The global hierarchy of currencies shapes the power and autonomy of states in the international system. The status of the United States as an issuer of the dominant international currency has long provided the country with significant geopolitical advantages: lower borrowing costs, influence over global financial flows, and powerful coercive tools through sanctions and transaction monitoring (Cohen Reference Cohen2015; Eichengreen Reference Eichengreen2011a; Helleiner Reference Helleiner2008; McDowell Reference McDowell2023; Norrlöf Reference Norrlöf2014). The privileged role of the dollar reinforces the power of the United States and underpins its central position in the postwar international order.
Yet, that hierarchy is not fixed. In recent years, China has taken deliberate steps to internationalize the renminbi (RMB) (Eichengreen and Kawai Reference Eichengreen and Kawai2015; Liao and McDowell Reference Liao and McDowell2015; Liu and Papa Reference Liu and Papa2022), potentially expanding its monetary influence. Although the RMB remains far less used than the dollar across most dimensions (e.g., official reserves, trade invoicing, and financial assets), its share has been growing steadily, with notable increases in cross-border trade and settlement concentrated among specific countries and regions (Perez-Saiz and Zhang Reference Perez-Saiz and Zhang2023). Beijing has promoted this shift by developing alternative financial infrastructure, expanding bilateral swap lines, establishing offshore RMB clearing banks, and settling more trade in RMB—especially with resource-exporting countries and often through projects tied to the Belt and Road Initiative (BRI) (Custer et al. Reference Custer, Axel Dreher, Fuchs, Ghose, Lin and Malik2021; Dreher et al. Reference Dreher, Fuchs, Parks, Strange and Tierney2022; Gelpern et al. Reference Gelpern, Horn, Morris, Parks and Trebesch2023). Although the dollar still dominates, the foundations of that dominance are evolving.
We argue that the trajectory of US trade and foreign economic policy inadvertently may accelerate the rise of the RMB. Three developments, in particular, have the potential to shift currency power. First, the global green transition is reorganizing trade patterns and supply chains around critical minerals essential to renewable energy, many of which are mined, processed, and refined within supply chains dominated by Chinese firms. Second, the international political order is fragmenting as the US retreats from multilateral leadership and countries seek alternatives to a dollar-centric system increasingly associated with financial coercion. Third, protectionism has become a structural feature of US policy, diminishing the country’s centrality to global trade and undermining the openness that historically has supported dollar dominance. Together, these changes create opportunities for China to extend RMB usage in the real economy, particularly in commodity trade and green-technology supply chains, even as financial barriers remain.
…the trajectory of US trade and foreign economic policy inadvertently may accelerate the rise of the RMB.
This article is prospective: it discusses how structural shifts in industrial policy, trade, and global governance could reconfigure international monetary power. Expanding on classic theories of currency hierarchy, we emphasize two conditions for international usage: currency availability and strategic alignment. When both are present, network effects can amplify currency use, especially in strategically concentrated sectors.
These dynamics already are visible in China’s green-industrial diplomacy. By coupling RMB-denominated commodity exchangesFootnote 1 with large-scale infrastructure and mining finance in critical-mineral sectors,Footnote 2 China is deliberately building the institutional and transactional foundations for a more internationalized currency. If the United States continues to retreat from global-trade leadership as China consolidates its role in the green economy, we may witness a gradual recalibration of global currency power. We do not predict dollar replacement; rather, only a more multipolar system in which the RMB has a larger role.
Although this article advances a prospective argument, it yields clear, observable expectations about how trade, finance, and currency usage should evolve during the next decade. These expectations are conditional rather than deterministic: if the mechanisms emphasized herein matter in practice, we should observe specific patterns in currency usage even without a broad displacement of the dollar.
First, RMB internationalization should be concentrated sectorally rather than systemically, with the most visible growth in green value chains—such as critical minerals, intermediate inputs, and infrastructure-linked trade—rather than in global portfolio finance and official reserves. Second, RMB usage should deepen primarily when currency availability and strategic alignment overlap, including countries with dense production linkages to China, RMB-clearing infrastructure, swap lines, and China-linked development finance, but remaining limited elsewhere. Third, US protectionism and geopolitical fragmentation should be associated with gradual currency diversification rather than rapid dollar decline. If increasing sanctions, trade barriers, and industrial policy do not coincide with greater non-dollar settlement in affected trade relationships, the argument would be weakened.
