Analysts at Morgan Stanley have estimated the likelihood of the yuan becoming the next main reserve currency. As a result, they saw no reason for how the yuan could outpace the US dollar and the euro in this race. The Chinese currency is likely to obtain the status of the world’s third-important reserve currency in the next 10-15 years in the best-case-scenario. Analysts are sure that despite the large share of the yuan in global foreign exchange reserve assets, the currency is still unable to compete with the greenback and the euro.
"This target is not unrealistic in light of the financial market opening in China, the growing cross border capital market integration we see across equities and fixed income and an increasing proportion of China’s cross-border transactions being denominated in RMB," James Lord, Morgan Stanley international strategist, said. The great volume of foreign investment in China's economy has significantly increased demand for the yuan. Yet, the yuan share in world reserves is still below 2%. Even though the world's central banks have been adding the yuan to their reserves more frequently over the past few years, the currency has not become more popular. What is more, taking into account its dependence on the political course of the government, the yuan will probably never get the status of the main reserve currency. At the end of 2019, 60% of the central banks had at least some yuan included in their portfolios, while in 2018 there were only 10%.
In the best-case scenario, the yuan will be able to enlarge its share in global reserves to 5-7% not until 2030. If the prediction comes true, it may surpass the yen and the pound sterling.
