Global financial dynamics are transforming, with the Chinese yuan ascending to the second most used currency in international trade, eclipsing the euro. This trend indicates China’s expanding economic influence and suggests a possible reconfiguration of global monetary power.
During the 9th Anniversary Conference of Seoul’s Won-Yuan Direct Trading Market, Lee Chi-hoon from the International Financial Center (IFC) shared a critical observation. Lee mentioned, “This year, global yuan settlements and trade finance have recorded the highest levels in history.” This highlights the yuan’s growing prominence in global transactions.
This year witnessed a 21.5% increase in yuan payments, largely driven by China’s strengthened ties with the Middle East. Marking a historic milestone, the yuan overtook the euro in trade finance ratio by September, cementing its status as a primary global currency.
Lee projects China’s GDP might surpass that of the U.S. by 2037, bolstered by robust domestic consumption, a thriving service sector, and investment in advanced industries. Yet, the yuan’s path to becoming the dominant global currency likely entails coexisting with the U.S. dollar, rather than outright replacing it.
Addressing the challenges, Lee noted, “However, there are still too many shortcomings when considering stable exchange rates or criteria as a settlement currency for the yuan to become the key currency.”
Professor Ku Ki-bo from Soongsil University’s global commerce department sees the yuan’s overtaking of the euro as a critical first step towards challenging the U.S. dollar. “When considering the growth rate, there is no doubt that the yuan is progressing rapidly,” Ku states.
Accessibility to the yuan, however, is a point of concern. As Baek Bong-hyun from the Bank of Korea’s international management team points out, “The demand for the yuan by companies is still significant, but accessibility is constrained. Given the dual exchange rate system of the won-yuan, which tends to fluctuate rapidly, market participants such as foreign exchange dealers are less actively engaged.”
The yuan’s climb to a prominent position in global trade marks a transformative moment in finance. Its path toward potentially becoming a leading global currency is complex, mirroring the evolving landscape of the global economy.
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