The article proceeds as follows. First, we revisit the foundational theories of international currency power, highlighting the mechanisms through which states acquire and sustain monetary influence. Second, we explore how the green transition, geopolitical realignment, and persistent US protectionism may erode the pillars of dollar dominance and enable greater RMB usage. We conclude by considering the implications of these prospective changes for the future of global monetary order and US power in a decarbonizing, multipolar world.
THE REDBACK IN THE NEW GLOBAL ORDER
This study builds on a long tradition of scholarship about how states acquire and sustain international currency power. Classic and contemporary accounts agree that monetary influence rests not only on economic size but also on political and institutional foundations that make a currency attractive for cross-border use. This includes liquidity provision, credible macroeconomic management, and the broader capacity to shape the rules and infrastructures of global finance and production (Cohen Reference Cohen1971, Reference Cohen2015; Eichengreen Reference Eichengreen2011a; Helleiner Reference Helleiner2008; Kindleberger Reference Kindleberger1970; Kirshner Reference Kirshner1995; McNamara Reference McNamara2008; Norrlöf Reference Norrlöf2014; Strange Reference Strange1971). Once they are established, network effects reinforce hierarchy: widespread use lowers transaction costs and makes incumbents difficult to unseat even as economic weight shifts.
We adapted these insights to contemporary structural shifts. The green transition, geopolitical fragmentation, and persistent protectionism can alter the conditions under which currencies achieve and sustain international usage. Our framework highlights two necessary conditions for currency internationalization: (1) currency availability, or the capacity of the issuing state to make its currency usable and liquid in global markets; and (2) strategic alignment, or the economic, political, and institutional relationships that encourage other states and firms to transact in it. Availability depends on the depth and openness of domestic financial markets, reliable payment systems, macroeconomic credibility, and the willingness to supply the currency internationally (Chinn, Frankel, and Ito Reference Chinn, Frankel and Ito2024; Eichengreen Reference Eichengreen2011a). Alignment refers to the ties—including trade and investment linkages, institutional arrangements, and political relationships—that increase the likelihood that cross-border flows are denominated in the issuer’s currency (Cohen Reference Cohen2015; Eichengreen Reference Eichengreen2011a; Kirshner Reference Kirshner1995). When both conditions are present, network effects can magnify usage; when one is absent, adoption is likely to remain limited and sector-specific.
Strategic alignment operates through three distinct channels: (1) willing adoption within China-centered supply chains; (2) inducement via RMB lending, swap lines, and settlement provisions; and (3) constraint when dollar access is restricted. This helps to explain uneven, sector-specific RMB internationalization: alignment can expand transactional use without producing broad, voluntary reserve-currency adoption.
This framework also clarifies why the RMB can expand internationally even as key barriers persist. China has built elements of RMB availability through offshore clearing, payment infrastructure, and bilateral swap lines. Moreover, it has strengthened alignment with many partners through BRI lending, resource-for-infrastructure arrangements, and green-technology supply chains (Custer et al. Reference Custer, Axel Dreher, Fuchs, Ghose, Lin and Malik2021; Dreher et al. Reference Dreher, Fuchs, Parks, Strange and Tierney2022; Eichengreen Reference Eichengreen2011b; Gelpern et al. Reference Gelpern, Horn, Morris, Parks and Trebesch2023; Li, Sahasrabuddhe, and Wingo Reference Li, Sahasrabuddhe and Wingo2024; Liao and McDowell Reference Liao and McDowell2015; Perez-Saiz and Zhang Reference Perez-Saiz and Zhang2023; Vaughn Reference Vaughn2019). These developments can support greater RMB usage in trade and settlement even if the currency remains constrained in global finance.
