US Treasury Secretary Timothy Geithner has expressed doubt on whether China will be able to turn the yuan, or renminbi, into a global currency for international trade.
Speaking at an event at the Dallas Regional Chamber on Thursday, Geithner assured those present that the US dollar’s status, as the international currency of choice, was not at risk of being replaced by the yuan, or at least not in the short-term future, despite all of China’s efforts.
"I don't think so. I don't know,” said Geithner sceptically, as quoted by Reuters, when asked about the prospect. “Maybe in some long time after we're all gone, it would be possible.”
"What you're seeing China do is gradually dismantle what were a comprehensive set of very, very tight controls on the ability of countries to use their (the Chinese) currency," Geithner added.
In a report published by the Financial Times earlier this week, the Chinese government was said to be considering the use of the renminbi as a loan currency for its fellow BRICS countries (Brazil, Russia, India, China and South Africa).
While China has traditionally given loans to other countries in US dollars, FT understood that the China Development Bank would sign a memorandum of understanding with its Brazilian, Russian, Indian and South African counterparts to lend them money with the renminbi in the future, while the other BRICS nations’ development banks could also extend loans back to with their own respective currencies.
Although Geithner admitted that such a proposal would help to boost trade between the emerging market nations, as well as promote the use of the yuan, he remained positive on the overall status of the US dollar in international trade, and expressed confidence that the move would ultimately force the yuan to be better in line with the US dollar.
"Over time that will mean – and this is a good thing for the United States – more use of that currency (yuan) and it will mean the currency (yuan) will have to reflect market forces ... So, I see no risk to the dollar in those reforms," he said.
The value of China's currency will also be compelled to “move up against the dollar," added Geithner, who saw China's transition – from an economy fuelled by exports to one driven more by domestic demand – as another positive indicator for the dollar.