America Just Made a Huge Mistake With China’s Currency

Be careful what you wish for, because you just might get it. And if your wish is a stronger Chinese yuan, you may be undermining the US dollar by accident.

That’s my message for the US administration today—which is actively seeking a stronger Chinese currency (I’ll explain why). And in that story lies a warning for you.

I’m gonna tell you now that lots of inside baseball gobbledygook lies ahead, but gobbledygook that will help you understand a bigger picture.

That bigger picture is the ongoing weakening of demand for the US dollar globally—and what that means for your savings at home.

So, onward…

Heading into the G20 meetings at the end of August, Treasury Secretary Scott Bessent said, “The world cannot have a China with a $1.2 trillion trade surplus.” That’s made possible in large part by a cheap yuan that means Chinese-made tchotchkes are more affordable globally.

For its part, the International Monetary Fund says the yuan is undervalued by as much as 21%. Even some economists and European leaders want in on the pile-on. They’ve called for a coordinated push for a stronger yuan.

Beijing Just Turned the Tables on Washington

So, Beijing answered.

On October 8, China’s central bank published a long defense of its currency policy. It pointed out that the yuan has already risen about 9% against the dollar since the start of 2025, which is very boring chartist kinda stuff. The good stuff was the line where Beijing laid a big part of the blame for the world’s trade imbalances at the feet of a global monetary system that leans too heavily on one dominant reserve currency.

Care to guess what the reserve currency is?

The next day the yuan hit a four-year high against a basket of its trading partners’ currencies. The markets heard what Beijing was saying and sent the yuan higher.

But think about money the way regular people do: nobody wants to save in a currency that keeps shrinking. People save in a currency that holds its value, or better yet, grows… which is why much of the developing world squirrels away their savings in dollars. They know their home currency is toilet paper masquerading as money.

For most of the last 20 years, Beijing kept the yuan weak on purpose. The world earned yuan from selling to China, but then quickly swapped those yuan for dollars to keep its savings safe.

The Dollar’s Biggest Threat Isn’t What You Think

A rising yuan changes the thinking.

Picture a soybean farmer in Brazil or a copper miner in Chile who gets paid in yuan. If the yuan is climbing against the dollar, why trade away your yuan? It’s holding its value, and you’re going to keep trading with China—maybe buy Chinese machinery, or chemicals, or whatever. So, you keep your yuan instead of selling it for dollars.

That’s dollars that never get bought.

Meaning, that’s dollar demand that has vanished.

And Guess Who Pays the Price? You Do

China says roughly 30% of its trade is now settled in its own currency. A stronger, steadier yuan gives the other 70% one less reason to bother with dollars.

Again, that would mean shrinking demand for the dollar.

Which lowers the perceived value of the dollar as a currency to hold over time.

Which pushes down the dollar’s value globally.

Which means foreign goods imported into the US cost more in dollar terms… i.e., inflation in America.

So the West’s wish comes true. The yuan gets stronger, China’s goods get a little pricier, and the trade surplus might shrink a bit.

But at the same time, the world’s second-largest economy now has the very thing it has long lacked: the yuan becomes a currency people want to hold.

And that means the yuan has a path to compete against the dollar’s hegemony. Not because of anything China bullied anyone into… but because the West made a wish.