Economist on Chinese Yuan and Reserve Currency
The chief economist of South African financial services firm Nedbank, Nicky Weimar, discussed how a common BRICS currency could challenge the U.S. dollar’s hegemony last week.
Key Points:
- A common BRICS currency could challenge the U.S. dollar’s hegemony.
- Foreign exchange reserves and trust from the investment community are needed to achieve this goal.
- The U.S. dollar became the global reserve currency due to the trust it gained from the market.
- The first problem for the BRICS group is that none of the countries has defaulted on its debt like the U.S. has never done.
- The second problem is that China, the only country in the BRICS group with a reserve currency, has capital controls.
- China would have to undergo significant financial liberalization to compete with the dollar.
- To gain the trust of investors, China would have to stick with the changes and let go of some control.
- China has the ability to make these changes, but there is no indication yet that they are willing to do so.
Hot Take: While a common BRICS currency could potentially challenge the U.S. dollar’s dominance, there are significant challenges that China would need to overcome, such as implementing financial liberalization and gaining the trust of investors. Without these changes, it is unlikely that the Chinese yuan could become a true rival to the U.S. dollar as a global reserve currency.
By
By
By
By
By