Here's Why China's Yuan Will Never Be Able To Dethrone The US Dollar

Here's Why China's Yuan Will Never Be Able To Dethrone The US Dollar

Matthew Fox  Wed, August 30, 2023

Why China's Yuan, not the Euro, could become the dominant global currencyScroll back up to restore default view.  There's good reason why China wants to dethrone the US dollar with its yuan, or even a collective of other currencies. 

"The dollar's reserve status is a privilege that gives the US significant political, economic and market influence," TS Lombard said.   But China's yuan has little to no chance at replacing the dollar, especially as its economy struggles.

China's yuan has little to no chance of dethroning the US dollar, even as global de-dollarization happens at a slow and steady pace.  That's according to a Wednesday note from GlobalData TS Lombard's Skylar Montgomery, who outlined why it makes sense China wants its yuan, or at least a collective of other currencies, to break up the dominance of the dollar.

"The dollar's reserve status is a privilege that gives the US significant political, economic and market influence," Montgomery said, adding that America's gain from its reserve status also represents pain for other countries.  Dollar strength damages emerging markets especially, she noted. Because most emerging market trade is in dollars, any appreciation in the greenback means other countries pay higher import prices.

Additionally, a strong US dollar amplifies energy price shocks and gives the US government leverage in using it as a political weapon, including when the West froze Russia's currency reserves after Moscow invaded Ukraine.

"That weaponization of the dollar is part of the reason why Russia, China, and other BRICS nations have vied for an alternative to the dollar," Montgomery said.

To be sure, de-dollarization is still happening, but just at a very slow pace.

Montgomery highlighted that the clearest sign of de-dollarization is seen in the dollar's share of global currency reserves, which has dropped from 72% in 2000 to 59% today.

"A decrease of less than 1% a year is extremely slow-moving and the dollar still makes up the majority of currency reserves," she observed. "Moreover, the 13% decline has benefited [the] euro, British pound, Canadian dollar, Chinese yuan, and Australian dollar fairly evenly."

To continue reading, please go to the original article here:

https://finance.yahoo.com/news/heres-why-chinas-yuan-never-020352361.html

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