Report: China’s Currency Will Diminish Dollar’s Role in International Trade

The Chinese government has taken steps to promote the international use of its currency, the renminbi, which will diminish the dollar’s role in international trade, according to a report from the Brookings Institution.

The steps China has taken to internationalize the renminbi have been gaining traction and the currency now represents the fifth-most important payment currency in the world.

“The Chinese renminbi, barely visible in international trade of financial flows just three years ago, appears to be blossoming,” says William Wilson, a research fellow at the Heritage Foundation. “China is now the world’s largest trading nation, and more corporations, particularly in Asia, are beginning to invoice their business in [renminbi].”

Because of this rise, there is concern that the renminbi could displace the dollar as the world’s dominant currency. According to Brookings, as the renminbi becomes a prominent international currency, it will diminish the dollar’s role in international trade transactions.

“These developments, in tandem with measures taken by China to develop its own payment system, could diminish the primacy of U.S. financial institutions,” Brookings said. “This would affect the ability of the United States to continue wielding the financial clout that it currently has as a result of the dollar’s dominance in international finance.”

“So long as China continues to make progress on financial sector and other market-oriented reforms, it is likely that the [renminbi] will become an important reserve currency within the next decade, perhaps eroding but not displacing the dollar’s dominance,” states the report.

Full article: Report: China’s Currency Will Diminish Dollar’s Role in International Trade (Washington Free Beacon)

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