Trade boosts yuan’s reserve status

Bloomberg

China’s dominance of global trade provides a path to increase its currency’s share in global central bank reserves even if it retains tight capital controls, but Beijing will need to maintain large dollar reserves for that to happen, according to new research.
While the yuan isn’t on course to displace the dollar as the world’s dominant currency, it could play a larger role in
a more “multipolar” financial world, economists including Barry Eichengreen of the University of California Berkeley and Camille Macaire of France’s central bank argue in a new paper hosted by the Center for Economic Policy and Research.
The analysis found a significant correlation between countries’ trade with China and the size of their central bank yuan reserves, which have grown in recent years.
“Despite China’s still limited capital account openness, the share of RMB in reserves can increase if Chinese trade and RMB invoicing continue to increase,” the authors argue, using the abbreviation for renminbi, which is another name for the Chinese currency.
Even if countries have a trade deficit with China, they can accumulate yuan reserves if Beijing pays for imports in yuan but accepts dollar payments for its exports, and China’s overseas direct investment and lending are another way countries can acquire China’s currency, they wrote.