Here's why it'll be hard for the yuan to replace the dollar even in the next 20 years, according Stanford historian Niall Ferguson (2024)

• China's yuan is unlikely to replace the US dollar within the next 20 years, according to Niall Ferguson.
• The Stanford historian pointed to several challenges China has in displacing the greenback.
• Still, he acknowledged there were risks facing the dollar amid shifting trade dynamics.

China's yuan is going to have a difficult time replacing the US dollar as the world's supreme reserve currency – and it's likely not happening even in the next 20 years, according to Stanford historian Niall Ferguson.

"It is pretty hard to displace a reserve currency. It takes time. It's not something that happens gradually then suddenly," Ferguson said in an interview with CNBC on Monday, pointing to fears that China's growing economic influence could eventually end US dollar dominance.

But fears of the yuan immediately displacing the dollar are off-base, Ferguson argued, pointing to "inertia" within the international financial system. The greenback has held onto its status as the world's top reserve currency and the top currency in global transactions for decades – and economists say it can take a long time for that pattern to change.

The yuan also isn't even the biggest threat to the dollar. That would be the euro Ferguson said, pointing to the high use of the European shared currency across global transactions. As of April 2022, the euro accounted for one side of 30% of all daily global transactions, according to data from the Bank of International Settlements – outpacing China's yuan, which was used in 7% of all transactions.

Both are still dwarfed by the use of the dollar, which was used in one side of 88% of all daily transactions.

"I don't think the Chinese can replace it in a hurry. I think this process is gradual," Ferguson said.

Still, he acknowledged there were risks to the greenback's top reserve currency status, given widespread de-dollarization efforts over the past year as countries attempt to shift away from the dollar. China, for one, has implemented new transaction methods for its yuan, such as by using swap lines, and the nation has also strengthened its ties with other economies to move away from trade in dollars.

That comes at a pivotal moment for the US economy, with an ongoing debt-ceiling crisis and the greenback coming down from its highs over the past year as markets expect the Fed to dial back interest rate hikes. The US dollar index rose 12% in 2022 as Fed officials raised rates to combat inflation, but it's eased in recent months, as central bankers are expected to pause rate hikes later this year.

"I think it's coming, but the idea that [the yuan] going to replace the dollar, that is not a story for today, tomorrow, it may not even be a story 20 years from now," Ferguson said.