the role of internet platforms.

Securities Times: You have repeatedly suggested supplying more RMB safe assets to overseas markets during the low-rate window. Could you elaborate?

Zhang Ming: The current international environment offers a dual opportunity for RMB internationalization. The first is that the 'weaponization' of the dollar has notably dented international investors' trust in US Treasuries, creating global demand for new safe assets. That is why I recommend stepping up RMB government bond issuance.

Issuing RMB government bonds now serves multiple purposes at once: financing expansionary fiscal policy, better responding to pressure on the domestic economy,