In recent time, many headlines have flashed a warning that China is pushing for yuan as global currency to replace the U.S. dollar as the world’s reserve currency of choice. “The U.S. dollar conquered the world. Is it at risk of losing its top spot?” NPR asked in June, as it pitted China as a top contender against the dollar. The dollar vs yuan has been going on for quite some time.
“Move over, U.S. dollar, China wants to make the yuan a global currency,” The Washington Post reported in May.
The Stanford historian, Niall Ferguson told CNBC in May that the yuan isn’t likely to replace the dollar in the next two decades. But the euro, too, hasn’t been able to do this in more than 20 years since it went into circulation.
Dollar vs Yuan
The dollar vs yuan narrative is often part of a broader call for de-dollarization primarily from emerging nations, some of whom are sanctioned though the euro is still the world’s second most commonly held currency after the dollar, the European Central Bank reported. Meanwhile, the Chinese yuan is in fourth place, after the Japanese yen.
While it’s fair to say China might not be happy with the dominance of the U.S. whether in global politics, culture, or the financial system Beijing is far from openly advocating for yuan internationalization and for it to immediately replace the dollar.
Yuan as global currency
Here’s what China’s said about de-dollarization and the rise of the yuan as global reserve currency in recent months.
China’s leader, Xi Jinping, has touted yuan internationalization but has not mentioned dominance.
“Mechanisms for countering foreign sanctions, interference, and long-arm jurisdiction will be strengthened,” a report the Chinese leader delivered to the congress said.
Yuan global reserve currency
In April this year, Xi again raised China’s goal of Yuan internationalization in Qiushi magazine, a Chinese Communist Party journal.
In Qiushi, Xi said that China was committed to promoting yuan internationalization “in an orderly manner.”
It isn’t the first time Beijing has said it wants the yuan as global currency, the grand ambition has been around since the 2000s.
What nation wants of Yuan?
While China wants the yuan to play a more prominent international role, the nation doesn’t necessarily want the yuan as global reserve currency. China isn’t even ready for a complete break from the dollar, Green told Insider in May. Key challenges for China include Beijing’s unwillingness to open its capital accounts or run a deficit.
China focused analysts Insider said have not seen Beijing explicitly calling for the yuan to replace the dollar as the dominant reserve currency, with the language calling for a push in “internationalization” and “facilitating usage” instead.
State media has touted the rise of the yuan as global currency, with more intense coverage recently.
While Xi and his administration have been nuanced in communicating their vision for the yuan as global reserve currency, China’s state media has been blunter with its messaging. These outlets have championed the rise of the currency while expounding the ills of a dollar dominated global trading and financial system in the last few months.
Media outlets are closely tracking the yuan’s internationalization, with the People’s Daily, devoting one full page to the development on May 30.
On June 25, Global Times even trumpeted a 0.25% rise in the share of yuan transactions on the SWIFT.
As per Liqing Zhang, the director of international finance studies at the Central University of Finance and Economics in Beijing, “Local currency settlement does not necessarily weaken the U.S. dollar’s status as a global reserve and pricing currency, nor does it necessarily lead to the end of ‘dollar hegemony”.
After all, “there is still room for improvement in the freely convertible currencies of many developing countries,” Zhang added, without naming any of these countries.
