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.
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.
With these investments, more global assets will be held in yuan, which has struggled to gain traction on an international level. The Chinese government has traditionally kept a tight grip on the currency, including preventing large amounts of capital from leaving the country.
In 2016 the International Monetary Fund made the politically significant move of adding the yuan to its basket of major reserve currencies — known as the special drawing rights basket.
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