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The Yuan Could Take Over

China could eclipse the United States sooner than many think as the yuan (renminbi) becomes a major player on the world stage that could put the dollar in the shade, analysts told CNBC.

China’s meteoric rise has propelled it into second place among the world’s biggest economies, leaving all but the United States in its wake.

Consumption as a share of gross domestic product is still relatively low in China (35 percent compared to around 70 percent in the U.S. according to the World Bank). But a booming middle class could see the country move away from its export driven economy to a more import and domestically focused market. A market that would need a dominant yuan to allow it to have a trade deficit but remain competitive.

“China is clearly seeking to internationalize the renminbi. It has a sequenced strategy: use in trade settlements first, use for specified investment purposes second, use as reserves third,” Barry Eichengreen, professor of economics at the University of California told CNBC.

via CNBC [1]

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