Chaos in Chinese markets shows the yuan is no threat to the dollar, veteran economist says

• The yuan poses little threat to the dollar as investors cool on China's financial hubs, a veteran economist has said.
• China seems unwilling to bear the economic responsibility of having the world's dominant currency, Steven Blitz said.

The Chinese yuan poses little threat to the dollar, in part because investors have been put off the country's financial hubs and markets by Beijing's policies, according to a veteran economist.

Steven Blitz, chief US economist at consultancy TS Lombard, told Insider that China also appears unwilling to shoulder the major economic responsibility that comes with having the world's dominant currency.

The US-led move to freeze Russia's foreign currency reserves and its access to the American financial system has raised speculation that other countries may seek to move away from the dollar. The rising economic power of China means that some see the yuan as the world's next global reserve currency.

Yet Blitz said the negative reaction to China's assertion of control over the major financial hub of Hong Kong is evidence that investors are wary of being closely linked to the country.

"If everyone loves the Chinese and wants to own yuan, and be held into the Chinese financial system, why are they all moving with their feet to Singapore? Not just their feet, but their money," he said.

Some companies have relocated from Hong Kong to Singapore. Meanwhile, financial markets in Hong Kong, Shanghai, and Shenzhen have slumped this year, in part because of China's tough zero-COVID rules, which have forced cities and regions into strict lockdowns.

China in 2020 introduced a national security law in Hong Kong that reduced the autonomy of the city, and made it easier to punish protestors. Hong Kong's Hang Seng stock index has fallen roughly 30% over the last three years.

Blitz said China isn't yet ready to assume the economic responsibilities that come with having the world's leading currency, and that companies trading internationally aren't likely to reprice contracts out of dollars and into yuan.

He said the large trade US deficit helps keep the world economy growing, "and China is not going to take on that responsibility."

A scarcity of globally dominant Chinese companies means the country lacks the power to foist the yuan on the global economy, according to Blitz.

On Monday, US Deputy Treasury Secretary Wally Adeyemo also defended the greenback, saying: "I expect that the dollar will remain the most dominant currency in the world."

"We have the deepest, most liquid capital markets in the world. We have the world's most complex, significant economy," he said.

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