Geoeconomic risk shocks have negative spillover effects on China's real economy and financial markets, as well as destructive impacts on the international trade and investment system, global supply chains, and international financial markets. Promoting the internationalization of the yuan to advance the reform of the international monetary system is an effective direction for addressing geoeconomic risks, according to a report released during the International Monetary Forum 2025 on Sunday.

The forum, with the theme of "Geoeconomic Risks and Global Financial Governance Reform," was held in Beijing on Sunday, with renowned experts and scholars from domestic and international research institutes, policy departments, and financial institutions attending the conference, engaging in discussions on topics such as geopolitical risks, the global financial governance system, cryptocurrencies, and digital finance.

Wang Fang, deputy director of International Monetary Institute of Renmin University of China, noted that research finds that, leveraging the developmental advantages of its financial sector, the US can artificially create risk shocks through economic policy tools, gaining positive consumption compensation effects as global capital pursues dollar-denominated safe assets.

In other words, the US has an economic incentive to exploit its "safe haven" status during financial crises, benefiting from heightened global risks. This theoretically explains the motivations behind the US' frequent and proactive creation of geoeconomic conflicts in recent years, directly linking geoeconomic risk issues to the dollar-dominated international monetary and financial system. It also points to the direction for peripheral countries to effectively address geoeconomic risks, Wang said.

Research finds that bilateral currency swaps can stabilize the cost of yuan-denominated trade financing, maintain relative stability in the offshore yuan financial market, and enhance the international competitiveness of the yuan by reducing financial market instability, according to the report.

The yuan is expected to transition from a "substitute supporting role" to a "key leading role" in the international monetary system, with confidence and demand for the Chinese currency in international financial markets rising in tandem. This will further enhance China's ability and confidence to address geoeconomic risk shocks, per the report.

"China can play a more active and constructive role in global financial governance, promoting the internationalization of the yuan to drive reforms in the international monetary system, adding stability to global financial markets, and contributing to the establishment of a just and sustainable international financial order," Wang noted.

Since the 2008 global financial crisis, the international status of the yuan has steadily risen, becoming the world's second-largest trade financing currency. By comprehensive measures, the yuan is now the third-largest payment currency globally and holds the third-highest overall share within the Special Drawing Rights basket of the IMF, according to Pan Gongsheng, China's central bank governor.

The People's Bank of China has signed bilateral local currency swap agreements with central banks or monetary authorities of more than 30 countries and regions, becoming a key component of the global financial safety net, Pan noted.

A stable macroeconomic foundation provides a "safety anchor" for the yuan's internationalization, making it an important choice for global capital seeking a safe haven amid uncertainty, Wang Peng, an associate research fellow at the Beijing Academy of Social Sciences, told the Global Times on Sunday.

In the context of geoeconomic fragmentation, China has promoted yuan cross-border settlements to reduce reliance on a single currency, building a more resilient trade and investment settlement network. This diversified system effectively mitigates the impact of unilateral sanctions, exchange rate fluctuations, or supply chain disruptions on the real economy, Wang Peng said.

Dai Xianglong, former governor of the People's Bank of China, said during the forum that the current international monetary and financial system, primarily evolved from the post-World War II Bretton Woods system, is increasingly unable to meet the demands of global economic development. Structural issues are becoming more prominent, including the instability of the dollar-dominated financial system and the weakening global confidence in the dollar zone.

He further highlighted the urgency to promote the governance reform of the global financial system, noting that efforts include improving the international monetary and financial system, reducing the negative spillovers of monetary policies, reforming international financial organizations, strengthening international financial regulatory cooperation, and opposing financial hegemony.

In the face of escalating geoeconomic risks, it is necessary to promote currency diversification, fully leverage the role of the G20 Leaders' Summit in reforming international financial governance, and foster regional financial cooperation and integrated development, Dai said.

"China's financial opening-up and yuan internationalization are not only strategic economic choices but also responses to the profound transformation of the global monetary system. By building a diversified settlement network, enhancing supply chain resilience, and providing inclusive financial public goods, China is promoting the evolution of the international monetary system toward greater balance and stability. This process not only serves China's own development needs but also offers new institutional paradigms and cooperation opportunities for global economic governance," Wang Peng noted.

(Source: Global Times)