The U.S.' ongoing trade frictions with other economies, including China, will likely drive more global investors to the Chinese currency instead of the U.S. dollar due to the greenback's diminishing use and credibility, promoting the Chinese government's efforts to internationalize the yuan, experts said.
"The dollar earned its position as a globally and widely used currency because of the U.S.' dominating economic power. But if the U.S. unilaterally pursues trade protectionism, investors would doubt whether the country could continue to carry out global responsibility that is equivalent to its international power and whether they should use U.S. dollar as a settlement currency," Cao Yuanzheng, chairman of BOCI Research, told the Global Times on Thursday.
As investors seek to reduce their reliance on the U.S. dollar, the yuan may appear as a good substitute for currency settlement as China is already the world's largest trading nation, Cao added. China has so far established closer trade relations with most countries and regions in the world and is also the top export destination for some of them, he explained.
In July, the yuan's share in the global payment market rose from 1.81 percent to 2.04 percent, ranking as the fifth most-active currency for global payment, according to data issued by global transaction service provider SWIFT. The dollar's share, meanwhile, dropped to 38.99 percent in July.
"It's kind of like the financial crisis a decade ago, when there was a drought in dollars, and when most nations, at that time, found themselves unable to conduct international trade and started looking for alternative currencies," Cao said.
Cao's opinion was echoed in a recent media interview with Zhou Xiaochuang, former head of the People's Bank of China, the country's central bank. Zhou said that China-U.S. trade frictions could offer an "opportunity for faster growth of the yuan's [global] use," the CNBC reported on Tuesday.
Mei Xinyun, a research fellow with the Chinese Academy of International Trade and Economic Cooperation, also told the Global Times that investors are also concerned about whether their dollar-denominated assets would be frozen on the heels of increasing sanctions imposed by the U.S. on other countries.
A recent report released by the Industrial and Commercial Bank of China also provided evidence. The report shows that by the end of the second quarter, the yuan-denominated financial assets held by overseas institutional and individuals totaled 4.9 trillion yuan ($717 billion). Among that amount, the percentage of yuan-denominated stocks and bonds to total assets holdings by global investors rose to 2.5 percent and 3 percent, respectively.
But experts also stressed that for the yuan to be widely used in the global market, China needs to double its efforts to open up its financial sector wider and maintain stability in the currency's value.