The
U.S dollar has enjoyed prevalence in international transactions as the world’s
primary reserve currency and has been the dominant currency for the last couple
of decades. Skeptics believe that time is ripe for the shift of dominance to
occur since the U.S dollar is no longer proving to be a ‘safe-haven currency,'
especially after the 2008 global financial meltdown. The financial crisis led
to the downfall of giant banks and financial companies with U.S witnessing the
largest bankruptcy in its history as a result of the downfall of Lehman
Brothers. The Euro or Chinese Yuan could very soon be the most dominant reserve
currency.
Critics
have often dubbed U.S dollar as “unhealthy for the global economy†and
“everybody’s problemâ€. Financial markets have been made the new battlefield in
the 21st century as currency wars ignite. China recently renounced the U.S
dollar by making swap agreements with 26 countries to boost trade between them
and even the European central bank. Some of the countries that have injected
billions that can change the Chinese yuan’s global status include; Canada,
Russia, Switzerland, Brazil, Argentina, Australia and New Zealand.
In
November 2015, the Chinese yuan officially became a world reserve currency.
Beginning October 2016, the yuan will account for 10.92% of the International
Monetary Fund (IMF) total reserve currency. This move will make the Chinese
yuan the fifth reserve currency after the Japanese yen, British pound sterling,
Euro and US dollar. Soon enough, the Chinese yuan will match the U.S dollar as
a primary trading currency since it’s currently the second most popular choice
in trade finance. According to Derek Han of North Square Blue, the dimensions
and strength of the Chinese economy are enough to make the RMB an alternative
to the U.S dollar.
On
the other hand, Euro’s metamorphosis into an economic superpower is still
thriving and might also lead to the diminishing of the dollar’s share in global
money supply. However, the ability of the Euro to counter the U.S dollar is
still questionable. The RMB remains more likely to be a counterpart and
alternative to the U.S dollar.
Sources