A final clarification concerns the different roles of currencies in the international system and the links among them. As emphasized by Cohen (Reference Cohen1971, Reference Cohen2015), the international functions of money—medium of exchange, unit of account, and store of value—are analytically distinct and may internationalize unevenly over time. Transactional use can generate network effects that gradually support wider pricing and reserve functions, even if these remain constrained in the short run (Cohen Reference Cohen1971, Reference Cohen2015). For the RMB, limits on capital mobility and credibility restrict its reserve role. However, increasing use in trade and payments nevertheless can yield meaningful currency power by reducing reliance on the dollar in specific transactions and laying the groundwork for deeper internationalization.
CONSTRAINTS ON RENMINBI ASCENDANCE
The argument advanced in this article does not imply that the RMB is poised to supplant the dollar as the dominant international currency. Historically, episodes of RMB internationalization often have been followed by policy retrenchment in response to domestic financial risks. A substantial body of scholarship highlights enduring political and institutional constraints that thus far have limited the RMB’s international role (Chinn, Frankel, and Ito Reference Chinn, Frankel and Ito2024; Cohen Reference Cohen2015; Eichengreen Reference Eichengreen2011b; Eichengreen and Kawai Reference Eichengreen and Kawai2015; McNamara Reference McNamara2008; Prasad Reference Prasad2016; Shih Reference Shih2004). Any assessment of future currency power must take these limits seriously.
A first constraint concerns capital controls and the structure of China’s financial system. The RMB is not fully convertible, and extensive restrictions on cross-border capital flows limit the depth and liquidity of RMB-denominated financial markets. This reduces the currency’s attractiveness for portfolio investment and official reserve accumulation (Chinn, Frankel, and Ito Reference Chinn, Frankel and Ito2024; Eichengreen Reference Eichengreen2011b). Although such restrictions are compatible with trade settlement, they sharply constrain the RMB’s ability to function as a global store of value.
Second, political risk and institutional credibility pose obstacles to wider RMB adoption. Foreign firms and governments remain wary of regulatory opacity and discretionary state intervention (Huang Reference Huang2008; Lardy Reference Lardy2019; Pearson Reference Pearson, Naughton and Tsai2015)—concerns that are especially salient for actors considering long-term RMB exposure rather than transactional use (Eichengreen and Kawai Reference Eichengreen and Kawai2015). As a result, the RMB often is acceptable as a means of payment but it is considerably less attractive as an asset to hold.
Third, and critically, Chinese policy makers themselves appear ambivalent about full currency internationalization. A currency that rivals the dollar would require greater financial openness, tolerance for capital outflows, and reduced monetary autonomy—changes that would constrain Beijing’s capacity to manage economic growth, financial stability, and political control (Eichengreen Reference Eichengreen2011a; Otero-Iglesias and Vermeiren Reference Otero-Iglesias and Vermeiren2015; Prasad Reference Prasad2017). Chinese authorities therefore have pursued incremental internationalization while avoiding the systemic risks associated with currency leadership (Bowles and Wang Reference Bowles and Wang2013; Eichengreen and Kawai Reference Eichengreen and Kawai2015; Liao and McDowell Reference Liao and McDowell2015).
These constraints are unlikely to disappear in the near term. Crucially, however, the framework developed in this article does not require them to do so. Instead, it points to a more limited but politically feasible pathway: selective, sectorally concentrated internationalization focused on trade settlement in strategically important value chains. Under this scenario, the RMB can expand its transactional role without becoming a fully liberalized global currency, even as the dollar remains central to the international monetary system.
THE GREEN TRANSITION
The global shift toward low-carbon energy is not only an environmental imperative but also a major reconfiguration of global value chains. Scholars increasingly treat the green transition as a site of geopolitical rivalry and geoeconomic transformation (Aklin and Urpelainen Reference Aklin and Urpelainen2018; Allan and Nahm Reference Allan and Nahm2025; Colgan and Hinthorn Reference Colgan and Hinthorn2023; Goldthau et al. Reference Goldthau, Westphal, Bazilian and Bradshaw2019; Kennard and Schnakenberg Reference Kennard and Schnakenberg2023; Kuzemko, Lawrence, and Watson Reference Kuzemko, Lawrence and Watson2019; Meckling and Nahm Reference Meckling and Nahm2022). As states adopt green industrial policies and compete for secure access to critical minerals and clean technologies, trade and investment flows are being redirected in ways that bypass some of the legacy energy and financial networks that historically have reinforced dollar dominance.
