Shutdown in Washington, setup in Beijing?

Comrade Xi must’ve chuckled watching the Capitol shutdown from Beijing. What better advert for yuan-denominated stability than a Washington paralysed by its own budget? What more could the renminbi ask for than a dollar so wrapped in domestic dysfunction that it forgets it’s still the world’s reserve currency?

Of course this does not mean that the greenback is crumbling or that the yuan is preparing to ascend to the throne, but still could the world have timed this pivot any better for China?

Just as US economic data feeds were meant to reassure jittery markets, the plug gets pulled. The Bureau of Labor Statistics goes dark, payrolls get delayed, and the Fed is left flying blind into its next decision. Not because of any natural disaster or cyberattack, but because the most powerful government on earth simply can’t agree on paying its bills. That’s not a technical default, sure. But isn’t it functionally worse?

And while the dollar’s franchise suffers another blow, self-inflicted again, the yuan quietly inches up the FX rankings. Bank for International Settlements (BIS) numbers show yuan daily turnover nearing $817 billion, nipping at sterling’s heels. It now accounts for 8.5 percent of global currency trades, up from 7 percent in 2022. The pound, meanwhile, has slipped below 10.2 percent. Is it a stretch to imagine the yuan overtaking it by the next BIS cycle? Or is that now the base case?

Pan Gongsheng, head of the People’s Bank of China, certainly thinks so. His June speech in Shanghai didn’t just muse about a multipolar currency world, he practically outlined the blueprint. From digital yuan operations centres to yuan futures markets, Pan’s central bank isn’t waiting for global consensus. It’s building the plumbing for a post-dollar world while everyone else debates whether the current one’s even working.

And investors seem to agree. They’re not exactly flocking to the yuan yet, but they are diversifying away from the dollar, and not just into gold. That’s the part markets haven’t fully priced: this is not just another round of risk-off flows. This could well be a hedge against the clear decline, perhaps even possible eventual collapse, of US monetary coherence. A trifecta of Trump’s shutdown chaos, politicised Fed appointments, and tariff-drenched trade policy is forcing capital to recalibrate. What happens to the dollar’s status when it becomes a geopolitical liability instead of an anchor?

Treasury yields may still get attention – the effective federal funds rate has drifted to about 4.09 percent even as the target range sits at 4.00–4.25 percent – but the real pressure is elsewhere. What use is a policy rate if markets question your independence? What do you hedge when your reserve currency carries political risk and institutional cracks?

And who benefits when data blackouts aren’t a result of war or weather, but bureaucracy?

The yuan’s global usage might still be modest, just 2.9 percent of SWIFT transactions as of August, but that’s beside the point. The trend is intact. Chinese capital controls are softening, product variety is expanding, and the world’s second-largest economy is doing what America used to: exporting predictability. Even the Swiss franc, another neutral hedge, has leapfrogged the Aussie and Canadian dollars in daily trading volume. Isn’t that telling?

Of course, none of this guarantees China wins the currency war. The yuan still lacks full convertibility, Beijing still intervenes liberally, and the broader economy faces deflationary drags. But in this match, China doesn’t need to win; it just needs the US to keep playing this badly.

With every shutdown, every missed bond auction, every data delay, and every tweet from Trump about sacking the Fed chair, the cost of dollar loyalty increases. So is it any wonder if central banks look to gold, or trade partners explore non-dollar invoicing, or private funds dabble in yuan exposure? These aren’t ideological decisions, they’re risk management.

And what of Europe? Lagarde’s recent Beijing visit wasn’t a symbolic gesture. The ECB president didn’t fly east just to sip tea. Her talk of a “global euro moment” might still be premature, but it signals awareness: the US monopoly on monetary leadership is cracking. Whether that space is filled by Brussels, Beijing, or a basket of SDRs is still undecided. But is anyone betting on Washington right now?

The funny thing is, all this happens while the US economy remains relatively strong. Inflation is cooling, GDP prints are decent, and employment is holding up. And yet the dollar’s confidence premium is eroding. What does that tell us about the market’s view of institutional integrity?

At the time of writing, mid-European session, before US markets open on Wednesday, investors were still digesting the shutdown standoff and its implications. But even partial market visibility was enough to raise a deeper question: if the dollar gets this shaky when things are still working, what happens when they aren’t?

Xi Jinping doesn’t need to declare a currency war. He just needs to keep watching.

Copyright Business Recorder, 2025