The Chinese yuan could eventually emerge as a credible global reserve currency, but Beijing will have to drastically loosen control of the economy, writes Business Insider.

Western sanctions, which have frozen much of Russia's foreign exchange reserves, have highlighted the strength of the dollar and also highlighted the risks of heavy reliance on it.

The use of the Chinese currency will inevitably expand and play a much larger role in the world, said Baizhu Chen, professor of clinical finance and business economics at the University of Southern California.

Some countries believe that their economies can become hostages of US policy because the dollar dominates and countries want to diversify their risks, he added.

He noted that more than 70 central banks already hold some yuan as a reserve currency, while many African countries and some countries in the Middle East regularly use it for transactions.

Meanwhile, other central banks have diversified their holdings over the past 20 years, reducing the dollar's share of global reserves, the International Monetary Fund said in a report.

In recent weeks, there have been more attempts to abandon the dollar. Saudi Arabia and China are planning to use the yuan in a new oil deal. Russia and India are negotiating trade in national currencies. Moscow has also demanded that Europe use rubles to pay for natural gas and may even use bitcoin to pay.

At the moment, US dollars make up 60% of global reserves against 2.5% of the yuan. And of total payments, the dollar accounts for 40% and the yuan about 3%, despite China being the world's second-largest economy, Philipson said.

This may change, but not without sweeping reforms.

China will have to open up its market and ease government oversight, Chen explained, noting that historically no heavily controlled currency has dominated global reserves.

In the bond market, this means that China must make reforms to achieve the level of liquidity and efficiency of the US bond market. It also requires the lifting of interest rate caps, Chen said.

He also added that China needs to refrain from currency manipulation, such as devaluing the yuan to boost exports. This will be facilitated by the existence of an independent central bank with a transparent decision-making process.

In addition, the yuan should become as reliable as the dollar.