Can Currency Swaps Make China a Lender of Last Resort? Ex-PBOC Official Weighs In

Why It Matters

Expanding yuan liquidity through swaps could reduce global reliance on the dollar, reshaping international finance and giving China strategic influence in crisis response.

Key Takeaways

• China has currency swaps with 32 countries, expanding yuan liquidity.
• Swaps let partners access yuan quickly during financial crises.
• Zhu argues yuan could become global lender of last resort.
• Strong Chinese manufacturing underpins push for offshore yuan use.
• Yuan appreciated as US dollar weakens, targeting 3 CNY per USD.

Pulse Analysis

Zhu Min, a former deputy governor of the People’s Bank of China, argued that China has the institutional tools to act as a global lender of last resort. He pointed to the country’s expanding web of currency‑swap agreements, which now cover 32 jurisdictions ranging from developing economies to Western nations such as Britain and Switzerland. These swaps function like pre‑approved credit lines, allowing partner central banks to draw yuan when domestic liquidity dries up. By contrast, the Federal Reserve’s ability to inject dollars stems from its massive balance sheet, a model Zhu believes China can emulate.

The strategic shift has far‑reaching implications for the international monetary system. A broader use of the yuan would give borrowing nations an alternative to dollar‑denominated financing, potentially lowering exposure to U.S. fiscal volatility and sanctions. For emerging markets, swap access could smooth balance‑of‑payments pressures during capital outflows, while multinational corporations might find trade settlement in yuan more cost‑effective. Analysts see this as a step toward diversifying reserve holdings, a move that could gradually erode the dollar’s hegemonic status.

Nevertheless, the transition faces hurdles. Global confidence in the yuan hinges on transparent governance, convertibility, and the depth of China’s financial markets. Zhu highlighted the country’s strong manufacturing sector as a competitive edge, suggesting that real‑economy resilience can back a more widely accepted currency. Recent appreciation of the yuan, buoyed by a weakening dollar, fuels optimism that exchange rates could settle near three yuan per dollar in the coming decade. If China can couple liquidity tools with credible reforms, the yuan’s role in crisis lending may become a reality.