Yuan Not A Threat To U.S. Dollar As China Isn't Reliable: Larry Summers

The yuan isn't a threat to the US dollar, largely because China isn't a predictable and reliable market, according to former Treasury Secretary Larry Summers, Jennifer Sor reported for Business Insider.

Photo Insert: The greenback's global dominance is likely to remain unchallenged.

In an interview with Bloomberg TV, he doubted that anybody looking for political stability or an objective system for adjudicating their claims would hold large quantities of assets in yuan.

"There has never been a country where there was a strong desire to move as much capital out of the country as we're seeing in China right now, albeit blocked by controls," Summers said. "Is that really going to be a place where people are going to decide they want to hold reserves on a massive scale?"

His view echoes that of other market commentators, who say that the greenback's global dominance is likely to remain unchallenged.

Not only are US financial markets open and more protected by the US legal system, but the dollar is also protected by its incumbency in markets, Nobel laureate Paul Krugman said, meaning it would require "exceptional circumstances" for the dollar to be replaced in global trade.

And China's capital controls could deter people from holding the yuan, economists say, as they make the yuan less valuable relative to more liquid currencies like the dollar.

"If the dollar loses its status, it will be because the US is no longer respected and strong in the world. It will be because we've accumulated a set of untenable debts," Summers added, calling the dollar's lack of dominance in that scenario the "least of our problems."

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