Can the yuan dethrone the US dollar as the world’s reserve currency?

[MH.Yang]

One big reason why certain currency gain reserve status is -- if I hold this currency what can I buy?
You cannot buy a lot of things holding India Rupee but you certainly can buy most things you want holding CNY.

The next thing to think is -- if I hold this currency, can some pirates come in and confiscate my wealth?

This is monetary theory 101.

Money itself has no value, its value comes from exchange and reputation.

The confiscation of US dollar assets from Russia and Afghanistan by the USA is a very foolish act. Its harm to the USA and the US dollar system far outweighs its harm to Russia and Afghanistan.

I like the Yen more

Japan and the yen have no future.

 

[jhungary]

I suggest you don't say it with such a strong certainty, we'll wait and see.

Well, considering EU has been stable within the last 50 years or so, and China didn't really have a functioning tertiary sector, it's pretty much WILL be the case.

It's like you ask me to "don't say it with such certainty that I will never have a date with Bella Hadid" Well, technically there is a chance for it to happen, but a lot of things would have to happen before that. Chances of those things to happen are slim to none.

One big reason why certain currency gain reserve status is -- if I hold this currency what can I buy?
You cannot buy a lot of things holding India Rupee but you certainly can buy most things you want holding CNY.

The next thing to think is -- if I hold this currency, can some pirates come in and confiscate my wealth?

This is monetary theory 101.

lol, don't quit your day job.....

You first need to understand that currency is only the medium for the distribution of goods. The USA can control distribution rights by mastering the world currency. But this is not the only method, and it is not the best either. We know that it means a huge cost. China can obtain distribution rights by mastering industry, which comes at almost no cost. We only need the currency side to be in a balanced state, without a particularly strong currency, then the distribution rights will naturally be controlled by the supply side.

Seriously, that is the menatality why China still have small control over currency market. I mean, nothing is going to change if this mentality does not change.

And you also should ask Japan how their currency doing after mastering industry in the 80s and early 90s....

And finally, any 1st year econ student would tell you market is controlled by demand, not supply. I mean you don't sell 1000 camera because you can supply 1000 camera on a market, you sell 1000 camera because you have 1000 buyer want your camera....

Supply only play pivotal role IF AND WHEN they were monopolized.

 

[beijingwalker]

Well, considering EU has been stable within the last 50 years or so, and China didn't really have a functioning tertiary sector, it's pretty much WILL be the case.

It's like you ask me to "don't say it with such certainty that I will never have a date with Bella Hadid" Well, technically there is a chance for it to happen, but a lot of things would have to happen before that. Chances of those things to happen are slim to none.

Ok , I'll mark your word here and see what'll happen in the coming years.

 

[jhungary]

Ok , I'll mark your word here and see what'll happen in the coming years.

lol, try decades, I don't think i am gonna lived long enough to see USD being dethroned don't think I can live past 90, unless there is a 3rd world war, if so we are all gonna be dead anyway.

 

[Viet]

Imagine if Eurozone is firmly within dollar zone, today dollar will still be a big hegemony. In this POV, the dollar is indeed weaken by Euro. The Euro despite of all reasons given by European elites, is a big challenge of USD. Perhaps the worst thing about it is. It set an example for others to follow suite.

China will say "Europe can create own international currency, why cant we".

Else the West would have use the pretext of the following against China

......China against rule based international order .....

......and China wants to compartmentized world payment and world reserve system and this will cause depression and even starvation in the world..

That’s a misconception. The reality is the euros as single currency was the price Germany paid for reunification. I would keep the deutsche mark. Like 99 percent of Germans. Europe never relies on USD. If any, there was just a short period after WW2. The euros won’t survive without the backing of a strong powerhouse as Germany.

 

[beijingwalker]

lol, try decades, I don't think i am gonna lived long enough to see USD being dethroned don't think I can live past 90, unless there is a 3rd world war, if so we are all gonna be dead anyway.

EU now has a smaller economy than China , so does its trade, market and almost everything, Euro's future looks pretty bleak, many countries have already started to use yuan in international trade, we are living in an interest time in the history, I don't make very definite predictions for the future, I prefer wait and see, no one is a prophet in PDF.

 

[jhungary]

EU now has a smaller economy than China , so does its trade, market and almost everything, Euro's future looks pretty bleak, many countries have already started to use yuan in international trade, we are living in an interest time in the history, I don't make very definite predictions for the future, I prefer wait and see, no one is a prophet in PDF.

Again, yet EU have 5 times more currency control than China. In fact, EU were NEVER known to be manufacture country probably since 1800s

International Trade don't affect currency market much, I mean if all these factors combine and you still can't see the common denominator, that I cannot help you.

