Financial experts and ardent supporters of the United States dollar like to compare the greenback to other weak fiat currencies to show it still has power. However, a recent report from the European Central Bank (ECB) suggests the dollar might not reign supreme in the international trade and investment world anymore.
ECB executive board member Yves Mersch stated Wednesday that the Chinese yuan is gaining both acceptance and prominence in the aforementioned sectors. Speaking in Luxembourg on Wednesday regarding the yuan, Mersch urged Beijing to persist in reforming its national economy and financial sector because many are turning to the yuan as an investment currency.
“If it can do so successfully, it might one day become a leading reserve currency,” Mersch said in a text of a speech. “Due to the size of China’s economy and its importance in global trade and, potentially, finance, the renminbi might ultimately come to challenge the U.S. dollar.”
Although the yuan is playing a major role in European financial centers, Mersch urged the eurozone authorities to monitor the risks associated with enhanced exposure to yuan-denominated liabilities, assets and expenditures.
“The increasing presence of Chinese banks within the euro area also brings its own challenges regarding banking supervision, including the need for greater cooperation and exchange of information between home and host authorities,” Mersch said.
One U.S. dollar currently buys six Chinese yuan.