Why Kenneth Rogoff thinks China’s yuan will be a reserve currency ‘in the next 5 years’

South China Morning Post | Kandy Wong

Harvard economist Kenneth Rogoff warned that the US dollar faces an imminent crisis of legitimacy while predicting China’s yuan will achieve reserve currency status within five years. Rogoff, former chief economist at the International Monetary Fund and author of Our Dollar, Your Problem, emphasized that structural instability at the top of global financial hierarchy is accelerating this monetary transition.

Strategic shifts in international trade settlement and state-backed financial infrastructure continue to erode long-standing American currency hegemony. Cryptocurrencies cannot replace the dollar. Despite widespread adoption across underground digital economies, decentralized tokens lack the institutional backing required for sovereign reserve management. Consequently, the rapid diversification of foreign exchange holdings by global central banks signals a fundamental reordering of international finance. As Beijing expands cross-border yuan clearance networks, Washington faces unprecedented systemic pressure on its unilateral sanctioning power and foreign debt financing capabilities.

Comment

Monetary diversification directly alters the efficacy of economic statecraft by diluting the coercive reach of the US Department of the Treasury. When trading partners shift balance-of-payments clearing to the Cross-Border Interbank Payment System, the leverage conferred by dollar-denominated clearing mechanisms erodes. This structural shift decouples sovereign defence procurement from Western financial institutions.

Consequently, defence industrial capacity operating outside Western jurisdiction gains operational insulation against weaponised trade restrictions. Reduced vulnerability to Office of Foreign Assets Control sanctions allows targeted states to maintain long-term weapons production without facing liquidity freezes within the SWIFT network.

Strategic Question for Discussion

Which factor will prove more decisive in shaping future defense industrial supply chains — the expanding transaction volume of the Cross-Border Interbank Payment System or the continued enforcement authority of the Office of Foreign Assets Control?

The trajectory indicates that transaction volume on the Cross-Border Interbank Payment System will increasingly shield routine material procurement, whereas the Office of Foreign Assets Control will retain potent leverage over dual-use technology bottlenecks that depend on Western intellectual property. Consequently, defense supply chains are likely to bifurcate into insulated sovereign networks for raw commodities and vulnerable secondary markets for advanced components.

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