The following is a guest commentary by Henry Yu, senior vice president and Southeast regional director for East West Bank.Like most economists, I believe that U.S. dollar is here to stay and will continue to be the world’s currency. However, one cannot ignore the rise of importance and acceptability of the Chinese yuan, also called the renminbi or RMB.
The reality is that RMB settlement, whether resulting from trade, investment, M&A, IPO, securities and commodities trading, will continue to gain momentum and acceptance in our global economy. The RMB will become one of the world’s reserve currencies, alongside the U.S. dollar, the euro, the pound sterling and the yen. The question is not if this will occur, but when?
History offers some clues. It took the Japanese yen 17-18 years to become a reserve currency. But the Japanese did not utilize cross-border trade settlement as a key step during the process in 1960s.
The Chinese government, on the contrary, has taken many baby steps throughout the entire process. Starting with trade, it has gradually included bond issuance and RMB-denominated IPOs, allowing foreign central banks to hold RMB as reserves. Because of these and other efforts, it will clearly take less than 17 years for the RMB to become a reserve currency.
In fact, this will likely happen in less than 10 years, thanks to an array of measures that will increase the pool of RMB worldwide: Read More
