Chinese yuan is not a threat to the US dollar, says economist

According to economist Benn Steil, the Chinese yuan is unlikely to replace the U.S. dollar as the global reserve currency. In an opinion piece titled “The Real Cost of De-Dollarization,” Steil argues that the biggest threat to the dollar’s dominance comes from the U.S. government itself, citing the recent standoff over the federal debt ceiling and the Fitch Ratings downgrade. While some commentators believe that the Chinese yuan could challenge the U.S. dollar, Steil dismisses this notion, stating that the renminbi accounts for less than 3% of global reserves and lacks credibility as a store of value due to China’s deteriorating legal protections, capital controls, and underdeveloped bond markets.

Instead of a single alternative, Steil suggests that a “multi-currency” world is more likely to emerge, with the dollar playing a diminished role. While Chinese economist Chen Yulu and Nobel laureate Paul Krugman have expressed beliefs that the yuan could rival the dollar, market analysts argue that the volatility of the Chinese yuan makes de-dollarization efforts more difficult. Steil’s analysis suggests that, for now, the U.S. dollar’s dominance as the world’s reserve currency is secure.

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