Central Bank of China head, Pan Gongsheng, speaking at China's main financial forum in Shanghai, said that a multipolar international monetary system can prompt sovereign currency issuers to strengthen policy constraints, enhance the resilience of international monetary system, and more effectively safeguard global economic and financial stability. He spoke on how the necessity to weaken the excessive reliance on a single sovereign currency and its negative impacts, foster healthy competition among a few strong sovereign currencies, and put in place incentive-restraint mechanisms. Pan also pointed to European Central Bank President Christine Lagarde's recent comments on the uncertainty of U.S. dollar dominance. Lagarde, President of the European Central Bank (ECB), noted in her recent speech that the global order based on multilateral cooperation is fracturing, with uncertainty about the dominant role of the U.S. dollar, and the changing landscape could open the door for the euro to play a greater international role.
PBOC Governor Pan warned that the international currency, if dominated by the sovereign currency of a single country, has inherent instabilities. Over the past decade, the driving forces behind the shifts in the international monetary system stemmed primarily from the economic and financial dimensions in the wake of the global financial crisis, and hence the discussions were centered on economic and financial developments, he stated. He also talked about the steady rise of the RMB's international status after the global financial crisis in 2008. The RMB has already become the world's second largest trade finance currency. Calculated on a comprehensive basis, the RMB has become the world's third largest payment currency. Besides, the weight of the RMB in the International Monetary Fund's Special Drawing Rights (SDRs) currency basket ranks third.
Going forward, the international monetary system is likely to continue its evolution towards a system where a few sovereign currencies coexist and compete with checks and balances. Be it a single sovereign currency or a small group of sovereign currencies serving as the global dominant currency, the sovereign currency issuers should assume their responsibilities by strengthening domestic fiscal discipline and financial regulation, and advancing the structural reform of the economy, Pan noted. He also spoke about the problems faced by the traditional cross-border payment system and growing calls for improving it. After over a decade of construction and development, China has basically established a cross-border RMB payment and clearing network featuring multiple channels and wide coverage, the PBOC governor said.
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