Beedie School of Business News

Few things rankle Americans more than the sense of dependence on other nations. Dependence creates power in inverse measures. The Chinese government exacerbates this unease by voicing its unhappiness with the central role of the US dollar in the world’s economy. Its vast US dollar holdings – approximately $1.5 trillion – are affected by US monetary policy. As the world’s reserve currency, the US can fund deficits by easing its monetary policies, as the Federal Reserve did in its QEI and QEII efforts to refloat the American economy. A cheaper US dollar means Chinese dollar holdings become less valuable.

The Chinese government has indicated that it expects the Yuan to become a reserve currency in the not-too-distant future, and that such a move would be beneficial in that it would reduce the vulnerability of the global economy to the US. China is the second largest economy in the world and there is a sense of inevitability to its increasing economic power. China would like to expand its role in financial markets, building off its economic strengths.