The Chinese yuan, which touts itself as a challenger to the US dollar, is nowhere close to becoming the world’s reserve currency. The global foreign exchange reserves in the yuan are only 3% and are starkly opposite to the greenback, which is at 58%. There is a heaven and earth difference between the two currencies in the forex markets.

Brad Setser, senior fellow at the Council on Foreign Relations, told Bloomberg that the Chinese yuan is an “incredibly weak” currency. He explained that China is only putting up a show in the markets, but the reality is glaringly different. Nobody trusts the yuan to be a central piece in the reserves as it cannot withstand the market’s whiplashes.

“China is hitting the limit of how much you can draw on the rest of the world’s demand, and particularly European demand, without generating a political reaction,” Setser said. “It needs to allow a somewhat stronger yuan, and it needs to recalibrate policy.”

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Chinese Yuan Will Only Depreciate, Not Appreciate

Setser explained that the Chinese yuan will only depreciate in the coming years, but barely appreciate. While China is mobilizing developing countries to shun the US dollar, not everybody is on board. Countries like India and South Africa are staying away from using the local currency. Only countries like Russia and Iran are pushing the yuan forward as they’re economies are sanctioned by the White House.

The Xi Jinping administration is only leveraging the angst against the US dollar to its benefit. China is doing little to nothing to make the Chinese yuan a reliable currency to trade with. The trade deals seem forced and one-sided, where China is disbursing loans in the yuan. If the other side rejects the yuan, China automatically stops financing them. It is no longer a two-way street, and the Jinping administration is forcefully pushing its way.