Photo: Reuters / Jason Lee
The American and Chinese currencies. Photo: Reuters/Jason Lee

The digital yuan will not be the “magic potion” that knocks the US dollar out of its position as the global reserve currency, according to David Roche, president and global strategist at Independent Strategy.

The People’s Bank of China’s digital currency, which is a key part of Beijng’s drive to make Chinese society cashless, is currently being tested in a pilot scheme.

He said the transition from the US dollar to the yuan will happen, but it will take a “very, very long time.”

“Don’t be in a rush to play on that particular theme because I think the dollar is gonna sit there for a while yet,” he told CNBC’s Squawk Box Asia on Monday.

However, Roche acknowledged that the US dollar’s reserve status is “unmerited.”

“The US economy has progressively shrunk over the last two decades; it is a smaller proportion of international trade,” he said. “Yet the dollar is an increasing proportion of the settlement of international trade and an even bigger proportion of financial reserves.”

However, he believes the yuan is unlikely to challenge the greenback anymore successfully than the euro in the foreseeable future: “Dethroning the dollar – which the euro tried to do, and settled at a miserable 18-20% of all the international things that go on – is very, very difficult.”

He added, “There is a certain amount of illusion at the moment that the [yuan] – which accounts for 2% of international trade settlements and even less if you come to financial investment flows – that this can take over.”