Chinese yuan may replace US dollar as global reserve currency

China's serious progress in strengthening its national currency, the yuan (or renminbi), may help it overtake the dollar and become the world's reserve currency in future.

After years of speculation and false starts, it seems that the internationalisation of the renminbi is well underway, according to Project Syndicate.

On March 29, China and Brazil announced plans to trade using their own currencies, rather than the US dollar. The China National Offshore Oil Corporation and France’s TotalEnergies have recently completed their first-ever renminbi-denominated liquefied natural gas trade.

Russian President Vladimir Putin recently said that he wants to use the Chinese currency not just for trading with China but also as a form of payment in trade with other countries in Asia, Africa, and Latin America. Saudi Arabia has been in talks with China since last year about accepting payments for some oil exports in the renminbi.

It is no secret that China would like to convert the renminbi into an international currency and move away from the global dominance of the US dollar. While this is often interpreted as a geopolitical move, a way to insulate China from possible US-led economic sanctions in the future, transforming the renminbi into one of the world’s leading settlement currencies would also greatly benefit the Chinese economy. Moreover, it would help protect the country from an exchange-rate crisis, which is why other countries, including India and ASEAN countries, are trying to internationalise their currencies, too.

In October 2016, the renminbi became part of the basket of currencies underpinning the International Monetary Fund’s reserve asset, special drawing rights, joining an exclusive club alongside the dollar, the euro, the yen, and the British pound.