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Capital market reforms in China are key for the yuan to become a global reserve currency

The yuan is the obvious candidate to replace the US dollar as the world’s reserve currency, given the size of China’s economy and its leading role in global trade

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    • Since 2009, China has embarked on a process of currency internationalisation by invoicing more of its trade in yuan, but progress has been slow.
    • Since 2009, China has embarked on a process of currency internationalisation by invoicing more of its trade in yuan, but progress has been slow. PHOTO: REUTERS

    Kelvin Tay

    Published Tue, Apr 4, 2023 · 05:43 PM

    LAST Thursday (Mar 30), Brazil announced that it had reached a deal with China to remove the US dollar (USD) as an intermediary currency and conduct trade and financial transactions in the Brazilian real and Chinese yuan (CNY).

    The announcement has again raised the age-old question of whether the exorbitant privilege of the USD as the world’s pre-eminent reserve currency is coming to an end.

    This question was raised as early as 1971 when then-US president Richard Nixon abandoned the Bretton Woods system; it was raised again in 2000 when the euro was incepted. USD critics grew louder in 2008 when the US capital markets system teetered on the brink of total collapse during the global financial crisis.

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