Yuan To Become Reserve Currency

March 19 (Bloomberg) -- China’s yuan is destined to become a global reserve currency rivaling the dollar and the euro, as the nation’s economic power increases the currency’s allure, said Jim O’Neill, chief economist at Goldman Sachs Group Inc.

The Chinese government will “eventually” allow the yuan, or renminbi, to trade freely on foreign-exchange markets, dropping the system under which it controls its value, O’Neill wrote in an essay that formed part of a report published today for Chatham House, a London-based foreign affairs research organization.

“As China moves in this direction, other large emerging economies will presumably gradually move in the same direction and the end result will be something approximating to today’s Western monetary system,” London-based O’Neill wrote. “Under such a system, the renminbi, dollar and euro would all form the linchpin of the world’s currency markets.”

China is likely to overtake Japan as the world’s second- largest economy this year, said O’Neill, who coined the term BRICs to describe Brazil, Russia, India and China in 2001. In the next decade, along with other large emerging economies, the size of China’s economy will approach that of the U.S., he wrote.
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