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The U.S. dollar has, for a long time, maintained its position as the world’s reserve currency. That fact, though, could be changing. As the debt of the U.S. government grows, it is possible that the dollar will lose its significance and subsequently its role as the world’s reserve currency, most likely to China's yuan. The ‘safe haven’ aspect of the dollar will not be easy for China to overcome, but with China’s economy growing as strongly as ever, it could be possible. Furthermore, China has been making financial moves which could land the yuan in the role.
Last month, in May, the Chinese government completed the final currency swap in a series which had them providing the yuan to other central banks for use in trade with China, such as Argentina, Hong Kong, Indonesia, Malaysia, South Korea, and more. The way in which these swaps were made theoretically removed any need for China and these trading partners to use the dollar as an intermediary, thus providing an example of how two countries can trade simply using each other’s currency.
China’s challenge of the dollar will not be easy, and it won’t be quick. Many experts project 10-15 years before such a transition could even begin to get put in the works. The flexible liquidity of the dollar, coupled with the Chinese government’s tight grip on the value of the yuan indicates that the dollar will still retain its throne for quite some time. And yet, the yuan could supersede it, if things continue. What implications would this have on the world of international business?
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