Renminbi, Not Crypto, Could Challenge the USD in the Next 5 Years

Harvard economist Kenneth Rogoff says the Chinese yuan could become a global reserve currency within the next 5 years. According to him, President Xi Jinping’s clear call for the internationalization of the renminbi is an important turning point in China’s financial strategy. Rogoff believes that investors worldwide are looking to diversify away from the USD, which creates favorable conditions for Beijing’s ambitions. The Road for the Renminbi to Become a Reserve Currency In an interview with the South China Morning Post, Rogoff pointed out the key conditions China needs to meet: Open up the government bond market to foreign investorsDevelop the forward market and interest rate swaps market to support international capital flowsBuild a financial system independent of the SWIFT network He believes China does not necessarily need to fully liberalize the capital account. Even the United States in the 1970s still maintained many restrictions on foreign investment, yet retained its position as the world’s leading reserve currency. In terms of payment infrastructure, China already has a foundation in the Cross-border Interbank Payment System (CIPS). Rogoff also emphasized that modern blockchain technology could recreate traditional payment systems at significantly lower costs. The Role of Crypto in the Weakening of the USD Rogoff estimates that the global shadow economy accounts for about 20% of total world economic output, equivalent to at least $20 trillion. Previously, cash was the main tool in informal transactions. However, cryptocurrencies—especially stablecoins—are gradually taking market share thanks to their ability to transfer money quickly and be harder to trace. Even so, Rogoff believes crypto cannot replace the USD in the legitimate economy. Governments have enough power and legal tools to control this sector. Stablecoin and Growing Regulatory Pressure Rogoff criticized the U.S. Genius Act as being too “lenient” in regulating stablecoins. In his view, once stablecoins move outside the issuing institutions, tracing becomes more complicated. In the future, the regulatory framework may move closer to standards such as central bank digital currency (CBDC). The Race for Monetary Power Is Accelerating Competition among monetary superpowers is becoming increasingly fierce. Both Europe and China are building independent financial systems to reduce reliance on the U.S. and limit risks from sanctions. In Rogoff’s view, crypto could erode the role of the USD in some respects, but the real adversary over the next five years may not be Bitcoin or stablecoins—rather, it could be the Chinese yuan.