Economist Predicts Shift to Tripolar Reserve Currency World — Yuan, Euro to Disrupt US Dollar’s Dominance

Economist Stephen Jen, a former Morgan Stanley managing director, expects a shift “from a unipolar reserve currency world to a multipolar world,” with the Chinese yuan, the euro, and the U.S. dollar forming a “tripolar” reserve currency configuration.

Economist Stephen Jen, the CEO of asset management firm Eurizon SLJ, expects multiple currencies will chip away at the U.S. dollar’s dominance. Jen was formerly a managing director at Morgan Stanley in London and a senior economist at the International Monetary Fund (IMF).

After stating that the U.S. dollar is losing its world’s reserve currency status at “an alarming pace,” the former Morgan Stanley director told the Insider publication that the de-dollarization trend is likely to continue. However, he noted that it will “probably not to a point where a non-dollar currency commands a bigger market share than the dollar.” Jen described:

More likely, we will evolve from a unipolar reserve currency world to a multipolar world.

The economist pointed out that all other currencies have flaws as international currencies and potential challengers to the dominance of the U.S. dollar. Nonetheless, he shared with the news outlet:

But if I have to guess, it should be the [euro] and the [yuan] having roughly equal presence. Such a ‘tripolar’ reserve currency configuration would also make sense and be more aligned with the economic heft of the three blocs.

The Eurizon SLJ chief emphasized that for the Chinese yuan to gain ground as a reserve currency, China’s financial sector would need to improve in quality, noting that foreign investors are still cautious about investing in Chinese equities and bonds. “Without foreign demand for Chinese assets, Chinese savers and households cannot be allowed to invest overseas, and thus the capital controls would need to remain in place,” he stressed, adding:

With capital controls, it would be difficult for the [yuan] to become a viable international currency.

A growing number of people have voiced concerns regarding the U.S. dollar losing its global reserve currency status. Economist Nouriel Roubini (aka Dr. Doom) expects the world to shift to a bipolar global reserve currency system with the Chinese yuan as an alternative to the USD. The president of the European Central Bank (ECB), Christine Lagarde, said earlier this week that the USD’s reserve currency status should no longer be taken for granted.

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