China Aims to Move Away from the Dollar

Ganzhou, once a revolutionary base for the Communist Party of China and known as the “Rare Earth Kingdom” and the “Tungsten Capital of the World,” plays a crucial role in the Chinese government’s strategy to leverage mineral exchanges for boosting the use of its currency, the renminbi. Spread over an area larger than Maryland, Ganzhou is home to the China Rare Earth Group’s headquarters, a state-owned entity formed from the merger of three major state-owned rare earth enterprises.

Ganzhou currently produces almost 70% of China’s rare earth mineral products, satisfying approximately 90% of global demand. The city hosts the Ganzhou Rare Metal Exchange, a platform where the renminbi is utilized for spot trading of essential minerals like tungsten, rare earth products, and critical minerals such as cobalt crucial for the clean energy transition.

Established in 2019 as a subsidiary of China Rare Earth Group, the exchange operates as China’s second mineral exchange, using the renminbi for pricing and trading minerals and rare earth products. The first such exchange, the Baotou Rare Earth Products Exchange, started in 2014, jointly owned by 14 major Chinese rare earth suppliers, aims to enhance China’s role in pricing rare earth products.

China’s broader strategy involves establishing commodities exchanges in industrial cities to elevate the renminbi’s use and influence in global commodities pricing. This effort aligns with China’s goal of creating an alternative global financial system less dependent on the U.S. dollar. The country has also launched renminbi-denominated exchanges for oil futures in 2018 and copper futures in 2020 on the Shanghai International Energy Exchange.

China seeks to bolster the renminbi’s global influence by promoting its use in regional cooperation with neighboring countries and non-Western multilateral partnerships. The aim is to develop regional currency arrangements and increase the use of local currencies in international trade and investment.

Chinese leaders frame these strategies as defensive measures rather than offensive actions against the U.S. dollar. The goal is to strengthen China’s financial security, reduce geo-economic vulnerabilities, and minimize exposure to potential dollar liquidity issues during geopolitical crises.

While no Chinese leaders have publicly stated an intention to replace the U.S. dollar with the renminbi, concerns about vulnerabilities have been expressed by Chinese financial regulators and scholars. Fang Xinghai, vice chairman of the China Securities Regulatory Commission, warned of potential forced financial decoupling, emphasizing the need for China to prepare for scenarios where it might be excluded from the U.S. dollar-based global payment system.

President Xi Jinping’s emphasis on worst-case scenario thinking reflects a desire to safeguard China’s state-owned financial institutions and enterprises from international sanctions, particularly in a potential military conflict over Taiwan. The recent imposition of collective sanctions by the West on Russian entities has heightened China’s concerns about the safety and security of its overseas financial assets.

In response, China has accelerated the development of an alternative global financial system independent of the dollar, aiming to fortify its economy against potential sanctions and ensure financial security in the face of geopolitical uncertainties.