Euro, Yuan to end US dollar`s dominance
Baku, May 18 (AZERTAC). The rise of the euro and China`s yuan will likely spell the end of the US dollar`s dominance of the global financial system by 2025, a World Bank study released concludes.
But it also said the the International Monetary Fund`s (IMF) basket-based pseudo-currency, the SDR or special drawing right, could also gain weight as countries and businesses seek to reduce the risk of foreign-exchange shifts.
The study says China will have to internationalize the yuan, officially known as the renminbi, to better support its industrial and trade development, and that within just over a decade the currency will become a powerful alternative to the euro and the dollar.
With the emergence in global industry and trade of new, large economic powers - particularly China, Brazil, India, Indonesia, South Korea and Russia - "one sees that their currencies - particularly the renminbi - will inevitably play a more important role in the international financial system," the study says.
The study, Multipolarity: The New Global Economy said the euro is already offering a credible alternative to the dollar.
"Its status is poised to expand, provided the euro area can successfully overcome the sovereign debt crises currently faced by several of its member countries and can avoid the moral hazard problems associated with bailouts of countries within the European Union."
But it said that other countries with less powerful currencies will continue to see policy choices constrained by how the key currencies are managed and traded.
"Unless a country`s borrowing and trade are concentrated in one of the three key currencies, instability in exchange rates between the key currencies will lead to fluctuations in competitiveness and the value of assets and liabilities, impeding that country`s economic policy making and potentially jeopardising the welfare of its residents."
The IMF`s special currency, created in 1960, is already used as an international reserve asset and a unit of account, though not in trade or other forms of finance. It is based on the dollar, the euro, the Japanese yen and Britain`s pound.
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