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China’s Yuan Could Become the World’s Third Largest Reserve Currency in 10 Years

  •  World

Increased foreign investment into Chinese markets could boost the usage of the yuan, pushing it to become the third largest reserve currency in the world — behind only the U.S. dollar and the euro, Morgan Stanley analysts predicted in a report distributed Friday, CNBC reports. 

The forecast comes as the Chinese government has been trying for years to promote the international use of the yuan, also known as the renminbi (RMB). 

Right now, the yuan accounts for about 2% of global foreign exchange reserve assets, the report pointed out. But it could rise to between 5% and 10% by 2030, surpassing the levels of the Japanese yen and British pound, the analysts said. The forecast reiterates one that the bank made in February 2019.

In the 18 months since, the Chinese government has stepped up its efforts to allow more foreign financial institutions into the domestic market. Overseas investors have also been increasingly turning to the Chinese market for the potential of relatively higher returns than that of other regions.

Investment portfolio inflows will become more important than foreign direct investment in the next decade, for a cumulative $3 trillion of inflows, Morgan Stanley predicted. 

"We expect private and reserve managers will generate more than US$150 billion in total portfolio inflows to China in 2020, for the third consecutive year, highlighting the transformations underway. The annual inflow should reach US$200-300bn in 2021-30," the report said.

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