Mark Mobius: Yuan Not Ready for Prime Time as World’s Reserve Currency

Friday, 26 Oct 2012 11:36 AM

By Dan Weil

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With the U.S. economy on its heels and China still growing more than 7 percent, some analysts have speculated that the renminbi could one day replace the dollar as the world’s primary reserve currency.

Don’t bet on it in the near future, says Mark Mobius, executive chairman of Templeton Emerging Markets Group.

“While I believe China could become the world’s largest economy someday, I don’t think it’s likely to overtake the dollar as the world’s reserve currency anytime soon, because of the current restrictions on the exchange of the renminbi,” he writes in a commentary on his firm’s website.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

To make the renminbi, also known as the yuan, a legitimate reserve currency, China must open its financial markets further, Mobius says.

But unlike Republican presidential nominee Mitt Romney, Mobius doesn’t see China’s currency market controls as a huge problem.

“Our research indicates that the renminbi is undervalued against the dollar at this time, but not by much,” he states.

The renminbi has rebounded in recent weeks, Mobius notes. The dollar stood at 6.257 yuan early Friday, down from 6.39 yuan July 13, meaning the Chinese currency has appreciated 2.4 percent since then.

Harvard economist Dani Rodrik agrees with Mobius’ assessment of the yuan’s valuation.

“[China’s currency manipulation] had the potential to remain a huge issue if it hadn't come down somewhat drastically in the last couple of years. It's obviously becoming less salient an issue since then,” he tells The Atlantic.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

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