China establishing its currency as new global Reserve Currency
Reuters provides a simple summary of an announcement on the website of the People’s Bank of China: “China hopes to allow all exporters and importers to settle their cross-border trades in the yuan by this year, as part of plan to grow the currency’s international role. The central bank said it would respond to overseas demand for the yuan to be used as a reserve currency.”
To all those who claim that China is perfectly happy with the status quo, in which it is willing to peg its currency to the Dollar in perpetuity, this may come as a rather unpleasant surprise.
International Business Times provides further insight: “This is all part of China’s plan for the internationalization of its currency, which may, in the decades to come, threaten the global ‘market share’ of other currencies like the US dollar. … The yuan is expected to become a more attractive currency for China’s trade partners, especially as the government continues to relax restrictions.”
The reason for this dramatic move may be found in what Stephen Roach wrote a few days ago in Project Syndicate: “In early March, China’s National People’s Congress will approve its 12th Five-Year Plan. This Plan is likely to go down in history as one of China’s boldest strategic initiatives.”
A reserve currency would be critical in achieving the goal of China’s conversion to an inwardly focused, middle-class reliant society. The announcement was inconspicuous, but it has the potential, to permanently change the balance of power on the world currency market. And according to the central bank in Beijing, this year all exporters and importers will be allowed to settle their business with their foreign partners in Yuan, as announced by the central bank in Beijing.
The only question is whether or not the Yuan will cement its status at the top of the currency pyramid by allowing the backing of the currency with individual or a basket of commodities. If that were to happen, it would be the last nail in the coffin of the already terminally-ill Dollar.