As states adopt green industrial policies and compete for secure access to critical minerals and clean technologies, trade and investment flows are being redirected in ways that bypass some of the legacy energy and financial networks that historically have reinforced dollar dominance.
From the perspective of our framework, the green transition creates opportunities for both currency availability and strategic alignment to shift in ways favorable to the RMB. On the availability side, the transition is generating entirely new commodity markets—most notably for lithium, cobalt, nickel, rare-earth elements, and advanced battery components—wherein pricing conventions are not yet fully entrenched in dollars. Control over large shares of processing capacity, refining technology, and export infrastructure gives China leverage to encourage RMB-denominated trade in these commodities. Initiatives such as the Cross-Border Interbank Payment System, the expansion of bilateral currency-swap lines, and targeted development finance for green infrastructure create the institutional and technical capacity for counterparties to transact in RMB (Gelpern et al. Reference Gelpern, Horn, Morris, Parks and Trebesch2023; Li, Sahasrabuddhe, and Wingo Reference Li, Sahasrabuddhe and Wingo2024; Liao and McDowell Reference Liao and McDowell2015; McDowell Reference McDowell2017; Vaughn Reference Vaughn2019).Footnote 3
On the alignment side, many of the countries that are supplying critical minerals also are recipients of Chinese investment, infrastructure finance, and technology transfer under programs such as the BRI (Custer et al. Reference Custer, Axel Dreher, Fuchs, Ghose, Lin and Malik2021; Dreher et al. Reference Dreher, Fuchs, Parks, Strange and Tierney2022; Gelpern et al. Reference Gelpern, Horn, Morris, Parks and Trebesch2023). These bilateral economic ties often are reinforced by political and diplomatic relationships that can lower the perceived costs and risks of RMB usage. Where Chinese firms and banks are deeply embedded in local production networks, invoicing in RMB may become both operationally convenient and politically appealing.
Evidence from major mineral exporters illustrates how these dynamics play out in practice. In Indonesia, the world’s largest nickel producer, Chinese firms dominate smelting and refining capacity, and several large projects have begun experimenting with RMB-based settlement for intermediate products used in battery supply chains (Baskaran Reference Baskaran2024). This reflects both China’s central role in processing infrastructure and the practical advantages of settling upstream transactions in RMB within China-centered production networks.
In the Democratic Republic of Congo, a key supplier of cobalt and copper, resource-for-infrastructure arrangements with Chinese state-owned enterprises embed Chinese finance deeply into extractive sectors. The 2008 Sicomines agreement, which exchanged infrastructure investment for long-term access to mineral output, exemplifies how such arrangements can incorporate RMB-denominated financing and repayment mechanisms tied to commodity exports.Footnote 4 These structures do not imply wholesale currency substitution; however, they create institutional channels through which RMB usage can expand in specific upstream segments.
South Africa provides a clear illustration of how financial infrastructure and alignment interact. Following the establishment of an RMB clearing center, the percentage of payments settled in RMB increased sharply—from 4.6% in June 2013 to 10.8% in June 2014 and more than 30% by mid-2015. This highlights the importance of availability in enabling rapid transactional uptake.Footnote 5
Australia is a modest contrast: RMB invoicing increased on imports from approximately 2.3% in 2015 to 4.5% in 2021 alongside clearing infrastructure, but it remains negligible on exports (0.2% in 2023).Footnote 6 Table 1 presents limited RMB reserves but also increasing use in payments and trade-related foreign exchange, consistent with selective, transactional internationalization.
System-Level Indicators of RMB International Usage, 2010 and 2024
Table 1 Long description
The table consists of four columns: Domain, R M B Share in 2010, R M B Share in 2024, and Implication for Currency Power.
* Row 1: Global payments (S W I F T). 2010 share is approximately 0 percent. 2024 share is approximately 2 to 3 percent. Implication: Limited aggregate use; concentrated in China-linked trade.
* Row 2: Foreign exchange turnover (B I S). 2010 share is approximately 4 percent. 2024 share is approximately 8 to 9 percent. Implication: Significant transactional and hedging role.
* Row 3: Official reserves (I M F C O F E R). 2010 share is 0 percent. 2024 share is less than 3 percent. Implication: Minimal store-of-value role.
