Investors betting on a rise in China's currency, after any relaxation of its peg against the US dollar, may have to wait years for the yuan to replace the Japanese yen as the dominant currency in Asia, analysts said. "I don't see it happening in the foreseeable future. The yen has a special status as a reserve currency," said Michael Cheah, a portfolio manager at AIG SunAmerica Asset management in Jersey City. The Chinese yuan has been pegged at about 8.28 to the US dollar for the past decade, but the Chinese economy has been growing at close to 10 percent a year in recent years and its currency is widely seen as undervalued.
The US administration has stepped up pressure on China to relax its fixed exchange rate system to allow the yuan to rise to make US exports more competitive on world markets.
"China is still about only one-fourth the size of Japan's economy, yet its population is ten times that of Japan. So China's per capita GDP (gross domestic product) is just one-fortieth of Japan's," said Chi Hung Kwan, senior fellow at Japan's Research Institute of Economy, Trade and Industry (REITI) in a research paper.
Kwan also noted that only about 20 percent of value-added inputs in China's high-tech exports actually come from local sources. "In other words, China is highly-dependent on foreign capital and technology."
AIG's Cheah said that for the yuan to replace the yen as a reserve currency, the Chinese monetary unit should have broad reception as a viable asset class. That entails having a sizeable amount of yuan-denominated assets, which will take time to build.
It wasn't until 1980 that the securities and futures markets were first introduced in China.