www.marketoracle.co.uk/Article36850.html
This is quite a dry and technical article, but I'll highlight the important bit.
China is actively taking steps to phase out the US dollar which will decrease volatility in oil and commodity prices and deride the ‘exorbitant privilege' the USA commands as the issuer of the reserve currency at the centre of a post-war international financial architecture which is now failing.
In 1971, U.S. Treasury Secretary John Connally said, "It's our currency and your problem".
China is frustrated with what it sees as the US government’s mismanagement of the dollar, and is now actively promoting the cross-border use of its own currency, the yuan, or also called the renminbi, in trade and investment.
China’s goal is to decrease transactions costs for Chinese importers and exporters.
Zha Xiaogang, a researcher at the Shanghai Institutes for International Studies, said Beijing wants to see a better-balanced international monetary system consisting of at least the dollar, euro and yuan and perhaps other currencies such as the yen and the Indian rupee.
"The shortcomings of the current international monetary system pose a big threat to China's economy," he said. "With more alternatives, the margin for the U.S. would be greatly narrowed, which will certainly weaken the power basis of the U.S."
Zha's comments were highlighted at a seminar in Bahrain this week on the geopolitics of currencies organized by the International Institute for Strategic Studies, a London think tank.
GoldCore brought up these issues back in 2005. Rising economies of China, India and the Middle East are looking at trading options that do not include the greenback.
Not only the East but their financial ministry colleagues in the West are also questioning the current monetary order. Change is certainly around the corner.
At the Clinton Global Initiative last week Goldman Sachs CEO Lloyd Blankfein said that the US could risk its status as the world's reserve currency if congress fails to act and the "fiscal cliff" program of tax increases and spending cuts is enacted January 1st.
If the US continues its trillion dollar deficits and does lose its reserve currency status what will a world without a reserve currency look like? That is what economists, think tanks and finance ministers are grappling over today.
