Will the yuan become the third largest reserve currency in the world after USD and Euro?


Will the yuan become the third largest reserve currency in the world after USD and Euro?

The renminbi could become the third largest reserve currency in the world after the USD and Euro.

Many central banks around the world are gradually hoarding the yuan in their coffers.  Photo: Reuters
Many central banks around the world are gradually hoarding the yuan in their coffers. Photo: Reuters

An increase in foreign investment in China could boost the use of the yuan and make it the third largest reserve currency in the world after the US dollar, Morgan Stanley analysts predict. and the Euro in the next decade.

According to the report, the yuan currently accounts for about 2% of global foreign exchange reserves, but it could rise from 5 to 10% by 2030, surpassing the Japanese Yen and British Pound.

Data from the International Monetary Fund (IMF) shows that the share of the yuan in global foreign exchange reserves has doubled since it was included in the main reserve currency basket of the IMF in October. / 2016. At that time, the proportion of yuan was 1% and is now 2.02%. The yuan’s main rivals, including Japanese Yen (JPY) and British Pound (GBP), are 5.7% and 4.43% respectively. Currently, the USD still occupies a unique position in the global foreign exchange reserves, with a proportion of 62%, and more than 20% of the EUR.

It is known that the Chinese Government has increased its efforts to allow more foreign financial institutions to enter the domestic market. More and more foreign investors are also turning to the Chinese market because of its relatively higher profit potential compared to other regions.

It is forecasted that FDI inflows in the period 2021 – 2030 will reach 200-300 billion USD per year. By the end of 2019, there are about 70 central banks around the world holding the Yuan in foreign exchange reserves, up from 60 at the end of 2019.

Notably, Morgan Stanley maintains a positive view on the yuan’s rise in global foreign exchange reserves, despite the impact of the COVID-19 epidemic on the Chinese economy and the rest. back of the world. The reason for Morgan Stanley to make this forecast is that changes in China’s economic dynamics will require the country to become a capital importer.

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