The world monetary order is changing. Slowly but steadily, global trade and currency markets are becoming less dollar-centric. Formerly marginal currencies such as the Chinese yuan now stand to become serious competitors to U. S. dollar dominance.
Could gold also begin to emerge as a leading currency in world trade? Over time, it certainly could. But the more immediate implications for gold’s monetary role center on its increasing accumulation by central banks such as China’s.
As of October 1st, the Chinese yuan has entered the International Monetary Fund’s Special Drawing Right (SDR) basket of top-tier currencies. It now shares SDR status with the U. S. dollar, euro, British pound, and Japanese yen.
Before the yuan officially becomes an SDR currency, the World Bank intends to sell $2.8 billion in SDR bonds in Chinese markets. The rollout of SDR bonds in China began August 31st. According to Reuters, China’s promotion of SDR bonds ‘is part of a wider push in China to… boost demand for Chinese yuan and diminish reliance on the U. S. dollar in global reserves.’
King Dollar won’t be dethroned overnight. But the place of prominence the U. S. dollar enjoys as the world’s reserve currency will indeed diminish over time.
This post was published at Ludwig von Mises Institute on 10/21/2016.