World Bank boss says China’s Yuan can be alternative reserve currency

Considering China’s growth trend and Beijing’s effort to internationalize its currency, the Chinese Yuan can develop into the alternative to the USD as a global reserve currency in 10yrs, World Bank President Robert Zoellick said Wednesday. In an investment summit held on the sidelines of the 17th Asia-Pacific Economic Cooperation (APEC) Leaders’ Week meetings, Zoellick said though the Chinese currency now can not be used easily overseas, but he believes that it will become more internationalized over the next 10 to 15 ys. This does not mean that the Yuan will replace the USD but it can provide an alternative and you have the multiplicity of the exchange rates, Zoellick said, noting the rise in the number of currency swaps arrangements being inked between Beijing and governments around the world. China signed these arrangements with its trading partners to avoid the risks posed by a volatile USD. Since mid-December 2008, Beijing has signed currency swap contracts worth 650 billion yuan (US$95.6B) with central banks in the Republic of Korea, Malaysia, Belarus, Indonesia and Argentina and the monetary authorities of Hong Kong.

These swap accords allow other overseas central banks to sell Yuan to local importers who want to buy Chinese goods.

But the World Bank boss said the internationalization of the Yuan is still a way off and as of today it is relatively secure to keep the USD as the reserve currency.

Zoellick said to develop the multiplicity of the global reserve currency is part of the efforts to create a new global balance of growth in the post-crisis era as US consumers can no longer be the sole engine of global demand as in the past.

Zoellick said Americans should be reminded of the possibility of the USD losing today’s predominance as a global reserve currency.

“My caution to the United States is that you have to fix your deficit and budget issues and do not take it for granted this incredibly blessing we earned through the hard work in the first 200 yrs or so,” he said.

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