Harvard University economist Kenneth Rogoff believes the Chinese yuan will become a global reserve currency within five years. He claims that President Xi Jinping’s explicit call for the internationalization of the yuan represents a turning point.
Rogoff says investors around the world desperately want to diversify away from the US dollar, making China’s timing opportune.
China’s path to reserve status
Recently Interview with the South China Morning PostRogoff outlined the main steps China needs to take. Beijing needs to open government bond markets to foreign investors. They also need futures markets and interest rate swaps to support international participation.
Rogoff noted that fully open capital markets are not required. The United States itself maintained many restrictions on foreign investment during the 1970s. It was still the world’s dominant reserve currency during that period.
China must also work to build financial pathways independent of the SWIFT system. Modern blockchain technology can replicate existing systems at a much lower cost, Rogoff said. The country’s cross-border interbank payment system is already serving as the foundation for these efforts.
The role of cryptocurrencies in the erosion of the dollar
Rogoff also addressed how cryptocurrencies work Reshaping competition for currencies. The global underground economy was estimated at about 20% of total output. This amounts to at least $20 trillion.
Cryptocurrencies, especially stablecoins, have already captured a significant share of illicit transactions. Physical money once dominated this space. Digital assets now offer faster and harder-to-trace alternatives.
Stablecoins face regulatory reckoning
However, Rogoff warned that cryptocurrencies will never replace the dollar in the fiat economy. Governments have sufficient regulatory power to prevent this outcome.
He criticized the US Genius Act as being overly liberal in regulating stablecoins. Stablecoins are still difficult to trace once they have left their source. Rogoff predicted that future rules will eventually reflect central bank digital currency requirements.
The race for currency dominance is accelerating. Both Europe and China are building independent financial systems to limit exposure to US sanctions.
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