Sources are listed as Bank for International Settlements 2025, International Monetary Fund 2025, and S W I F T 2025.
System-level payment and foreign-exchange data are complemented by evidence on the scale of RMB-denominated commodity pricing within China. A useful proxy is the size of commodity derivatives markets on China’s major exchanges, where contracts are priced, margined, and settled in RMB. The Shanghai Futures Exchange (SHFE), the Shanghai International Energy Exchange (INE), and the Dalian Commodity Exchange (DCE) support large RMB-based markets in industrial metals and energy inputs central to green value chains, including copper, aluminum, nickel, and crude oil.Footnote 7 Although derivatives trading does not determine the invoicing currency of physical commodity trade, deep and liquid RMB benchmarks lower hedging costs and make RMB settlement more practical for firms operating within China-centered commodity and production networks.
The analogy to the petrodollar system is instructive: dollar dominance in energy markets was not inevitable but instead reinforced through a combination of commodity-pricing conventions, US geopolitical alliances, and the global availability of dollar-denominated financial instruments (Cohen Reference Cohen2015; Eichengreen Reference Eichengreen2011a; Helleiner Reference Helleiner2008). Similarly, if China can institutionalize the usage of RMB in green-trade segments before alternative pricing norms take hold, the green transition could act as a wedge in the existing currency hierarchy. Over time, RMB settlement in strategically important green commodities could normalize its use in other sectors, gradually shifting the balance of global currency power. These dynamics also imply clear expectations about where and how RMB usage should expand.
If China’s dominance in processing and infrastructure finance persists, we should observe RMB settlement becoming routine in intermediate and upstream segments of green value chains, even if downstream trade and global pricing remain dollar-denominated.
RETREAT FROM THE LIBERAL INTERNATIONAL ORDER
A second structural shift that reshapes the foundations of currency power is the erosion of the US commitment to the liberal international order. For decades, the United States has acted as the architect and anchor of a rules-based system grounded in multilateral institutions, open trade, and the widespread availability of dollar-based financial infrastructure. This order supported both the availability of the dollar through deep, liquid markets and global payment systems as well as the strategic alignment of key partners through dense economic, political, and security ties (Ikenberry Reference Ikenberry2018; Keohane and Nye Reference Keohane and Nye1977).
Recent scholarship identifies a growing crisis of this order, driven by both external contestation and internal US retrenchment (Acharya, Estevadeordal, and Goodman Reference Acharya, Estevadeordal and Goodman2023; Börzel and Zürn Reference Börzel and Zürn2021; Cheeseman, Bianchi, and Cyr Reference Cheeseman, Bianchi and Cyr2025; Mearsheimer Reference Mearsheimer2019).Footnote 8 Successive US administrations have shown diminished enthusiasm for multilateral cooperation, reduced support for trade liberalization, and increased reliance on unilateral economic statecraft, including the expansive use of financial sanctions (Farrell and Newman Reference Farrell and Newman2019; Prasad Reference Prasad2025). These tendencies are visible in specific policy choices, including the 2017 withdrawal from the Trans-Pacific Partnership; the ongoing US blockage of appointments to the World Trade Organization Appellate Body that has made its dispute-settlement system inoperable; and the imposition of secondary sanctions on Iran that have driven US allies to explore alternative payment mechanisms. This included the European Union (EU) Instrument in Support of Trade Exchanges; however, this ultimately failed in 2023.
It is important to note that protectionism and financial sanctions do not reduce the global supply of dollars or the depth of dollar markets. Rather, they increase perceived access risk by increasing the probability that specific states and firms may be excluded from dollar-based payment and settlement systems, thereby motivating hedging behavior and the exploration of alternative currencies in politically sensitive trade relationships (Farrell and Newman Reference Farrell and Newman2019).
