Economist Views Chinese Yuan as Unlikely to Seriously Challenge US Dollar Hegemony

• Economist Benn Steil from the Council on Foreign Relations argues that the Chinese yuan is unlikely to replace the U.S. dollar as the world’s dominant reserve currency.
• Steil highlights China’s legal protections, capital controls, and underdeveloped bond markets as factors inhibiting the yuan’s rise as a credible alternative.
  

Benn Steil, an esteemed economist currently serving as the director of International Economics at the Council on Foreign Relations, recently expressed his views on the potential of the Chinese yuan to supplant the U.S. dollar as the dominant global reserve currency. Steil’s opinions were detailed in an opinion piece titled “The Real Cost of De-Dollarization,” published on the Protect Syndicate website.

Assessing Chinese Yuan’s Viability as a Dollar Hegemony Challenger: Insights from Benn Steil

Steil’s central argument rests on the notion that the main threat to the dollar’s supremacy arises from within the United States itself. He points to instances such as the federal debt ceiling standoff and the Fitch Ratings downgrade as examples that challenge the dollar’s preeminence.

Analyzing the Chinese yuan’s prospects as an alternative to the U.S. dollar, Steil offers a skeptical viewpoint:

“The Chinese renminbi, which accounts for less than 3% of global reserves, is not a serious threat to dollar hegemony.”

He underscores China’s vulnerabilities in terms of legal protections, stringent capital controls, and underdeveloped bond markets. These factors collectively hinder the yuan’s evolution into a reliable store of value. Steil highlights that a decade ago, the currency’s internationalization efforts stalled, coinciding with a cessation of capital inflows driven by the expectation of perpetual appreciation.

Steil concludes by suggesting that although the continuance of the dollar’s dominance shouldn’t be taken for granted, no single viable alternative currency currently exists. He points to the likelihood of a “multi-currency” world emerging, wherein the dollar’s role diminishes significantly.

While some experts, like Chinese economist Chen Yulu and Nobel laureate Paul Krugman, believe in the potential of the Chinese yuan to rival the U.S. dollar, Steil’s assessment counters this viewpoint. The Chinese yuan’s volatility further complicates efforts toward de-dollarization, as noted by a recent market analyst.