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Yuan can become dominant world reserve currency – survey

Published time: February 27, 2014 23:44
Edited time: March 01, 2014 10:54
Reuters / Kacper Pempel

Reuters / Kacper Pempel

The Chinese yuan can overtake the dollar as the leading international reserve currency, a new poll of institutional investors indicates.

The authors of the survey, conducted by the Economist Intelligence Unit and commissioned by State Street financial services, polled 200 senior executives at institutional investors with knowledge of their exposure to yuan assets. Half of the respondents were from the firms headquartered in mainland China (including Hong Kong and Taiwan) and the other half were based elsewhere.

The report accompanying the survey points out that by the end of 2013, the yuan has risen to become the second-most-used trade financing currency and ninth-most-used currency for payments globally.

Image from statestreet.com

A majority – 53 percent of respondents said that they believe the yuan will one day surpass the dollar as the top currency in international holdings of foreign-exchange reserves. In China 62 percent expressed this opinion, compared to 43 percent of respondents outside the country.

Last May International Monetary Fund analysis showed that the dollar had slumped to a 15-year low, heightening concerns that it may lose that status as global reserve.

Chinese officials are diligently working on sustaining their national currency, promoting it beyond the frontier. In October 2013, the government of China agreed a pilot program to create a UK based yuan hub that allows London investors to buy up to $13.1 billion (80 billion yuan) of stocks, bonds and money market instruments directly, avoiding Hong Kong transactions.

The move gave the yuan a firmer footprint in Europe and helped to overcome the euro in December, becoming the second most widely used currency in global trade.

Only 11 percent of respondents have said that they do not expect the yuan to become a major reserve currency, a split between 16 outside China and six onshore, according to the poll. Among the former, the most often cited reasons are that the yuan will never enjoy enough liquidity across all asset classes to offer a viable option as a reserve currency, and that people will not trust the yuan as a store of value, the survey says.

The very few pessimists from China-headquartered institutions, meanwhile, say that people would be “concerned about future policies of the Chinese government and opposition from other economic powers, such as the US, the EU and Japan.”

But the consensus is that one day it will be a yuan world, according to the survey.

"As China's economic influence grows, the global importance of the renminbi (yuan) will become magnified. Indeed, while for decades it has been a 'greenback world', dominated by the US dollar as the world's primary reserve currency, many think a 'redback world', in which the renminbi enjoys premier status, is increasingly a possibility," the survey’s authors concluded.

Comments (33)

 

rdider 20.03.2014 22:23

China’s yuan has suffered its biggest one-week fall in 20 years, nearing key trigger levels that threaten a wave of forced selling and mounting stress for those with dollar debts. 20.4.2014 Google it.

 

BIG-ONE5 04.03.2014 03:44

Thing is, China should study the economics behind this. Look at Japan. Japan was once the best currency to hold. Then, out of nowhere slipped back. The best be, go to SCO Brics and open reserves. BUT Russia should go equal. Result? It will have the effect, of a universal currency. Takes time. U.S took over when after WW2, the world thought, U.S is the best and most loved country in the world..and all the propaganda. Took years to be accepted. But now? Nearly everyone I talk online, HATES U.S ,Americans..China will have to break over the propaganda first..

 

ZeroZeroZero 03.03.2014 12:58

USA is just an asset in hands of bankers+oil+army cartel. While FED is private firm, we are living in era in which every single aspect of our life is in hand of banksters, which can buy american politics or any other banana republic president. They manipulate with currencies and create financial genocid (Greece). If they will calculate that nucler war is good bussines, we will have one soon.

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