Why Kenneth Rogoff thinks China’s yuan will be a reserve currency ‘in the next 5 years’

Illustration: Henry Wong Professor Kenneth Rogoff of Harvard University has repeatedly warned that the US dollar is approaching a crisis of legitimacy.

Having written extensively on the global recession in the late 2000s, Rogoff has turned his focus to the US currency’s increasingly unstable place at the top of the world’s financial hierarchy.

A former chief economist at the International Monetary Fund and a chess grandmaster, he published Our Dollar, Your Problem in May last year.

In this interview, Rogoff elaborates further on the US dollar’s competition from the yuan and euro, the race among global policymakers to reduce their dependency on the US currency, and how the rise of cryptocurrencies factors into future developments.

This interview also appeared in SCMP Plus.

For other interviews in the Open Questions series, .

The fact that the Chinese president recently and explicitly called for making the yuan a global reserve currency is an extremely important moment.

In my experience over a couple of decades, some of which I talk about in my book, China’s technocrats have long wanted to make the yuan more independent of the US dollar.

They have long recommended that, given China is a large country, it needs to have its own independent monetary policy.

However, at the very top, the president and the premier have typically opposed this.

They did not want to take the risk of making a change in the US dollar policy simply because China was doing so well.

Why change anything?

Why rock the boat?

But the arguments for having the Chinese currency float against the US dollar – or to be precise, float more – are very strong.

And now that the president has called for the yuan to be a reserve currency, the technocrats will be eager to fulfil this.

There are a number of steps, but it does not require fully open capital markets.

What’s critical is that China opens its government bond markets to foreign investors and has a reasonably sophisticated layer of forward markets, interest rate swaps, and so forth.

It does not need to have all markets opened to be a reserve currency.

The United States had many restrictions on foreign investing in the 40s, 50s and 60s, and well into the 70s, and it was still a reserve currency.

However, other relatively straightforward steps are needed, such as expanding the financial system’s capacity to intermediate international transactions independent of the US dollar.

Should the yuan move towards becoming a reserve curr

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