China’s yuan could be on an equal footing with the US dollar as a mainstream currency in as little as a decade, earlier than most people think, according to Columbia University professor Jeffrey Sachs. In the near future, institutions will move away from their dependence on the US dollar, Sachs said, with multiple currencies including the yuan and euro to be used for settling international trade, global central bank reserves and fundraising through bond issuance. “I believe that we will move from a largely dollar-based settlements system to a multicurrency settlements system, in which the dollar, euro, and [yuan] are all used for international settlements,” said the noted American macroeconomist. I believe that we will move from a largely dollar-based settlements system to a multicurrency settlements system, in which the dollar, euro, and [yuan] are all used for international settlements Jeffrey Sachs Sachs was a former special adviser to the UN Secretary-General, and his prescriptions have been used to guide a number of economically-troubled countries back to health. Over the past 30 years, he has advised dozens of heads of state and governments on economic strategy across the world and was the main architect of Poland's debt reduction operation around the end of the cold war . Sachs has been predicting the US dollar’s demise for some years, but his comments grew stronger following the election of US President Donald Trump in 2016, whose policies he has said will see the currency “displaced”. The main reason to expect a de-dollarisation in the monetary order stemmed from America’s declining share of the global economy, Sachs said. The US now accounts for 15 per cent of the world economy, down from around 21.6 per cent in 1980, according to estimates from the International Monetary Fund. This has raised the question of whether the US will continue to have the economic sway necessary to support the current pervasiveness of dollar use. By comparison, China’s economy now accounts for around 19.2 per cent of the world economy while the European Union is about 16 per cent. In addition, the US has undermined the political standing of the dollar’s role by using it to impose sanctions on countries such as Iran, suspending their access to the US dollar-based international financial messaging network, Sachs said. He has previously said that as China and other countries grow more frustrated with the dollar hegemony, which effectively gives the US authority over the international financial markets, they may step up efforts to create an alternative payments system to deal with their international partners. A third reason to expect the yuan’s role to increase, Sachs argued, was that the dollar-based international financial system has been characterised by periodic crises. The global debt crisis in 2008 and the Asian financial crisis in the mid-1990s were down to poor financial regulation by the US, he added. Desire to avoid these crises are likely to create a tendency towards currency diversification in settlements over time, he said. Since the late 2000s, Beijing has sought to internationalise its currency, encouraging overseas institutions to hold yuan-denominated bonds and stocks, and foreign countries to trade-in yuan. The international use of the Chinese currency is rising, albeit slowly, with the country opening up its financial markets and its equities and bonds being increasingly included in international investment indices. The renminbi assets are in a way difficult for foreigners [to access] for a number a reasons. The currency’s internationalisation is stagnating Alicia Garcia-Herrero However, the volume of yuan trade settlements remains lacklustre, just 2 per cent of the world’s total. While the US dollar’s share of global currency reserves has been shrinking gradually – to around 62 per cent in the second quarter, its lowest level since 2013 – it is still well above the yuan’s portion. Sachs’ bullish predictions on China are well-known. Indeed, early this year Sachs drew a firestorm of criticism for his article titled “ The War on Huawei”, in which he said the Trump administration was unfairly targeting Huawei CFO Meng Wanzhou for her alleged violations of US sanctions against Iran. Contrary to Sachs’ projection, many analysts think it will take several decades before the yuan becomes a key player in the international market, given Beijing’s reluctance to float the currency and end restrictions on its exchange. “The renminbi assets are in a way difficult for foreigners [to access] for a number a reasons. The currency’s internationalisation is stagnating,” said Alicia Garcia-Herrero, chief Asia-Pacific economist at Natixis. Any future decline in the US dollar’s market share is more likely to be filled by the euro, the South Korean won – or even the Brazilian real – than the yuan, because these currencies are easily convertible, she said. Robin Xing Ziqiang, a Hong Kong-based economist at Morgan Stanley, said the yuan’s future as a potential global reserve currency hinged on the speed of Chinese reforms to make the yuan more “readily available” for use outside China, such as lifting capital controls and removing restrictions on its exchange. Xing suggested that should China improve the ease of the yuan’s conversion, it would help integrate China’s financial markets with the rest of the world. Chinese policymakers also need to further integrate China’s financial markets with the rest of the world and ease the conversion of yuan assets. Going forward yuan assets could reach 5 to 10 per cent of global reserves over the next 10 years, surpassing the significance of the yen and sterling, Xing said.