We have said in the past that the real economic “run for the hills” moment is the moment the dollar loses world reserve currency status. If that were to ever happen all sorts of things would cascade. Interest rates would shoot up. Our debt would become unmanageable. All sorts of dollar denominated assets would decrease in relative value. It would be a colossal mess.
This is unlikely to happen anytime soon. Though “dollar hegemony” has eroded somewhat since the 2008 Crash, the dollar is still solidly the fiat currency of choice. However the Chinese know that to get where they want to go in terms of being a world power, over the long term, they must make the yuan a competing “reserve” currency.
Slowly but surely they are headed in that direction. The Chinese are careful not to turn over the dollar denominated apple cart, as they have billions and billions in dollar denominated assets, but times are changing and so is world monetary policy.
Meanwhile China’s out-of-control crony capitalism and crony infested financial system in particular continue to threaten the entire world economy.
(From Yahoo News)
The yuan has rapidly grown in importance in recent years as China — the world’s top trading nation — has used it to settle more of its commerce, and made it directly convertable with more currencies.
Including the Chinese currency in the SDR would likely boost demand for yuan-denominated assets among central banks, and give it a sheen of respectability at a time when many investors are questioning Beijing’s ability to manage the slowing economy
Lagarde said IMF experts ruled Beijing had addressed “all remaining operational issues” required for SDR inclusion, which will be decided by the executive board at a November 30 meeting.