The share of a currency in global reserve holdings is related not only to its share in international trade but also to its proportion in global foreign exchange transactions. Currently, China's share in global trade is slightly lower than that of the Eurozone and comparable to that of the US, making a significant increase unlikely in the short term. However, the share of the RMB in global foreign exchange transactions lags far behind that of the US dollar and euro, and is even lower than the British pound and Japanese yen, indicating considerable potential for growth. According to the author's calculations, if the RMB's share of foreign exchange transactions were to double by 2035, reaching a level comparable to that of the pound or yen today, the RMB's share in global reserves could increase from the current 2.4% to about 4.6%. If the RMB's share in foreign exchange transactions were to quadruple by 2035, reaching the current level of the euro, the RMB's share in global reserves could exceed 8%.

Current Global Reserve Currency Landscape

Since the end of World War II, a US dollar-centered international monetary system has emerged, with the dollar becoming the world's primary reserve currency, accounting for up to 80% of global reserve assets at its peak. Following the establishment of the Eurozone in 1999, the dollar's dominance faced a potential challenge, with the euro's share of global reserves peaking at almost 30% (see Figure 1). However, disparities in economic development, fiscal health, and government debt levels among Eurozone member states, as well as the absence of a unified and robust fiscal policy, exposed the limitations of a single currency's monetary and exchange rate policy during the European debt crisis. Nevertheless, with recent progress in joint issuance of government bonds within the Eurozone, the euro is expected to maintain an important position in global reserves, although it is unlikely to displace the dollar in the short term.