Joe Barbieri
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The Renminbi’s Move Toward a Reserve Currency

It is not a new idea that the Chinese Renminbi may become the next world reserve currency. The method and speed for which it is happening however is important to watch. Many other regions of the world are adopting the Renminbi fairly quickly as a currency to trade with. (1)(2)(5) There are also studies touting a tri-polar reserve currency system which is shared among the US dollar, the Euro and the Renminbi.(3)(4) Where have you ever seen a former dominant player share the spotlight with the new reigning champion? It is not likely. It has not happened in the history of currencies: the British pound, Netherlands gulden franc and Spanish real are not reserve currencies today even though they were at one time. (6) There is an argument that the Euro is sharing the spotlight with the US dollar, but the Euro never displaced the dollar – it is more of a runner up than a new dominant currency.

With the Chinese Renminbi, the stage appears set for it to become the only Reserve currency since many emerging markets are lining up to trade and settle with it. When the developed markets begin to jump on the bandwagon, it is time to take notice – namely Japan and Europe. This has happened recently with the European Central Banks. (1) As emerging markets rapidly gain market share in every respect – a currency to represent them is sure to follow.

What does this mean for the status quo? If you recall any situation where things had to be traded in American dollars – these scenarios will now trade in Chinese Renminbi. Tangible examples include commodities, precious metals and trade agreements.