The Chinese yuan is ‘a long way’ from achieving reserve currency status - strategist

CNBC reports that according to David Roche, president and global strategist at Independent Strategy, the Chinese yuan has “a long way” to go before it comes anywhere close to challenging the U.S. dollar’s status as a reserve currency.

“Dethroning the dollar — which the euro tried to do, and settled at a miserable 18-20% of all the international things that go on — is very, very difficult,” Roche told CNBC.

A number of “almost abstract” conditions, including not having too much leverage in the system as well as the rule of law, need to be met before a currency can achieve reserve status, the strategist said. He added that the Chinese yuan is “a long way from achieving that.”

“There is a certain amount of illusion at the moment that the (yuan) — which accounts for 2% of international trade settlements and even less if you come to financial investment flows — that this can take over,” Roche said.

Roche suggested the reserve currency status tends to be “unmerited.”

“The U.S. economy has progressively shrunk over the last two decades, it is a smaller proportion of international trade,” he said. “Yet the dollar is an increasing proportion of the settlement of international trade and an even bigger proportion of financial reserves.”