40 Central Banks Are Betting This Will Be The Next Reserve Currency

Tyler Durden's picture




 

As we have discussed numerous times, nothing lasts forever - especially reserve currencies - no matter how much one hopes that the status-quo remains so, in the end the exuberant previlege is extorted just one too many times. Headline after headlines shows nations declaring 'interest' or direct discussions in diversifying away from the US dollar... and as SCMP reports, Standard Chartered notes that at least 40 central banks have invested in the Yuan and several more are preparing to do so. The trend is occurring across both emerging markets and developed nation central banks diversifiying into 'other currencies' and "a great number of central banks are in the process of adding yuan to their portfolios." Perhaps most ominously, for king dollar, is the former-IMF manager's warning that "The Yuan may become a de facto reserve currency before it is fully convertible."

The infamous chart that shows nothing lasts forever...

Nothing lasts forever... (especially in light of China's recent comments)

 

As The South China Morning Post reports, Jukka Pihlman, Standard Chartered's Singapore-based global head of central banks and sovereign wealth funds (who formerly worked at the International Monetary Fund advising central banks on asset-management issues), notes that:

At least 40 central banks have invested in the yuan and several others are preparing to do so, putting the mainland currency on the path to reserve status even before full convertibility

The US dollar remains in charge (for now)...but

The US dollar is still the world's most widely held reserve currency, accounting for nearly 33 per cent of global foreign exchange holdings at the end of last year, according to IMF data. That ratio has been declining since 2000, when 55 per cent of the world's reserves were denominated in US dollars.

 

The IMF does not disclose the percentage of reserves held in yuan, but the emerging market countries' share of reserves in "other currencies" has increased by almost 400 per cent since 2003, while that of developed nations grew 200 per cent, according to IMF data.

As SCMP goes on to note, the rising popularity of the yuan among central bankers is probably mainly due to Beijing's extremely favourable treatment of them as it has sought to encourage investment in the yuan.

For example, central banks enjoy preferential treatment in the qualified foreign institutional investor category, both on the size of the quota and the length of the lock-up period. The QFII quotas given to central banks are not publicly known, but some of those announced by investing central banks are up to 10 times larger than others in the programme and, most importantly, free of any capital controls.

 

"Central banks and sovereign funds have special treatment," Pihlman said. "They have the ability to invest in a way that any other investor does not have. When it comes to convertibility, there is nothing formally out there, but it is fully convertible."

As Pihlman explains, things are accelerating...

Pihlman said "a great number of central banks are in the process of adding [yuan] to their portfolios".

 

"The [yuan] has effectively already become a de facto reserve currency because so many central banks have already invested in it," he said. "The [yuan] may become a de facto reserve currency before it is fully convertible."

 

The central banks more likely to add yuan holdings in the future were the ones with "strong trade linkages to China" and those which had relatively large levels of reserves which could consider diversifying more for return-related reasons, he said.

 

"The [yuan's] convertibility may be already there for central banks in a way that has got them comfortable to start investing in the currency," Pihlman said.

We leave it to a former World Bank chief economist, Justin Yifu Lin, to sum it all up...

"the dominance of the greenback is the root cause of global financial and economic crises,"

It appears the world is beginning to listen

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Tue, 04/08/2014 - 22:45 | 4637971 Robot Traders Mom
Robot Traders Mom's picture

Just tell me it isn't the 'Shekel'...

 

www.TopTheNews.com 

Tue, 04/08/2014 - 23:02 | 4638025 markmotive
markmotive's picture

China is on the verge of imploding.

"About 20% of China's Economy is Shrinking"

http://www.planbeconomics.com/2014/04/about-20-of-chinas-economy-is-shri...

Tue, 04/08/2014 - 23:07 | 4638056 macholatte
macholatte's picture

 

China = Predator not Protector.

Major political changes will have to take place before the concept of Reserve Country will happen.

Tue, 04/08/2014 - 23:16 | 4638082 0b1knob
0b1knob's picture

So the same "geniuses" who bet everything on NINJA mortgages, credit default swaps and subprime junk are now getting into the Yuan.

The smart play would be to do the opposite of the banks.   

Tue, 04/08/2014 - 23:18 | 4638085 Pladizow
Pladizow's picture

Putin goes to China in May to seal the oil deal!

Tue, 04/08/2014 - 23:35 | 4638124 TruthTalker
TruthTalker's picture

what do you think the US is?

Wed, 04/09/2014 - 02:19 | 4638377 Seek_Truth
Seek_Truth's picture

The image of the beast. - Revelation 13:15

Tue, 04/08/2014 - 23:27 | 4638108 TheReplacement
TheReplacement's picture

But it's okay if they default.  The guy will promise to pay you when he has money. 

Great way to do business.

Wed, 04/09/2014 - 00:01 | 4638175 macholatte
macholatte's picture

 

 

"I would gladly pay you Tuesday for a hamburger today"

-- J. Wellington Wimpy

 

Wed, 04/09/2014 - 07:56 | 4638665 Bill of Rights
Bill of Rights's picture

So if the clowns on CNBC say it it must be true....

Wed, 04/09/2014 - 08:24 | 4638722 ejmoosa
ejmoosa's picture

So if 38% of US companies are making less than they did a year ago, what does that say about us?

Wed, 04/09/2014 - 10:26 | 4638789 Drifter
Drifter's picture

"China is on the verge of imploding."

If China is on the verge of imploding then America has already imploded. If their GDP is 4 down from 8 ours is -4 down from 0. 

