The US-China trade war once again put the frailty of the global economic order and the central role of monetary supremacy in global power politics under the spotlight.

At a time when global trade is increasingly marred by protectionism, China finds itself uniquely positioned to take the reins of globalization. The United States’ previous trade war with China was the result of President Donald Trump’s first-term bet on protectionism and bilateralism instead of free trade and multilateralism, which actually brought great prosperity to the US, not to mention global influence. This new trade war seems even more intense than the first one.

While protectionism can disrupt supply chains and investment flows in the short term, the longer-term strategic rivalry is elsewhere — in currencies and the very texture of global financial architecture. In this important competition, China is playing the long game, and its Hong Kong Special Administrative Region is central to its cause.

More than 80 years ago, the International Monetary Fund and the World Bank were set up as guarantors of the global capitalist system with the US at its core, but now all is changing as Trump rejects the old structure. These potential massive changes in the world order will for certain bring chaos at first, but this situation can be conducive to China. To some extent, the rise of economic isolationism, epitomized by Trump’s trade wars, has left a leadership vacuum in global trade governance. Against this backdrop, China has an unprecedented opportunity to advocate for a more interconnected and inclusive global economy.

For example, through platforms such as the Regional Comprehensive Economic Partnership, China has demonstrated its commitment to fostering open trade in Asia. Similarly, the Belt and Road Initiative has extended China’s influence far beyond Asia, connecting over 140 countries through investments in infrastructure, energy, and logistics.

This could bring China closer to the European Union, and China also has the opportunity to lead the Global South. Certainly, Trump’s tariffs could push China to strengthen its leadership among Global South nations by presenting itself as a champion of free trade and economic cooperation.

This could accelerate the de-dollarization movement among developing nations, which have already begun exploring alternative financial systems. The Global South’s expansion can create the potential for using currencies other than the US dollar for trade, for example via central bank digital currencies (CBDC). For instance, China could internationalize the renminbi through the digital yuan, which will allow some US-dollar-denominated international trade transactions to convert into RMB-denominated ones. I am not saying that this will happen overnight, if ever, since the US dollar’s position will remain very strong, but we will certainly experience some changes in this area.

For many years, the world’s monetary system has rested on the dominance of the US dollar. Such dominance, anchored by the dollar’s use abroad as a means to settle trade and the status of the dollar as the de facto reserve currency, has granted the US unparalleled leverage over international affairs. But with rising geopolitical tensions, the foundations of the old monetary order are creaking.

As China continues its monetary reforms and strives to build an even more multipolar financial system, the HKSAR’s strategic importance will only become deeper

China’s strategy toward reshaping the world financial order has its origins deep within its technological advance and geopolitical pragmatism. One of its strongest weapons is the digital yuan (e-CNY).

Indeed, more and more countries — from Latin American countries like Brazil to Southeast Asian nations; in general countries from the Global South — are calling for trade to be carried out in other currencies besides the US dollar.

In this sense, China’s digital yuan can indeed help the nation internationalize its currency, while taking into consideration the point that the HKSAR can play a role in this process.

The digital yuan is of course not the only way through which China can internationalize its currency, but just one more (albeit one more that can have importance in years to come).

The e-CNY is a CBDC, which is a new form of central bank money that is accessible to the public, accepted as a means of payment and legal tender, and a safe store of value for all individuals, businesses, and government agencies.  

However, while the introduction of CBDCs promises efficiency and new functionalities, it is important to remember that it does not solve all the problems of payments — particularly cross-border payments — on its own.

Focusing on the idea of the digital yuan being used for cross-border payments, China’s e-CNY will be beneficial in many different ways, but one of the areas where it can bring more value is in promoting the use of the yuan for cross-border payments.

Hong Kong plays a significant role in this transformation. The city can help the yuan to internationalize, given its competitive advantages as the world’s largest offshore renminbi center and the “one country, two systems” principle, the cornerstone of the city’s system. According to the Society for Worldwide Interbank Financial Telecommunication, more than 70 percent of global offshore RMB payments are processed in Hong Kong, meaning it is the world’s largest offshore RMB clearing center. The HKSAR serves as a conduit for China’s onshore financial system to connect with international markets. Its developed regulatory system, English common law heritage, and significant liquidity make it the ideal platform for cross-border use of the digital yuan.

But there are still problems. Full convertibility of the capital account remains a problem. Despite China’s moves to internationalize the currency, the yuan still has not reached unrestricted global convertibility, a characteristic of major reserve currencies.

Here, Hong Kong’s dollar-pegged exchange rate system becomes a matter of stability.

Tying the Hong Kong dollar to the US dollar is a double advantage: It guarantees the Hong Kong dollar’s stability while giving Beijing a testing ground to pilot the rollout of digital RMB in an economy pegged to the dollar. This double nature, not opposition, is why the HKSAR is so valuable in China’s grand strategy.

It is not an upheaval of the world monetary system that we are witnessing, but a gradual rebalancing. The dollar’s supremacy is being eroded at the fringes — through yuan-denominated trade agreements, through BRI-related infrastructure finance, and through financial instruments like the e-CNY. The digital yuan is not yet mature enough to replace the dollar, but it does not have to. The function of the digital yuan is not to topple but to diversify — to weaken the dollar’s hegemony by offering a credible, scalable substitute.

In doing so, the HKSAR is not merely a participant in China’s monetary evolution — it is an enabler. It allows for experimentation without risking the Chinese mainland’s financial stability, enhances international confidence in yuan-denominated assets, and proves the workability of RMB integration into global finance. As China continues its monetary reforms and strives to build an even more multipolar financial system, the HKSAR’s strategic importance will only become deeper.

The old system will not collapse overnight, of course, but it is certainly being reshaped.

The author is a fintech adviser, researcher, and former business analyst for a Hong Kong listed company.

The views do not necessarily reflect those of China Daily.