Is China’s dream to make yuan an alternative to the US dollar now falling apart?
Fall in renminbi’s value since October shows that challenging US dollar’s status will be long process, say analysts
Only a few years ago, the Chinese currency seemed on an unstoppable path to challenge the US dollar’s dominant position in the international monetary system.
Challenging the status of the US dollar is a very long process because the yuan is not freely convertible
After all, the yuan was backed by a rapidly growing economy, which the International Monetary Fund (IMF) said in 2014 had overtaken America to become the world’s largest in terms of purchasing power parity, which enables you to compare how much you can buy for your money in different countries.
It also had a unified centralised state that was ready to defend the currency’s value and reputation.
The yuan was accepted by the IMF a year ago as the third-largest component currency of its accounting unit, the special drawing rights basket, granting the yuan a nominal international reserve currency status along with the US dollar, the euro, the British pound and the Japanese yen, even though the yuan is notfreely convertible.
However, the yuan’s take-off as a global currency has proved bumpy during the past 12 months with many of its early forays withering due to economic woes at home and a strong dollar.
While Beijing has received an international endorsement for its yuan ambitions, as seen in a Group of 20 communiqué, the market’s appetite for the yuan is fizzling quickly, holding back Beijing’s dream of wrecking “the dollar hegemony”.