The Chinese yuan fails again against the US dollar
The Chinese yuan has been trying for years to dethrone the US dollar as the world’s reserve currency. Despite a rise in power and constant efforts, the Chinese currency has yet to succeed in supplanting the greenback. While dedollarization is gaining ground, the yuan is struggling to establish itself as a credible alternative.
The rise of the yuan and global dedollarization
For more than ten years, the Chinese yuan has been trying to impose itself against the US dollar as the world’s reserve currency. Despite China’s continuous efforts, the currency is still far behind its American rival. The situation seemed to evolve with the rise of the global trend of dedollarization. Indeed, many countries, especially developing ones, are seeking to reduce their dependence on the dollar by favoring transactions in local currencies. This dynamic offers the yuan a unique opportunity to position itself as a credible alternative to the dollar.
The implications of this trend are significant. By reducing their use of the dollar, these countries hope to strengthen their economic sovereignty and minimize the impact of fluctuations of the American currency on their economies. However, despite these potential advantages, the yuan is still struggling to convince due to various structural and economic obstacles.
The obstacles faced by the Chinese yuan
According to James Steel, chief commodities analyst at HSBC Securities, the Chinese yuan has not managed to eclipse the US dollar despite China’s numerous attempts to strengthen its currency. The expert notes that, although the central banks of developing countries are gradually getting rid of their US dollar reserves to buy gold, this strategy has not been sufficient to weaken the dominant position of the dollar. Efforts to marginalize the dollar on the global stage have encountered limits, as the yuan does not yet enjoy the trust and stability necessary to replace the greenback.
James Steel adds that even though central banks are trying to diversify their reserves, they remain dependent on the US dollar. The global value of the yuan is still insufficient to guarantee a complete transition. Furthermore, central banks often find themselves having to choose between limited alternatives, such as the euro or the yen, which do not offer the same advantages as the dollar.
This reality underscores the difficulty of reducing the dominance of the dollar, despite Chinese ambitions and dedollarization trends. In the end, the US dollar remains a crucial pillar of global monetary reserves, and the yuan, despite its progress, remains an emerging contender rather than a true challenger.
