Economist Stephen Jen has predicted that the world will shift “from a unipolar reserve currency world to a multipolar world” with the Chinese yuan and the euro challenging the US dollar’s dominance. Jen, CEO of asset management firm Eurizon SLJ and former Morgan Stanley managing director, expects that multiple currencies will chip away at the US dollar’s dominance, although it will “probably not to a point where a non-dollar currency commands a bigger market share than the dollar.” He believes a “tripolar” reserve currency configuration will emerge with the euro and the yuan having almost equal presence, adding that such a configuration would make sense and be more aligned with the economic heft of the three blocs.
However, despite the potential for the yuan to gain ground as a reserve currency, Jen also noted that China’s financial sectors require considerable improvement in quality for the currency to challenge the dominance of the US dollar. He added that foreign investors are still cautious about investing in Chinese equities and bonds, and that “without foreign demand for Chinese assets, Chinese savers and households cannot be allowed to invest overseas, and thus the capital controls would need to remain in place.” The question of the US dollar losing its global reserve currency status has been a growing concern, with economist Nouriel Roubini expecting the world to shift to a bipolar global reserve currency system. Meanwhile, the President of the European Central Bank, Christine Lagarde, has also stated that the US dollar’s reserve currency status should no longer be taken for granted.
