Will the Chinese Renminbi Replace the US Dollar as Reserve Currency ?

The end of the dollar is inevitable, and already happening, but it is a long process. The primary strength of the US dollar is its circulation in international trade, which allows the US to print money without having anything to back up those bits of paper. For that reason, the US has got really upset in the past when Iran and Iraq planned to start using euros to trade their oil in, in the latter case, fighting a war over it (that was what the war was really about). Soon the value of China's foreign trade will exceed that of the US, and the BRICS countries have just signed a crucial financial collaboration agreement, so in the long term, the dollar will be replaced. All empires fall; let's hope this one goes peacefully. Welcome to The Atlantis Report. With all the sanctions the USA is imposing on allies and foes, he is irritating quite a lot of people who got to use the US dollar either as a trading currency or as a reserve currency. Americans, in general, have no idea what it means in terms of personal benefits to having the dollar as the world’s “de facto” currency. The day they lose this benefit, there will be tears and grinding of teeth. I cannot say the Yuan will replace the dollar, but annoying everybody and their mothers is a sure way of losing that position. Yuan? Maybe. Euro? Maybe. A basket of currency? Maybe. But one thing is for sure, The more sanctions Trump imposes, the higher the risk of the USA losing this almost immoral privilege. But in order for the US Dollar to lose its position as the primary reserve currency, there has to be another currency to take its place. This must have : a) large, liquid financial markets capable of making huge investments (there are currently at least $4.6tn in reserves held in US Dollar ); b) a reputation for safety and the rule of law, so that other countries are willing to invest billions and billions of dollars with that country; and c) a willingness to run current account deficits indefinitely since that’s the counterpart of a capital account surplus. I think you’ll find that at the moment, there is only the US that fits that bill, and I don’t see any other country volunteering to take its place any time soon. On the contrary, most countries are fighting to prevent their currency from being held as a reserve currency, since that causes the currency to appreciate, dampens growth, and causes unemployment. That’s what all this “currency wars” talk is about. Read this article to see why, in fact, nobody else wants their currency to be used as a reserve currency: An Exorbitant Burden. By the way, I should point out that your question contains one significant error: the US Dollar is not “the world’s reserve currency.” It is “the world’s major reserve currency.” Any currency can be held as a reserve currency. There are no laws about this, and it’s up to each country to decide what they want to keep, of course. Nobody declared that the USD has to be the dominant global reserve currency; it’s just the result of individual decisions by each country. The dollar only accounts for 63.5% of (known) reserves, EUR is 20.4%, and then there are the rest. It's challenging to find an alternate for US Dollars as of now. The best alternative available is Euro, but it being a common currency of politically separated countries with an individual perspective towards growth and policies on Euro, it becomes challenging for EURO to replace US Dollar with the present set of environment. For replacing the US Dollar, the prerequisites are : Pricing of Petroleum products in any other currency. Change is the safe heaven status enjoyed by the US Dollar. Some recent developments are pointing towards a change in this condition. China: China is exploring all options to price import of Oil & Gas products in Yuan. (But Yuan being not a fully convertible currency with the world perception of bubble formation in various sectors of Chinese Economy it becomes difficult for it to occupy the place of USD) BRICS: Together, they might be strong, but each country within this group has a different approach towards world currency. China wants to promote Yuan without making is fully convertible. India, though, wants to reduce dependency on the US Dollar but won't have faith in China to accept Yuan as a world currency, and its own currency, Rupee, is also not fully convertible. Russia, the giant from the past, is economically not in a strong position to challenge the dollar, but to reduce the impact of US Dollar, it is aggressively looking to price contracts in the OIL & GAS sector in Rubble or other world currencies. Brazil & South Africa have to go a long way even to challenge US Dollar. GBP: This is the only currency which is showing signs of revival and strength. But its Economy is no match for the USA. The golden days of GBP being world currency are hard to arrive again. Yen: The country is fighting against deflation and does not have the strength to replace US dollars. So as of now, there is no currency even to challenge the world currency status of the US Dollar. The only positive is some recent developments, and