UBS Asset Management’s strategy chief warns that if U.S. policy turmoil accelerates investors’ risk diversification, the renminbi’s share in global central bank foreign exchange reserves could rise to about 10% in the medium term, making China the biggest beneficiary.
(Background: Understanding “de-dollarization” — Can the BRICS truly challenge U.S. dollar hegemony?)
(Additional context: What are the BRICS? Over 40 countries eager to join — can a common currency really counter the dollar’s dominance?)

Table of Contents

• The U.S. dollar’s dominance faces structural loosening
• Expansion of the renminbi internationalization window
• Challenges remain: the dollar is hard to fully replace

UBS Asset Management points out that as investor concerns over U.S. policies continue to rise, if markets further seek diversified investment portfolios, China is expected to benefit significantly. Massimiliano Castelli, the company’s global sovereign market strategist, analyzes that if U.S. tensions worsen—such as increased pressure on the U.S. bond market and frequent criticism of the Federal Reserve damaging U.S. credibility—the allocation target of the renminbi in global central bank foreign exchange reserves could rise to approximately 10% in the medium term.

The U.S. dollar’s dominance faces structural loosening

According to IMF data, the dollar’s share in global foreign exchange reserves has fallen from over 70% in 2001 to 59% in the first quarter of 2023, indicating that central banks worldwide are quietly adjusting their asset allocation strategies.

Castelli believes this is not short-term volatility but reflects a structural shift in the global financial system. Ongoing domestic political turmoil in the U.S., combined with rising fiscal deficits leading to decreased attractiveness of U.S. debt, naturally causes central banks to look elsewhere.

Expansion of the renminbi internationalization window

For China, the current international environment offers an opportunity to expand the scope of renminbi internationalization. Through cross-border payment projects like mBridge, Beijing is accelerating the establishment of settlement channels with central banks in Hong Kong, Thailand, and the UAE that bypass the SWIFT system.

Additionally, the BRICS group is actively promoting the development of an independent blockchain payment system to reduce reliance on the dollar. Russia’s central bank governor previously revealed that 159 institutions from different countries are connected to Russia’s Financial Messaging System (SPFS), demonstrating that the de-dollarization wave is moving from vision to practice.

Challenges remain: the dollar is hard to fully replace

Despite the rising calls for de-dollarization, experts warn that the dollar remains difficult to fully replace in the short term. Berkeley economist Barry Eichengreen pointed out that the dollar’s functions in international trade, financial settlement, and reserves “mutually reinforce” each other, and currently there is no mechanism for global banks, corporations, and governments to simultaneously shift their behavior.

However, UBS’s analysis shows that the market has begun to prepare for a scenario where “the dollar is no longer dominant,” and the renminbi is one of the most promising beneficiaries.