A former central banker has explained that three conditions must be met for the Chinese yuan to become a currency on par with the U.S. dollar and the euro. Noting that the yuan is already the third-largest international currency after the USD and the euro, he emphasized that the Chinese currency’s market share and influence are growing.
Chinese Yuan vs. U.S. Dollar, Euro
Chinese economist Chen Yulu explained at an event Saturday how the yuan could become a global currency on par with the U.S. dollar and the euro, the South China Morning Post reported. The event marked the launch of a report by Renmin University on how China can boost the yuan’s international role. Chen, who was vice governor of the People’s Bank of China (PBOC) from October 2015 to August 2022, is now president of Nankai University. He previously served as president of Renmin University.
The former central banker noted that the Chinese yuan has already become the third-largest international currency after the U.S. dollar and the euro. While emphasizing that the Chinese currency’s market share and influence are growing, he asserted:
To build the yuan into a currency on par with the U.S. dollar and the euro by 2035, it requires three conditions.
According to him, the three conditions are “a modern industrial system supported by the real economy, the deepening of domestic financial markets and big progress for yuan internationalization infrastructure, and a high-level balance between the institutional opening of China’s financial system and the risk control regime.”
Renmin University’s report suggests that China should pursue more free-trade agreements, either bilateral or regional, to stimulate trade and investment opportunities and create favorable conditions for the yuan’s overseas use.
Moreover, “China should actively participate in the formulation of future digital trade rules and global digital economic governance, and give full play to our advantages in digital transformation and central bank digital currency development,” the report adds.
While some believe that the Chinese yuan will rise in dominance, Nobel laureate Paul Krugman and others argue that it will not replace the U.S. dollar as the world’s reserve currency. However, the International Monetary Fund’s (IMF) executive director for Russia, Aleksei Mozhin, said in June that a growing number of countries are switching to trade in Chinese yuan, not only with China but also with other countries.
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