As US-led institutions lose cohesion, rival powers have expanded alternative alignments and infrastructures. China’s BRI exemplifies this strategy, combining infrastructure finance, investment, and trade facilitation with mechanisms that reduce dependence on Western financial channels and the dollar (Custer et al. Reference Custer, Axel Dreher, Fuchs, Ghose, Lin and Malik2021; Dreher et al. Reference Dreher, Fuchs, Parks, Strange and Tierney2022; Gelpern et al. Reference Gelpern, Horn, Morris, Parks and Trebesch2023). By embedding RMB-denominated lending and settlement into cross-border projects and linking them to bilateral currency-swap agreements, Beijing expands the availability of its currency while strengthening strategic alignment with partner states. Other jurisdictions also have explored financial innovations aimed at reducing dollar dependence, including recent efforts by the European Central Bank to develop a digital euro.Footnote 9 This underscores the growing search for monetary alternatives in a more fragmented international system.
Whereas early BRI lending was denominated overwhelmingly in US dollars, recent evidence indicates a marked shift toward RMB-denominated loans and repayment mechanisms since the late 2010s. This was driven in part by China’s efforts to reduce currency mismatch, limit exposure to dollar-based sanctions, and promote RMB usage in overseas projects (Custer et al. Reference Custer, Axel Dreher, Fuchs, Ghose, Lin and Malik2021; Dreher et al. Reference Dreher, Fuchs, Parks, Strange and Tierney2022; Gelpern et al. Reference Gelpern, Horn, Morris, Parks and Trebesch2023). BRI projects historically were denominated in US dollars, but this pattern has shifted over time: by 2023, approximately 18% of total BRI investment was RMB denominated—an approximate threefold increase relative to the early years of the initiative—with most RMB usage concentrated in Asia, particularly Indonesia, Myanmar, and Mongolia (Dreher et al. Reference Dreher, Fuchs, Parks, Strange and Tierney2022; Parks et al. Reference Parks, Escobar, Walsh, Zhang, Fedorochko, Vlasto and Sickell2025).
The growing fragmentation of the international order also is visible in geopolitical rivalries that drive the formation of currency blocs. Heavily sanctioned after its 2022 invasion of Ukraine, Russia has sharply increased the use of the RMB for energy trade and foreign reserves. The Bank of Russia publicly acknowledges that it now sees “no alternative” to the RMB for its holdings.Footnote 10 Russia represents an extreme case of sanctions-induced RMB adoption and should not be generalized; its relevance lies in illustrating how geopolitical fragmentation can accelerate currency substitution under constraint. In a more fragmented system, currency usage is likely to become increasingly regionalized and bloc based because states hedge against geopolitical risk by diversifying reserves, reducing exposure to dollar-denominated sanctions, and conducting more trade in non-dollar currencies (McDowell Reference McDowell2023). In this environment, the prospects of the RMB do not hinge on displacing the dollar as the dominant global currency but instead on deepening its role within emerging spheres of influence where both availability and alignment conditions are met.
A natural question is why diversification away from the dollar would favor the RMB rather than other major currencies, particularly the euro. Although the euro remains an important international currency, its capacity to serve as a systemic alternative to the dollar is constrained by Europe’s limited support for offshore euro-money creation, the absence of a unified fiscal authority, and the relatively shallow pool of truly safe euro-denominated assets (Klooster and Murau Reference Klooster and Murau2025; McNamara Reference McNamara2008). Unlike the dollar system, EU monetary governance has constrained the emergence of large, flexible euro-denominated balance sheets beyond the Economic and Monetary Union, limiting the euro’s global transactional reach. Moreover, Europe’s more limited role in global commodity pricing and strategic supply chains—particularly in critical minerals and green industrial inputs—reduces the scope for euro usage to be embedded within production and infrastructure networks. Even initiatives such as the proposed digital euro therefore are unlikely to overcome these structural constraints in the near term, suggesting that euro internationalization will remain incremental rather than transformative.
Taken together, these dynamics imply a broader shift in how currency choice is structured. Under conditions of sustained geopolitical fragmentation, currency use is likely to become more closely tied to political alignment, with trade invoicing becoming more regionally differentiated rather than uniformly dollar based.
