The Chinese yuan is on track to become a global currency and could even displace the U.S. dollar as the world's reserve currency, experts say.
China is opening its financial markets to foreign investors and encouraging its currency to be used more in international trade, CNBC reports. Countries that have substantial trade with China, such as Australia, are among the first to base their trade settlements on the yuan, also called the renminbi, since it lowers their transaction costs.
International payments in the yuan jumped 24 percent in November from October, reaching a record 0.56 percent of the global total, CNBC reports, citing data from SWIFT, a transactions services organization.
Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.
China's gradual move to let the yuan appreciate and become more of a free-market currency is another sign it's advocating the yuan as a global currency, experts say.
"This is about the liberalization of the currency and that's going to be fascinating over the next few years," David Bloom, global head of forex strategy at HSBC, told CNBC.
The U.S. dollar could eventually lose its crown as the world's reserve currency, a status that helps finance its debt and allows it to borrow more cheaply than other countries.
"The basis of U.S. power could be weakened," says Zha Xiaogang, a research fellow at the Shanghai Institute for International Studies, according to CNBC.
"There are many uncertainties about how the U.S. will respond to the dollar's possible loss of dominant status," Zha says. "We are therefore not sure whether the transformation of international monetary system will take place smoothly and peacefully."
The Federal Reserve's loose monetary policy that drives down the value of the dollar could have the side effect of causing the dollar to lose its reserve currency status, according to Fortune magazine.
The low dollar could spark trade wars and upset trading partners, warns Allan Sloan, Fortune’s senior editor at large.
"The Fed is playing a complicated, high-stakes game here. The dollar is the world's reserve currency, which allows us to suck in money from all over the world to fund our trade and budget deficits without having to balance our accounts," Sloan writes.
"There's a tension between our internal situation (a lower dollar is good) and our role as a reserve currency (a dollar that falls too rapidly risks spooking investors and costing us our reserve-currency status)," he says.
Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.
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