The yuan will not become a reserve currency anytime soon. Despite the ruminations of experts and pundits and the size of the Chinese economy, there is one important impediment to yuan's progress. That impediment is the Chinese government.

The 18^th-century European philosophers had it correct.They used the word political economy. This phrase was later shortened in the 19^th century to simply economics. But the phrase political economy is, in many ways, more exact, because it includes the concept that any economy exists within a framework of laws and those laws were determined by the politics of the country.

For the laws of a given country to create a reserve currency, those laws must provide the most important element necessary for a reserve currency. That element is trust. Any paper currency is in essence a contract, a debt, a promissory note. It is a contract between the holder of the currency and the government that issues it. Its value depends upon the trust that the bearer has in the ability and determination of the issuing government to adhere to the contract by preserving the value.

 The dollar is not the reserve currency necessarily because of the size of the US economy. In accordance with its legal system since its inception, the government has honored its debts and abided by the law. The United States Constitution itself was in part the result of the need of certain states, specifically New York, to pay back debts incurred during the Revolutionary war. It also contains two specific clauses protecting contracts. This continuity gives investors in dollars and treasury bills something exceptionally rare in international transactions, over 200 years of trust.

The Analyst Magazine, Yuan, Reserve Currency, Word Political Economy, International Transactions, US Economy, Revolutionary War, Chinese Political System, Management Policies, Chinese Government, Socialist System, Manufacturing Sectors.