China’s yuan set to benefit as central banks report doubts about US dollar

Central banks are showing more interest in the Chinese yuan as doubts grow about the future of the US dollar, but this shift is not enough to challenge the greenback’s dominance in global reserves, according to a new survey.

In its latest Global Public Investor poll released on Tuesday, the London-based Official Monetary and Financial Institutions Forum (OMFIF) said a net 14 per cent of reserve managers plan to increase their yuan exposure in the next two years, up sharply from the 2 per cent reported last year.

“The [US] dollar was the most in-demand currency in our survey last year, but there is now split sentiment … highlighting how geopolitics is directly feeding into doubts about the dollar,” said the think tank, which canvassed 75 of the world’s central banks from March to May.

According to the poll, 20 per cent of respondents expect to add to their US dollar holdings in the next two years, but a similar proportion is looking to move away from the currency.

Diverging sentiment on the US dollar also extends to the banks’ long-term strategies, with 25 per cent planning to increase their holdings over the next 10 years and 18 per cent expecting to reduce them.

“The clearest shift is towards the renminbi,” OMFIF said, adding that for the third consecutive year, 30 per cent or more of central banks expect to increase their yuan holdings over the next decade.

South China Morning Post