 

[Viet]

EU now has a smaller economy than China , so does its trade, market and almost everything, Euro's future looks pretty bleak, many countries have already started to use yuan in international trade, we are living in an interest time in the history, I don't make very definite predictions for the future, I prefer wait and see, no one is a prophet in PDF.

China has the benefits, is bigger in size. In capita China trade volumes are smaller. If having the many people like China, Germany exports would be 20 trillions USD. So before you believe Europe is doomed, the future is communist, dictated by Ccp, be realistic.

 

[beijingwalker]

China has the benefits, is bigger in size. In capita China trade volumes are smaller. If having the many people like China, Germany exports would be 20 trillions USD. So before you believe Europe is doomed, the future is communist, dictated by Ccp, be realistic.

I didn't say EU is doomed, I mean Chinese yuan can gradually gain some weight against western currencies due to her fast increasing economic and manufacturing might. we'll see.

 

[Viet]

I didn't say EU is doomed, I mean Chinese yuan can gradually gain some weight against western currencies due to her fast increasing economic and manufacturing might. we'll see.

There is no dispute. The yuan will increase the share.

 

[tower9]

Dedollarization is happening even faster than I’m expecting. And consider this doesn’t even take into account the massive geopolitical earthquakes from the past month. We have barely even begun the acceleration stage of dedollarization. Yet naysayers here continue to live in lalaland.

The dollar's dominance as a reserve currency eroded last year at 10 times the pace seen in the past 2 decades

"We believe the erosion of the dollar's reserve currency status has accelerated in recent years at an alarming pace," Eurizon said.

markets.businessinsider.com

 

[jhungary]

Dedollarization is happening even faster than I’m expecting. And consider this doesn’t even take into account the massive geopolitical earthquakes from the past month. We have barely even begun the acceleration stage of dedollarization. Yet naysayers here continue to live in lalaland.

The dollar's dominance as a reserve currency eroded last year at 10 times the pace seen in the past 2 decades

"We believe the erosion of the dollar's reserve currency status has accelerated in recent years at an alarming pace," Eurizon said.

markets.businessinsider.com

Nobody is denying the dedollarisation of USD is happening at a rate that is faster than anyone seen in the last few decade. The question we are arguing is whether or not this will make enough difference in a mid-run.

As the article you quoted suggest, it won't

The dollar's dominance as a reserve currency eroded last year at 10 times the pace seen in the past 2 decades

"We believe the erosion of the dollar's reserve currency status has accelerated in recent years at an alarming pace," Eurizon said.

markets.businessinsider.com

• The US dollar's reserve currency status has seen gradual erosion for two decades, Eurizon strategists said.
• But last year, the pace of erosion was 10 times faster amid currency sanctions against Russia.
• The dollar's dominant role in international trade is unlikely to be challenged soon, Eurizon said.

By clicking ‘Sign up’, you agree to receive marketing emails from Insider as well as other partner offers and accept our Terms of Service and Privacy Policy.

The dollar's standing as a reserve currency of choice saw a steep decline in 2022 even though its strength in international trade remains unchallenged, according to Eurizon SLJ Asset Management.

In a Monday note, strategists Joana Freire and Stephen Jen calculated that the greenback accounted for about two-thirds of total global reserves in 2003, then 55% by 2021, and 47% last year.

"This 8% decline in one year is exceptional, equivalent to 10 times the average annual pace of erosion in the USD's market share in the prior years," the authors said.

The drop-off in the dollar's standing as a reserve currency accelerated since the start of the war in Ukraine in particular.


"Exceptional actions" — namely sanctions taken by the US and its allies against Moscow — made many nations less willing to hold on to the dollar, the report said.

After Russia invaded Ukraine last year, Western nations largely cut off Russia from the world financial system and froze its currency reserves, forcing the Kremlin to rely more on the yuan.

Meanwhile, the euro's share as a reserve currency jumped by about 5%, Eurizon said, bringing its standing to the same level it hit in 2003 and effectively erasing two decades of losses.

China's yuan, meanwhile, continued to gain at its usual pace and didn't see a big spike as a global reserve currency last year.


To be sure, no other currency is set up to challenge the dollar's dominance in international trade. It's still the main conduit for country-to-country transactions, Eurizon said.

Citing data from the Bank for International Settlements' Triennial Foreign Exchange Surveys, the dollar commanded 85% of all currency turnover in 2010, compared to its 88% market share in 2022, the note said.

"We believe the erosion of the dollar's reserve currency status has accelerated in recent years at an alarming pace, especially since the start of the Ukraine War, while the dollar will likely continue to enjoy dominance as an international currency for a while longer," it added.