changes in world politics can lead to the status change for US Dollars, which is hard to imagine at this time. For the foreseeable time, the Renminbi will not replace the US dollar as a reserve currency. In a recent ECB study on the international role of the Euro of Jun 2019, it was stated: “the share of the Chinese renminbi reached almost 2 % (!) of global foreign exchange reserves in the fourth quarter of 2018, double that of early 2018”. The part of both the US dollar and the Euro in those reserves is much larger. A significant barrier to a growth of the importance of the RMB is that the RMB is recognized as a reserve currency, but China still applies capital controls, so capital flows in RMB cannot move freely in and out of Chinese markets. Moreover, there are hardly any internationally traded commodities with prices expressed in RMB, while payments for those commodities are still mostly carried out using Swift and other western banking circuits. The present trade war with the US is also not favorable for the usage of the RMB either as it implies investors and debtors can incur currency risks. China is heavily promoting the role of the RMB by starting markets of distressed debts for developing countries and similar papers in RMB in China, following the debt situations of these countries related to the Belt and Road infrastructure projects. Moreover, in its latest round of new Belt and road program for Africa, it enabled African partners to use the RMB as a financing currency. According to the latest report on the internationalization of the Renminbi of the People's Bank of China, more than 60 countries and regions have adopted the Chinese Yuan, or Yuan, as a new reserve currency. Since last October, the IMF has included the Chinese currency as an international reserve currency in the basket of currencies in SDR (Special Drawing Rights), alongside the dollar, the Euro, the yen, and the pound sterling. This inclusion strengthened the international use of the Yuan. The ECB invested € 500 million in yuan-denominated assets in the first half of 2017. International transactions in Yuan will continue to increase, reaching 9.85 billion yuan (1.49 billion euros) in 2016. The report also indicates that 240,000 companies operating in China used the Yuan for international payments at the end of 2016. The New Silk Road initiative has extended the adoption of the Yuan internationally. According to the report, more and more market players will use the Yuan as a payment currency thanks to China's economic growth and improved conversion regime. However, I see in the near future coexistence with the US Dollar, the British Pound, and the EURO, but at present, I see no clear advantage or China! Wanting the Renminbi to replace the US Dollar as the primary reserve currency. A currency, in order to compete against the dollar, must fulfill the following essential prerequisites. Acceptable by third parties for settlement of international financial and trade transactions. Be as attractive as a store of value/refuge assets. Its domestic financial markets must be profound and liquid and be able to trade international instruments denominated in that currency. The Euro, Yen, Swiss Franc, and the Pound Sterling fulfill these prerequisites but yet are incapable of replacing the dollar. The Yuan/Renminbi issued by China, can't either nor has the potential of substituting it for various reasons: Its domestic financial markets, even when striving to meet international standards of accounting and transparency, still have a long way to go Foreign investment flows, and credit availability is conditioned by government controls rather than by demand and supply forces. But the most critical trait of a genuinely world-class currency is that its issuer's global military power and massive Economy determine geopolitical dynamics, how to trade and financial flows will be conducted and which countries can or cannot interact. The USA is the only Economy with these attributes. Its currency is intimately intertwined in the world's trade and financial transactions, far above the country's specific weight in world trade. Energy trade transactions are almost quoted in US dollars, not in Rials (Saudi Arabia), Roubles (Russia), Bolivars (Venezuela), or what might you. Thus, the dollar's global role could subside in favor of a third currency only, and only when the USA loses its superpower status and global energy markets and trade flows disengage from the dollar. I see the Yuan replacing the dollar as reserve currency Only if and when China will be able to defeat the USA on the military level. That is why China is rearming at unprecedented speed, and the USA is certainly not holding back, even though their current military superiority is undiscussed. Only if the main trades (debt servicing, etc.) are done in Yuan, then it will become the primary reserve currency. But this is not possible without a change in the balance of power.

















The Financial Armageddon Economic Collapse Blog tracks trends and forecasts , futurists , visionaries , free investigative journalists , researchers , Whistelblowers , truthers and many more