Simon Ng A former central banker has laid out three essential conditions that must be fulfilled for the Chinese yuan to reach the status of a global currency on par with the US dollar and the euro. Currently, the yuan stands as the world’s third-largest international currency, trailing only the USD and the euro, and its influence is steadily expanding.
Chinese economist, Chen Yulu, shared his insights at a recent event, highlighting how the yuan could achieve equal footing with the US dollar and the euro. The occasion marked the release of a report by Renmin University, focusing on strategies to enhance the yuan’s international role. Chen, who served as vice governor of the People’s Bank of China (PBOC) from October 2015 to August 2022 and now holds the position of president at Nankai University, was formerly the president of Renmin University.
Chen emphasized that the Chinese yuan has already secured its position as the third-largest international currency, demonstrating a growing market share and increasing influence. He asserted that for the yuan to become on par with the US dollar and the euro by 2035, three crucial conditions must be met:
- Establishing a modern industrial system supported by a robust real economy.
- Deepening the domestic financial markets and making significant progress in yuan internationalization infrastructure.
- Striking a high-level balance between the institutional opening of China’s financial system and the risk control regime.
The report from Renmin University further suggests that China should actively pursue more free-trade agreements, either bilateral or regional, to stimulate trade and investment opportunities, creating a favorable environment for the yuan’s overseas usage.
Additionally, the report proposes that China should take an active role in shaping future digital trade rules and global digital economic governance. This includes leveraging their advantages in digital transformation and central bank digital currency development.
While there are differing opinions on whether the Chinese yuan will eventually surpass the US dollar as the world’s primary reserve currency, the IMF’s executive director for Russia, Aleksei Mozhin, stated in June that an increasing number of countries are adopting the Chinese yuan for trade, not just with China but also with other nations.
The future of the Chinese yuan and its potential parity with the US dollar and the euro remains a topic of debate. What are your thoughts on this matter? Please share your opinions in the comments section below.
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Frequently Asked Questions (FAQs) about Chinese Yuan
Q: What are the conditions for the Chinese Yuan to become on par with the US Dollar and the Euro?
A: According to the former central banker, three conditions must be met: a modern industrial system supported by the real economy, deepening of domestic financial markets and significant progress in yuan internationalization infrastructure, and a high-level balance between the institutional opening of China’s financial system and the risk control regime.
Q: How does the Chinese Yuan’s current status compare to the US Dollar and the Euro?
A: Currently, the Chinese Yuan stands as the third-largest international currency, following the US Dollar and the Euro. Its market share and influence are growing.
Q: What does the Renmin University’s report suggest to boost the Yuan’s international role?
A: The report recommends pursuing more free-trade agreements, either bilateral or regional, to stimulate trade and investment opportunities and create favorable conditions for the Yuan’s overseas use. It also suggests active participation in shaping future digital trade rules and global digital economic governance.
Q: Can the Chinese Yuan replace the US Dollar as the world’s reserve currency?
A: There are differing opinions on this matter. While some experts believe it’s possible, others, like Nobel laureate Paul Krugman, argue that it won’t replace the US Dollar as the primary reserve currency. However, there is an increasing number of countries using the Yuan for trade, as noted by the IMF’s executive director for Russia.
More about Chinese Yuan
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South China Morning Post: Source of the news about the former central banker discussing the Chinese Yuan’s potential to rival the US Dollar and the Euro.
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Renmin University: The university that released the report on how China can boost the Yuan’s international role.
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People’s Bank of China (PBOC): The central bank of China, where Chen Yulu served as vice governor.
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Nankai University: The university where Chen Yulu is currently serving as the president.
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International Monetary Fund (IMF): The organization mentioned in relation to the growing number of countries using the Chinese Yuan for trade.
