Will Chinese Yuan Overtake US Dollar as World's Dominant Trade Currency?

Thomas W. Pauken II, a consultant on Asia-Pacific affairs and geopolitical commentator, said the yuan was a good long-term investment over the dollar — which is losing its status as the world's dominant trade and reserve currency.

The renminbi, more commonly known by the name of its main denomination the yuan, has been slowly gaining ground on the US dollar over the past month in the latest uptick in years of fluctuaction.

That comes amid a trend of emerging economies settling bilateral transactions in their own currencies, rather than the US dollar which has dominated global trade since the end of the Second World War.

Asia pundit Thomas W. Pauken II told Sputnik that investors should be wary of short-term trades in the Chinese currency due to the volatility of the market.

"If they were holding for the long term, I would say it's probably a good idea to invest in yuan. But in the short term and middle term, everything keeps changing too quickly."

The commentator said those hoping the yuan would soon dethrone the dollar as the world's leading reserve and trade currency may have to wait awhile. He argued that the real reason for the dollar's dominance is the SWIFT international payment system.

"The simple case with Swift is that whenever a currency makes exchanges, it always ends up having to buy and sell a US dollar as a medium," Pauken explained. "There's a lot of transactions happening in our world. Millions and millions every day. So when the US dollar is being used for every single SWIFT transaction, it is impossible for any other currency to become more dominant" — even if the US currency weakens in value.

But he said the process of nations moving away from the dollar was underway.

"The dedollarization trend is not just about the value of the dollar going down or it being used less often, but it becomes this idea that the dollar, which was once known as the most powerful currency in our world, that the entire world has always depended on, is now becoming less so," Pauken stressed. "Dedollarization trends are really happening and it's going to be an ongoing thing for the next years and decades to come."

The pundit said any effort to replace the dollar with the yuan would be a "long march" — the name given to the famous year-long rearguard action by Mao Zedong's Red Army against the Western-backed Nationalist forces of Chiang Kai-shek from 1934 to 1935.

"But it is possible. Never say never," Pauken added. "But it's not going to happen within a year or two. This is something that would take decades because the world has just gotten so accustomed to using dollars for their foreign currency exchanges and through SWIFT."

"You have to make new technologies. And always when new technologies come onboard, there's going to be a lot of problems with this before it becomes regularly used by ordinary people."