Did China Just End the Dollar's Reign?

 |  Includes: CYB, UDN, UUP
by: Wyatt Investment Research

China's central bank recently made a hugely important announcement.

Very few mainstream media outlets are even mentioning this story, but China just put a somewhat significant nail in the coffin of the U.S. dollar's status as reserve currency.

Currently, most contracts are settled in dollars. So if Great Britain wants to buy oil from Saudi Arabia, they must first buy dollars.

But China's central bank just began to allow certain cross-border trades to be settled in the Chinese yuan.

In the solitary Reuters story on the subject one sentence sticks out as especially foreboding for the dollar:

"In a statement on its website www.pbc.gov.cn, the Chinese central bank said it would respond to overseas demand for the yuan to be used as a reserve currency."

The one problem with China making this gambit is that the Chinese government doesn't own very much gold – which could be an impediment for yuan reserve currency status as world markets look for a more stable currency. Without enough gold to back up its currency, at least in theory, then the yuan is little better than the dollar.

But over the past few years, China has ramped up gold production and consumption. Today, China produces more gold than any other country, even South Africa and Canada.

It's clear to see that China is making its move.