U.S. Dollar Remains Unchallenged Against the Chinese Yuan

Vinod Dsouza
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Source: Reuters / Getty Images

The Chinese yuan has been looking to topple the U.S. dollar from the world’s reserve currency for a decade. Despite multiple attempts, the leading local currency has failed to outperform the USD and remains distantly behind. The latest global de-dollarization trend gave the Chinese yuan a once-in-a-lifetime opportunity to race ahead of the U.S. dollar.

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While the de-dollarization trend is catching up worldwide, local currencies are trying to make the most of it. Developing countries are looking to settle trade in local currencies and put the U.S. dollar in the back seat. The top contender for the de-dollarization process is the Chinese yuan vs the U.S. dollar.

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Despite Challenges, Chinese Yuan Fails To Beat the U.S. Dollar

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Source: AFP

HSBC Securities Chief Commodities Analyst, James Steel explained that the Chinese yuan has failed to beat the U.S. dollar. He cited that central banks of developing countries have been offloading the U.S. dollars to buy gold. Even the attempt to accumulate gold to sideline the U.S. dollar on the global stage has failed, he said.

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Steel revealed that though central banks are offloading the U.S. dollar, they cannot afford to completely dump the currency. He stated that developing nations cannot survive without the U.S. dollar as the Chinese yuan holds no value on the global stage. “That’s been ascribed to some of the reasons that central banks, not just China, have been buying gold,” Steel said.

“That’s not to say that every single central bank in the world wants as many dollars as they do have,” he said. “They may want to reduce their reserves by, say, 65% to 62%. So what do you do with that 3%? Well, they’re very limited as to what they can buy, both in fixed income and for currencies, and there may be a reason that they wouldn’t want to buy the euro or the yen,” he summed it up.