Tuesday, April 2, 2019

Chinese Yuan now on the cusp of giving the dollar a run for its money as the sole reserve currency

As of today, China has the world's largest banking system and for all intents and purposes is the world's largest production economy.  And after a near decade of solidifying its currency to go international, the Asian power stands on the cusp of giving the dollar a run for its money, and offering nations an alternative to dollar hegemony.


Yuan-denominated Chinese bonds were included in the Bloomberg Barclays Global Aggregate index on Monday. The move is expected to attract trillions in foreign inflows into China and the reshaping of global capital markets. 
Over the next 20 months, the index will add 364 bonds issued by the Chinese government and the so-called “policy banks”(lenders set up to support the government’s development plans and policies). 
Analysts estimate the full inclusion will attract around US$150 billion of foreign inflows into China’s bond market, which is the third-largest in the world after the US and Japan.
“Today marks an important milestone as China’s capital markets continue to find their place in the global investment mainstream,” said Justin Chan, HSBC’s co-head of global markets in Asia Pacific. 
China’s weight in the index will increase to around six percent and the Chinese yuan will become the fourth-largest currency component, Bloomberg estimates. – Russia Today
In addition to Wall Street now making a market for Chinese bonds, central banks over the past few years have been in the process of replacing dollars in their reserves with the Yuan.
The dollar’s share of global central-bank reserves slumped to the lowest level since 2013 while holdings of the Chinese yuan rose for the fifth quarter in the past six, IMF data showed Friday. 
The U.S. currency accounted for 61.7% of global allocated foreign-exchange reserves in the fourth quarter, down from 61.9% and the tenth decline in the past 12 quarters according to the IMF's Currency Composition of Official Foreign Exchange Reserves (COFER) for Q4 2018 report. The drop occurred despite a 1% jump in the value of the dollar in the fourth quarter. The euro, yen and yuan each gained as a share of allocated reserves. While modest at just 1.9%, reserve allocation to the Chinese Yuan has been increasing rapidly and is now almost double where it was two years ago. - Zerohedge
When you add in the fact that the IMF chose China over the U.S. to internationalize the SDR, it is clear that the dollar no longer carries the same gravitas that it once did, and this indicates another step in preparing for its removal as the unipolar reserve currency.

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