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Chinese Yuan - where is the liquidity or how to become a global reserve currency

Chinese Yuan - where is the liquidity or how to become a global reserve currency

Although today many people are hearing that all the major trading players in the world are switching in their calculations to Chinese yuan, its share in the world's gold and foreign exchange reserves of countries remains at an obscenely low level. The predominant share is still the same Euro and the US Dollar.

the share of the Chinese yuan in the structure of foreign exchange reserves of countries

Somehow it is not entirely logical from the point of view of the fact that China is the 2nd economy in the world with an annual GDP of about 18 trillion .US dollars, which is about 20% of global GDP.

As it turned out, in 2022, against the backdrop of a weakening dollar, even China's key trading partners did not particularly seek to increase the share of the yuan in their reserves. And this is mainly due to one reason - today the Chinese yuan does not have a sufficient level of global liquidity.

Why is that?

The yuan is a currency fully regulated by the Chinese authorities, the exchange rate of which is formed purely in the economic interests of the Celestial Empire.

In addition, there are 2 types of yuan:

  • mainland
  • offshore

The mainland yuan is fully controlled by the People's Bank of China and can fluctuate only within 2%. It has a complete restriction on the exchange for foreign currency.

Offshore yuan is used for international settlements and has a floating exchange rate. The use of this type of yuan inside China itself (transfer to the mainland) is possible only with the permission of certain supervisory services, which in turn complicates investment processes with the outside world.

Among other things, China still refers to developing countries that have various risks (political, trade war with the United States , etc.), which is an important factor limiting for many countries the use of this monetary unit in their reserves.

The head of the issuing stablecoin USDC of Circle company Jeremy Aller, understanding the peculiarity of China's financial system, restraining its liquid potential on a global scale, suggested that the Chinese authorities, instead of inventing a kind of digital currency of the central bank (CBDC), think about linking the yuan to the stablecoin, which will be much more expedient from an economic and financial point of view.

Yuan-based stablecoins could bring China more benefits than the already existing digital national currency (CBDC), said in интервью SCMP is the head of the USDC-producing company Circle.

Chinese yuan - where is the liquidity or how to become a global reserve currency - Something like that!

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