You've clearly never run a cross-border business or managed/hedged forex risk. I have.
Here's why a Brazilian exporter won't want to be paid on a 45 or 60 day letter of credit by an Argentine client in pesos: Argentina's 104% inflation would devalue the LC by 17% in 60 days. The exporter will want $, CHF, euros....anything but pesos.
Same for any Turkish Lira to RBL trade due to Erdogan's economic illiteracy giving Turkiye an 80% annual inflation rate.
Forget RMBs, they're not convertible due to Chinese capital controls, as the Reuters article said:
"global yuan adoption is unlikely, given expectations that Beijing will want to keep a tight grip on the currency. China has long sought to increase the yuan's undersized 2.2% share of global payments, but seemingly without being willing to open its capital accounts and allow the sort of free-flowing movement that makes dollars, euros and yen so convenient....World trade flows are dominated by dollars, euros, sterling and yen because those currencies are freely available and connected to open economies in ways the capital-controlled yuan is not. To be sure, there are no signs that is changing."
If China loosens capital controls capital will fly out of the country faster than a hypersonic missile. This would turn the SG$ even more into the Swiss franc of East Asia than it already is.
Gold: rising due to Republican fascist nihilists who are as financially illiterate as you are. But $2000/oz is still cheaper than its 1980 peak of $850/ounce when indexed to inflation.
Why is the $'s reserve currency so durable? Because in a room full of blind men the one-eyed guy is a genius--and the $ is that genius unless its country's politicians commit financial hara-kiri.
A reserve currency requires:
1. Open and liquid forex, stock and bond markets. China has neither. CH, NL, the Nordics have open and liquid markets, but none on the scale required to absorb global capital flows. Only EU financial markets can, but they have no unified treasury markets. Bundts are not EU bonds yet.
2. Deep, liquid and transparent financial markets with the rule of law and backed by a continent sized economy that stands behind the benchmark risk-free asset. In the 19th century it was British Consols and Perpetual bonds.
China has a continent sized economy but rule by law, not rule of law. The EU has the latter, but separate and fragmented national bond markets without debt mutualization. In the US if Alabama, Louisiana or other neo-confederate welfare cases go bust, Washington bails them out.
3. Global capital flows require liquidity at a scale only the US markets can absorb. Ask the Chinese where else they can put their current account surpluses from mfd exports. In JGBs? Swiss govt bonds? Saudi Riyal bonds? Qatari bonds?
The Reuters article proves my point by saying that the yuan doesn't have the scale or network effects of a reserve currency.
"China itself needs time to create depth in a limited pool of yuan outside its shores, which is less easy for Beijing to control.
"For yuan usage to grow in scale it make take 10 years or longer," says Andre Wheeler, chief executive of supply chain, trade risk consultancy Wheeler Management Consulting based in Australia.
"If they were to try to change Australia iron ore trades to be settled in yuan, I don’t think China would be able to cope with that scale."
Don't hold your breath waiting for de-$ization.
