The debatable topic of whether the Yuan will replace the dollar as the world’s main reserve currency has been instigated by the recent US economic decline and driven by the latest S&P degradation of the US credit rating. Despite their differing outlooks, most analysts agree that the prospective yuan faces the following obstacles that make it inferior to the greenback:
- China lacks the political stability required to convince central banks to hold the yuan in the long term.
- The yuan is not freely available or convertible to foreigners. This would mean its value must be determined by the market, which acts against the current Chinese government’s financial mentality.
- These moves will most likely increase the yuan’s value and impale the advantage of cheap exports that China has built much of their economy upon.
- The dollar is “English in the currency world.” It has been thoroughly established as the go-to currency.
Despite these setbacks, President Hu Jintao has stated China’s intentions on replacing the dollar since 2009. Exporters in 20 regions have already begun trading in yuan and a market for exchanging yuan notes has been created. China has also become one of the largest creditors while the US is on the opposite end of the spectrum. Nonetheless, this process will take more than a few years to materialize.
