Chinese yuan to become No 3 global currency by 2030 after US dollar, euro, Morgan Stanley predicts

Chinese yuan to become No 3 global currency by 2030 after US dollar, euro, Morgan Stanley predicts

  • The yuan could account for up to 10 per cent of global foreign exchange reserve assets by 2030
  • Policy advisers in Beijing have presented a number of suggestions to reduce China’s reliance on the US dollar

The yuan will gain considerable influence over the next decade as China opens its financial markets wider and moves to reduce its reliance on the US dollar, according to a Wall Street bank.

Morgan Stanley analysts led by Robin Xing wrote recently that global investors will flock to China for yuan-denominated financial assets, and that the value of portfolio investments could reach US$3 trillion by 2030. The total foreign holdings of Chinese onshore bonds totalled 2.8 trillion yuan (US$409 billion) as of the end of August.

Meanwhile, the yuan could account for between 5 per cent and 10 per cent of global foreign exchange reserve assets by 2030 – a large increase from the 2.02 per cent reported by the International Monetary Fund (IMF) at the end of March. That potential level would surpass the Japanese yen and British pound, making the yuan the third most-recognised currency after the American dollar and the euro, the team at Morgan Stanley predicted.

“This [5 per cent to 10 per cent] target is not unrealistic in light of the financial market opening in China, growing cross-border capital market integration … and the increasing proportion of China’s cross-border [yuan] transactions,” the investment bank’s team said.

The analysts argued that the increased tensions between China and the United States would push Beijing to “fast-track” its efforts to boost international use of the yuan.

The report, penned by 16 analysts at the bank, painted a rosy picture for the future of the yuan, which earned a nominal international currency status at the IMF in 2016. Actual use of the yuan on an international scale, however, has remained limited, partly because of China’s capital controls.

Discussions regarding the increased promotion of the yuan overseas intensified in recent months as Washington threatened financial sanctions on Chinese individuals and institutions over a range of hot-button issues, including Hong Kong’s national security law, alleged human rights abuses in Xinjiang, and national security. These sanctions could potentially include denying access to the US dollar payment system or the US market.