BOE governor says Chinese yuan could rival U.S. dollar as global reserve currency

Prior to the trade war between the world’s two largest economies, the Chinese yuan had actually appreciated in value, contrary to what President Donald Trump claimed in primary debates. It has only been recently that the yuan has plunged to multi-year lows against the U.S. dollar and other major currencies.

Does this mean the yuan’s future as a powerhouse is in jeopardy? Hardly.

Speaking during a lengthy Q&A session, Bank of England (BOE) governor Mark Carney suggested that yuan could rival that of the U.S. dollar as a global reserve currency in the coming years.

When asked: “Does he envisage one of the types of IMF SDRs to become a global currency in his lifetime? If so, will it be crypto/blockchain/gold ‘backed?'”

Carney responded (emphasis ours):

“The IMF’s SDRs are designed for a specific purpose – to supplement IMF member countries’ official reserves and so help them to address balance of payments problems. So they are not intended to become a widely accepted means of exchange – what most people understand ‘currency’ to mean.

That said, I think it is likely that we will ultimately have reserve currencies other than the USD. The evolution of the global financial system is currently lagging behind that of the global economy, and there are asymmetric concentrations of financial assets in advanced economies relative to economic activity.

For example, EMEs’ share of global activity is now 60%, but their share of global financial assets lags behind at around one-third. And half of international trade is currently invoiced in US dollars, even though the US has a much lower 10% share of international trade. As the world re-orders, this disconnect between the real and financial is likely to reduce, and in the process other reserve currencies may emerge. In the first instance, I would expect these will be existing national currencies, such as the RMB.

However, history suggests these transitions will not happen overnight. The US economy overtook Britain’s in the second half of the 19th century, but it took until the 1920s before it became a dominant currency in international trade.”

That is an astonishing statement.

Step aside greenback, there are going to be new players in town.

Indeed, all good things come to an end.