Meanwhile, Fitch Solutions said the dollar's dominance will erode over time but there won't be a "paradigm shift," given that there's no viable alternative currency for international trade.

As the article rightly point out and as I said in most of these post, there are no viable alternative currency to replace USD in the near future.

 

[F-22Raptor]

Nobody is denying the dedollarisation of USD is happening at a rate that is faster than anyone seen in the last few decade. The question we are arguing is whether or not this will make enough difference in a mid-run.

As the article you quoted suggest, it won't

The dollar's dominance as a reserve currency eroded last year at 10 times the pace seen in the past 2 decades

"We believe the erosion of the dollar's reserve currency status has accelerated in recent years at an alarming pace," Eurizon said.

markets.businessinsider.com

• The US dollar's reserve currency status has seen gradual erosion for two decades, Eurizon strategists said.
• But last year, the pace of erosion was 10 times faster amid currency sanctions against Russia.
• The dollar's dominant role in international trade is unlikely to be challenged soon, Eurizon said.

By clicking ‘Sign up’, you agree to receive marketing emails from Insider as well as other partner offers and accept our Terms of Service and Privacy Policy.

The dollar's standing as a reserve currency of choice saw a steep decline in 2022 even though its strength in international trade remains unchallenged, according to Eurizon SLJ Asset Management.

In a Monday note, strategists Joana Freire and Stephen Jen calculated that the greenback accounted for about two-thirds of total global reserves in 2003, then 55% by 2021, and 47% last year.

"This 8% decline in one year is exceptional, equivalent to 10 times the average annual pace of erosion in the USD's market share in the prior years," the authors said.

The drop-off in the dollar's standing as a reserve currency accelerated since the start of the war in Ukraine in particular.


"Exceptional actions" — namely sanctions taken by the US and its allies against Moscow — made many nations less willing to hold on to the dollar, the report said.

After Russia invaded Ukraine last year, Western nations largely cut off Russia from the world financial system and froze its currency reserves, forcing the Kremlin to rely more on the yuan.

Meanwhile, the euro's share as a reserve currency jumped by about 5%, Eurizon said, bringing its standing to the same level it hit in 2003 and effectively erasing two decades of losses.

China's yuan, meanwhile, continued to gain at its usual pace and didn't see a big spike as a global reserve currency last year.


To be sure, no other currency is set up to challenge the dollar's dominance in international trade. It's still the main conduit for country-to-country transactions, Eurizon said.

Citing data from the Bank for International Settlements' Triennial Foreign Exchange Surveys, the dollar commanded 85% of all currency turnover in 2010, compared to its 88% market share in 2022, the note said.

"We believe the erosion of the dollar's reserve currency status has accelerated in recent years at an alarming pace, especially since the start of the Ukraine War, while the dollar will likely continue to enjoy dominance as an international currency for a while longer," it added.

Meanwhile, Fitch Solutions said the dollar's dominance will erode over time but there won't be a "paradigm shift," given that there's no viable alternative currency for international trade.

As the article rightly point out and as I said in most of these post, there are no viable alternative currency to replace USD in the near future.

The dollar could lose another 10% in foreign bank reserves and still remain dominant.

The reality is there is no viable alternative to the dollar.

 

[That Guy]

If you want to do that, you'd have to force international trade to be done in the yuan for a vast majority of nations with major economies.

Then you'd have to decouple it from the US, and force the dollar to be compared to the yuan, instead of the other way around; this would make the yuan the default currency that every other currency is compared to (like how every other currency is compared to the USD currently as a default value).

The US lucked out with the petrol dollar which led to the dollar becoming the default for other things as well, because transport costs were done in dollar amounts...etc.

Unless the Chinese can convince the world that the yuan should be used as the default trade currency, the dollar will continue as the reserve dominant currency.

 

[jhungary]

The dollar could lose another 10% in foreign bank reserves and still remain dominant.

The reality is there is no viable alternative to the dollar.

I remember back when i was doing my master's in international business 10 years ago, my Econ411 professor make a very good point for an example. He compared currency market to the internet. And why the internet is still get stuck with IPv4 protocol instead of the newer IPv6

That's because there are just too much information is stored under IPv4, you either have to abandon all those information or you will need to keep supply it, or have those IPv4 server that host those information to upgrade to IPv6. So either they would have to pay for the change or someone else have to pay for those changes.

The same with US Dollars. there are just too much dependencies on USD, with most settlement system using USD to close out the balance, you either have to have all of them to change to another system, or have USD itself to give up that lead.

But yes, at the current form, even if USD drop another 10% in Forex wouldn't make a difference, because it will all route back to USD. Because the currency market is too fragmented.