General Secretary and President of China Xi Jinping said that the yuan will be granted the status of a global reserve currency. The information was shared by him in an article published in Qiushi magazine.
Mr. Xi Jinping emphasized that China needs a "strong currency" to serve international trade and investment.
To realize that goal, China needs to build a strong enough central bank along with financial institutions with high competitiveness, capable of attracting foreign capital and impacting the formation of prices in global markets, Xi Jinping added.
However, just assigning the yuan the status of a global reserve currency is not enough to replace the role of the USD. Washington is likely to react negatively to changes in the global financial system, because if a real alternative to the USD appears, the US's influence on global trade will decline.
In fact, the yuan is now the second most used currency in global trade, only after the USD. However, the proportion of the yuan in global foreign exchange reserves is still limited. The main reason is that the yuan is not yet a freely convertible currency, stemming from the specific characteristics of China's monetary management mechanism.
Russia and China have made nearly 99% of bilateral payments in yuan and ruble. At the same time, yuan also accounts for a large proportion of Russia's foreign exchange reserves.
However, for many other countries, especially those that do not have close trade relations with China, the USD is still a priority choice.
Sharing with Rossiyskaya Gazeta about the goal of the Chinese leader, economists said that this goal is aimed at challenging the dominant position of the USD.
Economist Yegor Susin pointed out that Chinese President Xi Jinping's sharing was made in the context of the US publishing a new report on exchange rate policy, which continues to call on China to adjust the exchange rate that is considered "significantly undervalued". The low yuan exchange rate helps China gain an advantage in global trade.
According to Mr. Pavel Seleznyov - Head of the Faculty of International Economic Relations of the University of Finance under the Russian Government, China has laid an important foundation when building one of the largest economies in the world, but that is still not enough for the yuan to become a global reserve currency.
“To make a currency a reserve currency, the issuing country not only needs to actively participate in international trade but also must play a strong role in the investment and foreign exchange markets. Currently, almost all valuation activities in the world still rely on the USD and this gives the US a key advantage. This situation may change, for example within the BRICS or Shanghai Cooperation Organization (SCO) frameworks, mechanisms that are seeking to build an alternative to the USD as a strategic counterweight to US influence,” Mr. Seleznyov said.
