Yuan Won't Ever Dethrone Dollar: Analyst

There's good reason why China wants to dethrone the US dollar with its yuan, or even a collective of other currencies.

China wants its yuan, or at least a collective of other currencies, to break up the dominance of the dollar.

"The dollar's reserve status is a privilege that gives the US significant political, economic, and market influence," Global Data TS Lombard said in a note, Matthew Fox reported for Business Insider.

GlobalData TS Lombard's Skylar Montgomery outlined why it makes sense China wants its yuan, or at least a collective of other currencies, to break up the dominance of the dollar.

"The dollar's reserve status is a privilege that gives the US significant political, economic, and market influence," Montgomery said, adding that America's gain from its reserve status also represents pain for other countries.

Dollar strength damages emerging markets especially, she noted. Because most emerging market trade is in dollars, any appreciation in the greenback means other countries pay higher import prices.

Additionally, a strong US dollar amplifies energy price shocks and gives the US government leverage in using it as a political weapon, including when the West froze Russia's currency reserves after Moscow invaded Ukraine.

"That weaponization of the dollar is part of the reason why Russia, China, and other BRICS nations have vied for an alternative to the dollar," Montgomery said. To be sure, de-dollarization is still happening, but just at a very slow pace.

Montgomery highlighted that the clearest sign of de-dollarization is seen in the dollar's share of global currency reserves, which has dropped from 72% in 2000 to 59% today.

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