Over the years, two questions have surfaced from readers on multiple occasions. "Does China plan on making the renminbi the world's reserve currency?" and "Does China plan on backing the renminbi with gold" (PHYS, GLD)?
Clearly the two questions are related. Yet, somewhat strangely, the questions seem to always be asked in isolation of each other. Thus the purpose of this article is to consider these two questions (and their answers) together.
Of course, by this point in time, there is little drama in the minds of most readers when these questions are asked. Events have already progressed to where the answers are now self-evident. One half of this was laid out in a recent commentary, which focused on the transition away from the U.S. dollar - the current reserve currency.
That previous piece reviewed the considerable progress which China has already made in "internationalizing" the renminbi. Indeed, for seven of Asia's most-dynamic economies, the renminbi is already their reserve currency. All that was required to make this a reality was for China to engage in "currency swaps" with these nations.
It takes the supply of dollars currently held by some nation, which it previously used as its instrument for international trade. Then China replaces those dollars with renminbi, and then that other nation uses renminbi as its international currency from that point onward.
More importantly, however, we have finally seen a clear indication that the Western bloc itself has bowed to the inevitability that China's currency will soon be the world's currency. This was demonstrated through an announcement by the UK government, the heart of Western banking, and thus the heart of the Western (U.S.) monetary system.
That government announced that it would start denominating some of its own bonds not in dollars or pounds, but in renminbi. Merely
