An economist has dismissed the Chinese yuan as a significant threat to the U.S. dollar’s dominance. “The Chinese renminbi, which accounts for less than 3% of global reserves, is not a serious threat to dollar hegemony,” he asserted, adding that “many commentators have pointed to the probable emergence of a ‘multi-currency’ world in which the dollar plays a much-diminished role.”
Chinese Yuan Unlikely to Replace USD as Global Reserve Currency, Says Economist
Benn Steil, an economist who currently serves as the director of International Economics at the Council on Foreign Relations, shared his view on the Chinese yuan as an alternative to the U.S. dollar in an opinion piece titled “The Real Cost of De-Dollarization,” published on the Protect Syndicate website last week.
He explained that “the biggest threat to the dollar’s dominance comes not from competitive alternatives, but from the U.S. government itself.” The economist named “the recent standoff over the federal debt ceiling” and the Fitch Ratings downgrade as examples.
Commenting on the Chinese yuan as a potential alternative currency to the U.S. dollar, he opined:
The Chinese renminbi, which accounts for less than 3% of global reserves, is not a serious threat to dollar hegemony.
“Given China’s deteriorating legal protections, stringent capital controls, and relatively underdeveloped bond markets — from which foreign investors pulled a record $91 billion in 2022 — the renminbi is still far from a credible store of value,” he detailed. “The currency’s internationalization stalled a decade ago when capital inflows driven by expectations of perpetual appreciation came to an end.”
So, whereas the dollar’s continued dominance should not be taken for granted, there is currently no viable single alternative. Instead, many commentators have pointed to the probable emergence of a ‘multi-currency’ world in which the dollar plays a much-diminished role.
Some people believe that the Chinese yuan will rival the U.S. dollar, including Chinese economist Chen Yulu, who stated last month that the yuan could become on par with the USD. Nobel laureate Paul Krugman also believes that the U.S. dollar’s dominance won’t last forever. However, he doubts that the Chinese yuan could replace the dollar. A market analyst recently said that the volatility of the Chinese yuan makes de-dollarization efforts more difficult.
Do you think the Chinese yuan could replace the U.S. dollar as the world’s reserve currency? Let us know in the comments section below.