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United States (US) President Donald Trump is expected to meet Chinese President Xi Jinping in Beijing this week for talks that could shape the next phase of the world’s most important strategic rivalry – but the key issue likely won’t be on the formal agenda.

That agenda is already crowded. Trump is likely to press Beijing to lean on Tehran to accept America’s nuclear weapons terms, which have become the key obstacle to a peace deal. China is a major buyer of Iranian oil and retains influence with Tehran, giving Xi leverage Washington does not have.

Taiwan is also likely to feature heavily. So too are agriculture purchases, rare earth minerals, artificial intelligence (AI), technology controls, and the role of major US companies in China. Trump will want visible concessions. Xi will want stability without surrendering strategic ground.

One of the themes The Common Sense has returned to in podcasts and reports is that the most important contemporary battleground between the US and China may not ultimately be tariffs, Taiwan, or chips, but rather the future of the US dollar.

In this newspaper’s thinking, the relative dominance that either of the two powers comes to exert over the global order will be determined more than anything else by whether the dollar remains the world’s dominant reserve currency.

Not Reassuring

For Washington, the signals on that are not reassuring.

First, the share of global foreign exchange reserves held in dollars has been declining. The dollar remains dominant, but its share of reserve holdings is no longer what it was. That matters because reserve status is not just symbolic. It reflects whether central banks, sovereign funds, and global institutions still see the dollar as the safest and most necessary asset in the world.

Second, the ratio of dollars to renminbi in the Society for Worldwide Interbank Financial Telecommunication (SWIFT) transactions is narrowing. The dollar still dwarfs the Chinese currency in global payments, but the direction of travel matters. More renminbi usage in settlement, trade, and financial flows gives China a greater ability to build parallel channels outside the US-dominated system.

(The SWIFT system is a secure, global messaging network that enables more than 11 000 financial institutions across more than 200 countries to safely exchange standardised, time-sensitive payment instructions.)

Third, Beijing is openly pushing to internationalise the renminbi. China wants its currency to be used more widely in trade, commodity purchases, lending, and reserves. That is not a technical policy objective. It is a strategic project. A more international renminbi reduces China’s exposure to US financial pressure and gives other countries more room to transact outside the dollar system.

Fourth, the political use of the dollar system has encouraged rivals to look for alternatives. Sanctions, financial restrictions, and access to US-linked banking infrastructure have shown the world how much leverage Washington holds. But that leverage also creates an incentive for countries such as China, Russia, Iran, and others to reduce dependence on the dollar where they can.

On this latter point, the decision at the start of the Ukraine war to politicise the dollar by cutting Russia off from the SWIFT system afforded China a vast opportunity to advance its own interbank payment system.

Major Implications

The implications of what happens to the dollar dwarf even battles as important as who wins the AI race or the rare earth race.

The reason is chiefly that if the dollar is dethroned from its reserve currency status, the US can no longer print its deficit. That would create a domestic economic crisis for Washington. A country that has become accustomed to financing enormous deficits through the global demand for its currency would suddenly face a tougher environment of higher borrowing costs, tighter fiscal choices, and reduced room for manoeuvre.

A second reason is geopolitical.

The US does not only use the dollar at home. It uses the dollar system abroad. Dollar-based lending, dollar settlement, dollar clearing, sanctions, and access to US-linked financial plumbing have long given Washington extraordinary leverage over allies, rivals, banks, firms, and states. Hence, if the dollar is rivalled, US global influence drops a whole number of pegs.

Washington would remain powerful, but it would lose some of the unique financial reach that has allowed it to turn its domestic currency into a global instrument of pressure.

China does not need to replace the dollar overnight. It only needs to weaken the dollar’s monopoly enough to reduce American leverage and give other states a way around Washington’s financial system.

That is why this week’s Trump-Xi talks should not be read only as a negotiation over immediate disputes. For Trump, ultimately, defending American power means defending the dollar system. For Xi, building Chinese global power means creating a world in which the US dollar no longer decides the limits of everybody else’s sovereignty.