November 18, 2011
Here’s a bold prediction to feed Western worries that power is shifting inexorably to the East: China’s yuan could overtake the US dollar as the world’s principal reserve currency as soon as next decade.
China has been promoting the use of the yuan, also known as the renminbi (RMB), beyond its borders since 2009 to settle trade transactions. The resulting build-up of deposits in Hong Kong has spawned a thriving yuan bond market.
Internationalizing the yuan brings with it a host of financial and political benefits. Notably, it allows China to build up claims on the rest of the world in yuan rather than increasing exposure to foreign currencies, especially the US dollars.