10.07.202014:46 Forex Analysis & Reviews: Chinese yuan to hardly replace US dollar as reserve currency

US politicians are concerned about China's growing role in the world, and especially in the US economy. There is a trade imbalance between the countries. The US president is introducing tariffs on goods from China. This is the main reason for the souring of relations between two countries. Experts believe that the countries are on the edge of a trade war.

Moreover, due to the difficult epidemiological situation in the United States, the country's economy is on the verge of collapse. Many analysts argue that the US dollar will soon depreciate and the Chinese yuan will take its place.

However, the US and Chinese economies are interconnected. If the US market collapses, the Chinese market will collapse too. Also, China's production is export-oriented. The GDP structure shows that consumption in China is low. This means that the country's production is focused on the needs of other countries. In other words, the Chinese yuan is unlikely to gain the dominance.

Ebrahim Rahbari, head of currency analysis at Citi, believes that the yuan will not become a reserve currency any time soon.

Rahbari explained that the so-called safe-haven assets typically have certain attributes. Firstly, the analyst said, they tend to offer a long-term store of value function. Rahbari also said that the Chinese yuan "doesn't qualify" in terms of attributes typically associated with safe-havens, such as providing "refuge" during "periods of crisis."

Mr. Rahbari is sure that the yuan is not suitable as a reserve currency. It will take a very long time to become an alternative to the US dollar and treasury bonds, even if the prospects for the Chinese economy are favorable as a whole.

There is a rise in China's stock markets, which significantly boosts the yuan. On Thursday, the Chinese currency was trading at 6.99 per dollar, after rising above 7.05 the day before. The offshore analogue of the currency, meanwhile, changed hands at 6.9892 per dollar.

Before evaluating the yuan as a "safe haven", it is necessary to consider the situation in Asia and what is happening with the US dollar, the analyst said. He suggests that the situation is more like a decline than a steady rise in the US dollar/yuan pair. Rahbari suggests the Chinese yuan would remain below 7.