A NEW ERA OF PROTECTIONISM
A third structural shift with implications for international currency power is the turn toward sustained US protectionism. In contrast to the postwar consensus on trade liberalization, recent policy under both Republican and Democratic administrations has embraced higher tariffs, expansive industrial policy, and the reshoring or “friendshoring” of supply chains (Juhász, Lane, and Rodrik Reference Juhász, Lane and Rodrik2024; Prasad Reference Prasad2025; Weldzius Reference Weldzius2026). These moves reflect a convergence of domestic political pressures—rising inequality, regional dislocation, and partisan polarization—with a strategic reorientation toward industrial competitiveness and national security (Kim and Osgood Reference Kim and Osgood2019; Rickard Reference Rickard2018).
Scholars interpret this shift in several ways: as geoeconomic realism (Kim Reference Kim2021), as a resurgence of economic nationalism (Helleiner Reference Helleiner2021), and as the outcome of partisan backlash against globalization (Colantone and Stanig Reference Colantone and Stanig2018; Jensen, Quinn, and Weymouth Reference Jensen, Quinn and Weymouth2017; Margalit Reference Margalit2019; Walter Reference Walter2021). The increasing dependence on industrial policy and supply-chain realignment undermines the credibility of the United States as a defender of open trade, thereby weakening the dollar availability through predictable global networks.
At the same time, protectionist barriers reshape strategic alignment. When US tariffs, export controls, and subsidies disrupt access to markets and technologies, affected countries become incentivized to deepen alternatives. The concept of friendshoring—that is, the rerouting of supply chains through politically reliable allies—captures this shift toward strategic realignment (Javorcik et al. Reference Javorcik, Kitzmueller, Schweiger and Yıldırım2024; Weldzius Reference Weldzius2026). In practice, however, friendshoring has proven politically fragile even among close allies, thereby reinforcing uncertainty about the durability of trade alignment and the predictability of access to US markets.
Meanwhile, China has taken advantage of these openings, promoting infrastructure finance, technology cooperation, and RMB-settlement mechanisms embedded within green trade and development partnerships (Gelpern et al. Reference Gelpern, Horn, Morris, Parks and Trebesch2023; Liao and McDowell Reference Liao and McDowell2015). These moves improve the practical availability of the RMB while encasing it in new production networks and industrial alliances.
Over time, the overlap of policy fragmentation, protectionist pressure, and RMB-linked financial infrastructure can foster a more multipolar monetary landscape. As with the green transition and the weakening of liberal multilateralism, protectionism does not imply an immediate displacement of the dollar but instead opens new avenues for incremental gains of the RMB in specific sectors and regional blocs.
These dynamics also imply concrete expectations about future adjustment. If protectionism remains a structural feature of US policy, affected partners increasingly should hedge against dollar exposure by expanding non-dollar-settlement mechanisms, particularly in politically sensitive sectors.
THE FUTURE OF CURRENCY POWER
This article argues that deep structural shifts—the green transition, erosion of the liberal international order, and sustained US protectionism—are reshaping the foundations of international currency power. Together, these forces point toward a more fragmented and multipolar monetary landscape in which the international role of the RMB expands gradually and unevenly, concentrated in specific sectors and political relationships rather than through the displacement of the dollar.
…these forces point toward a more fragmented and multipolar monetary landscape in which the international role of the RMB expands gradually and unevenly, concentrated in specific sectors and political relationships rather than through the displacement of the dollar.
The framework advanced in this article yields clear conditions under which the argument would be challenged. If RMB usage does not expand in green commodity trade despite China’s central role in processing and infrastructure finance, this would suggest that availability and alignment are insufficient. If countries facing US sanctions and trade barriers continue to rely overwhelmingly on the dollar despite viable alternatives, this would cast doubt on fragmentation-driven diversification. Finally, if Chinese policy makers actively reverse or constrain RMB-settlement mechanisms to preserve domestic control, this would underscore the limits of state-led currency power. Future research should test these expectations using cross-national, sectoral, and firm-level evidence as the international monetary system adjusts to a post-liberal order.
ACKNOWLEDGMENTS
We thank Benjamin A. T. Graham and participants at the 2024 Annual Meeting of the American Political Science Association for helpful comments on an earlier draft of the article. This project originated from Buckson’s undergraduate senior seminar project at Villanova University, “The Greenback in the Green Transition,” for which Weldzius was the instructor of record.
CONFLICTS OF INTEREST
The authors declare that there are no ethical issues or conflicts of interest in this research.
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