Sounds like a sports team.

No, we’re dealing with the changing colour of money. The redback is the yuan (or the renminbi, if you will) that seems ready to give the greenback US dollar some competition when it comes to deciding who prints the world’s reserve currency.

Okay, so we’re moving towards a dollar-free world?

Not yet, but the shift has begun. Russia, for instance, recently said it will consider issuing its debt in Chinese yuan. Last year, the Russian and Chinese central banks decided to cut their dependence on the US dollar by agreeing to a currency swap agreement so they can trade directly. Also, in November, Sberbank, Russia’s largest bank, started issuing credit guarantees denominated in Chinese yuan.

But is this only between China and Russia?

For now, yes; and mostly because trade between the two countries touched nearly $100 billion in 2014. However, even otherwise, the yuan is gaining in stature. The 2013 triennial survey by the Bank of International Settlements found that the size of foreign exchange transactions involving the Chinese yuan has been rising rapidly. From being ranked 35 in 2000, the yuan became the ninth most-traded currency in the world by 2013.

And this is important because?

There is a lot of talk about how the dollar will soon be dead.

Oh, dear. Do we bring flowers?

Dead as a reserve currency, not plain dead.

What’s a reserve currency?

The status of reserve currency is a reflection of confidence in that currency and the economy it represents. Most central banks hold large reserves of the dollar, and as long as this continues, the US is assured that it can keep borrowing by simply issuing US Treasury bonds to satisfy the global demand for the dollar. When countries decide to directly trade between themselves and cut the dollar out of the equation, the US will struggle to bridge its budget deficits. Of course, Russia has other benefits added in.

Such as?

Once Russia frees itself from the clutches of western banks who control the flow of the dollar, economic sanctions against it will be a lot less painful.

And what does President Xi say?

If there’s anything the world does know about China, it’s that it knows very little. But China has been continually striking trade deals allowing Asian countries to trade in yuan. So much so, there appears to be what some call a renminbi-bloc in South East Asia, according to a 2013 study by economists Arvind Subramanian and Martin Kessler for the Peterson Institute for International Economics.

Is this a good thing?

It’s really hard to judge. In fact, getting to the top might be a situation China doesn’t want to be in. China is known for tight controls on the supply and value of its currency, which have kept it a low-cost manufacturer for decades. If the yuan does become reserve currency, China will have to let go of that stranglehold.

Is the yuan the only option?

It isn’t. Some say China would rather the world move towards creating a basket of currencies to serve as reserve than just one.

Provided the yuan is in the basket, that is?

For now, there’s the euro, the yen, the pound and the dollar. For China, this is the best thing that can happen. This way it doesn’t need to meet all that global demand for the yuan, can keep the currency on a leash while also enjoying the obvious benefits of being a respected currency. A bit like having its dumpling and eating it too.

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