The Undervalued Renminbi: Currency as Strategic Instrument
The IMF estimated in early 2026 that the renminbi is undervalued by approximately 16%. The Chinese government’s response, encoded in the 2026 Government Work Report, is that the RMB will be kept “generally stable” at an “adaptive, balanced level.” Translated from the diplomatic idiom: Beijing intends to manage the currency at a competitive rate and will move slowly, if at all, on any revaluation that international institutions or trading partners request.
Currency management at this scale is not a monetary policy technicality. It is a strategic instrument with direct implications for the competitiveness of Chinese exports, the size of China’s trade surplus, and the leverage available to Beijing in any confrontation with the alliance architecture that underpins Taiwan’s security.
The mechanics are deliberate and transparent. The People’s Bank of China sets a daily guidance rate and a narrow trading band. State-owned banks execute the policy by buying or selling RMB and foreign assets to keep the exchange rate at the desired level. China sits on $3.34 trillion in foreign exchange reserves—the operational ammunition for sustained market intervention. The US Treasury Department maintains China on its currency watch list specifically for this behavior, including for Beijing’s refusal to publish its exchange rate intervention data.
The strategic function of an undervalued currency operates at multiple levels simultaneously. At the commercial level, it subsidizes Chinese exporters, sustaining the price competitiveness that drives the $1.2 trillion trade surplus even as other economies raise tariffs and redirect procurement. At the financial level, it complicates the IMF’s stabilization mandate and creates structural friction with every major trading partner that cannot match China’s capacity for sustained intervention. At the geopolitical level, it preserves Beijing’s ability to weaponize the currency in a crisis—either by allowing depreciation to offset sanctions pressure or by demonstrating, through continued stability, that economic isolation would be costly for those attempting it.
The parallel program of renminbi internationalization, listed explicitly in the 15th Five-Year Plan as a priority, extends this logic. A renminbi with greater global circulation reduces China’s exposure to dollar-denominated financial infrastructure and the US sanctions architecture that rides on top of it. SWIFT exclusion, the tool that isolated Russia with considerable effectiveness, loses its bite against an adversary that has built alternative payment rails and convinced enough of its trading partners to use them. China is not yet at that threshold, but the direction is unambiguous.
For the United States and its partners, the currency question is not primarily about trade fairness—though the fairness argument has domestic political salience. It is about whether the financial architecture that makes economic coercion possible retains its leverage as China systematically insulates itself from it. The 16% undervaluation estimate is a data point. The trajectory of renminbi internationalization, the scale of reserve accumulation, and the explicit FYP commitment to deepening Chinese capital markets tell the larger story.
Every year that the renminbi moves further into global settlement networks is a year that the financial lever of Taiwan Strait deterrence becomes marginally less reliable. That is a slow process, but it is not a reversible one.