Did China Just End the Dollar's Reign?

Mar. 06, 2011 11:39 AM ETUUP, UDN, CYB33 Comments

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.

This article was written by

Ian Wyatt is an active investor, a well-regarded investment expert and an Internet entrepreneur. He is the Chief Investment Strategist at Wyatt Investment Research, and plays a leading role in each of the company’s investment newsletters and trading services.As a well-regarded market expert, Ian has written for Marketwatch, Zacks Investment Research, Seeking Alpha, Yahoo! Finance and The Burlington Free Press. He has been interviewed or quoted in articles in well-known publications including AOL Finance Blogging Stocks, Kiplinger’s Personal Finance Magazine, Barron Magazine, Barrons.com, Forbes.com, The Dick Davis Digest, The Dick Davis Income Digest, The Wall Street Transcript, TheStockAdvisors.com, Money Show Digest, The New Jersey Star Ledger, The Wisconsin State Journal and The Seattle Times. In 1998, Ian combined two of his passions, stocks and the Internet, with the launch of a free investment web site with expert advice about investing in stocks. Ian founded Business Financial Publishing and Wyatt Investment Research in 2001, publishing investment newsletters for individual investors. Since then, the company has evolved into an Internet content company publishing e-letters, special reports, newsletters, trading services and financial web sites. Business Financial Publishing was named #185 on the 2008 Inc. Magazine Inc. 500 list of the fastest growing companies in the United States, achieving a 3-year growth rate of 1,303%. The company currently reaches over one million individual investors weekly through its free e-letters. His first book, The Small-Cap Investor: Secrets to Winning Big with Small-Cap Stocks, was published by John Wiley & Sons in September 2009. Ian lives in the Green Mountains of Vermont with his wife Carrie.

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