LONDON, Apr 18 (Reuters): The US dollar's dominant reserve currency status is likely to endure partly because even the most talked about alternative the Chinese yuan falls short as a credible challenger, Morgan Stanley said in a report on Thursday.
Rivalry with China, Russia's war in Ukraine, wrangling in Washington over the US debt ceiling and rising debt levels have put the dollar's status as the world's dominant currency under scrutiny in recent years.
In a new report exploring the dollar's reserve status, Morgan Stanley said it did not expect the currency's dominance to change soon, noting dollar influence in the global economy across a range of economic and financial metrics remains strong. Concerns about the US fiscal outlook and the persistent use of economic sanctions by Washington could motivate some countries to seek alternatives to the dollar, but it is is a difficult task, Morgan Stanley said.
"The most discussed competitor is China, and we do expect a modestly more global role for CNY," the Morgan Stanley note said, referring to the yuan.
"But we think that China's '3D challenge' of debt, deflation and demographics will limit CNY's international appeal," the note added, estimating that currency reserves in yuan should rise to only 5 per cent in 2030 from 2.3 per cent now.
Morgan Stanley said periods of dollar weakness were to be expected, while the approaching US presidential election could test the dollar's status.
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