They have the factories we don't have anymore.  They have the trade surplus we don't have anymore, and most of their trade surplus is our trade deficit.  50% of their govt budget isn't borrowed money.  Their cental bank isn't buying 80 billion a month of bonds to keep their bond market from imploding, more like 150 billion a month truth be known, and no there ain't any "taper", just going off balance sheet cause it's getting so embarrasing.  Now they have the gold we don't have anymore.

Arrogant Americans point fingers at a few holes in China's economy ignoring the empty hollowed out shell our economy is.  The classic distraction game from American imperialist egos. 

American hubris is astounding.  We have far and away the biggest govt debt on the planet and it's growing faster than everybody else on the planet combined.  We include exported debt, bank bailouts, and other financial shennanigans to make our negative GDP look positive, make up phantom jobs to pad NFP that disappear next month, stop counting large swaths of unemployed to make 26 unemployment look like 6, and every other economic number put out by this govt is a cooked-book lie that would embarrass a snake oil salesman.

Jim Willie says China will shake the world fairly soon now.  Rest of the world is going back on a gold standard whether we like it or not, China will be leading the way, and their asian alliance has a shitload of gold and nuclear weapons to make it stick.  US dollar hegemony and hubris is on the way out the door followed by the Fed, Wall Street, and all the rest.

So go ahead, point fingers all you want.  The paradigm shift is on the way.

Tue, 04/08/2014 - 23:00 | 4638030 SafelyGraze
SafelyGraze's picture

"The Yuan may become a de facto reserve currency before it is fully convertible"

convertible into what

Wed, 04/09/2014 - 01:14 | 4638292 donsluck
donsluck's picture

Oil my friend.

Wed, 04/09/2014 - 06:32 | 4638565 Wahooo
Wahooo's picture

Perfect.

Tue, 04/08/2014 - 23:01 | 4638034 john39
john39's picture

>>shekel

as if the dollar is substantively distinguishable...  

nothing changes until the central bank system is history

Tue, 04/08/2014 - 23:55 | 4638159 theliberalliberal
theliberalliberal's picture

i'll take a pre-1980 shekel just fine

Wed, 04/09/2014 - 02:21 | 4638382 Seek_Truth
Seek_Truth's picture

@john39-exactly.

Wed, 04/09/2014 - 10:50 | 4639169 Treason Season
Treason Season's picture

dbl post

Wed, 04/09/2014 - 10:46 | 4639181 Treason Season
Treason Season's picture

...nothing changes until the central bank system is history...

 

IMHO this is a commonly held myth. The banksters will have positioned themselves accordingly when the US$ suffers its inevitable devaluation. Think of a street shell game on a global scale.

Wed, 04/09/2014 - 06:28 | 4638558 Wahooo
Wahooo's picture

The tribes will control the yuan. Control is in transition.

Wed, 04/09/2014 - 00:56 | 4637975 SgtShaftoe
SgtShaftoe's picture

Wash Rinse Repeat...  Fuck your system and your elitist baton handoff! 

 

Academic weasels have no business directing individual labor, and they won't.  The whole fucking thing is falling apart. 

Top-Down vs. Bottom up (Fight of the Century) - watch it again (really, watch it again - it's like telling the future, but accurately):

https://www.youtube.com/watch?v=GTQnarzmTOc

My favorite line: "Give us a chance to discover the best way to serve one another"

Absolutely beautiful!

Tue, 04/08/2014 - 22:50 | 4637981 I am a Man I am...
I am a Man I am Forty's picture

And there has to be a reserve currency because???????????

Tue, 04/08/2014 - 22:52 | 4637989 SgtShaftoe
SgtShaftoe's picture

Exactly.  It's all bullshit.  See above. 

Tue, 04/08/2014 - 22:58 | 4638018 666
666's picture

The only reserve currency I believe in is gold.

Tue, 04/08/2014 - 23:10 | 4638066 RaiZH
RaiZH's picture

Gold is reserve money... for when people quit playing around with all that paper currency, like they eventually do. 

Tue, 04/08/2014 - 23:22 | 4638095 Milton Waddams
Milton Waddams's picture

It's been edited for "mainstream" consumption, but gold represents the X and Y axis in that chart.

Wed, 04/09/2014 - 02:29 | 4638396 Seek_Truth
Seek_Truth's picture

The only reserve currency I believe in is God.

"Jesus answered, "I am the way and the truth and the life. No one comes to the Father except through me." - John 14:6

 

Wed, 04/09/2014 - 02:45 | 4638420 Tall Tom
Tall Tom's picture

Read Haggai 2:8 and Habbukuk 2:6 onward. Then we will talk about Honest Weights and Measures and the ordained currency of God (Gold and Silver).

 

This is a Financial Blog. Now I am most certain that many here will tell you that I love reading the Bible.

 

But being off topic will just anger the atheists and not serve our God well.

 

I just RESPOND after they bring the topic up.

Wed, 04/09/2014 - 04:06 | 4638454 Seek_Truth
Seek_Truth's picture

http://www.zerohedge.com/about

Rather than repeat it verbatim, there is much leeway as to commentary here.

I could not agree MORE with Haggai 2:8 and Habakkuk 2:6, and even moreso with James 5:1-5:

http://www.biblegateway.com/passage/?search=James+5:1-4

"Now listen, you rich people, weep and wail because of the misery that is coming on you. Your wealth has rotted, and moths have eaten your clothes.  Your gold and silver are corroded. Their corrosion will testify against you and eat your flesh like fire. You have hoarded wealth in the last days. Look! The wages you failed to pay the workers who mowed your fields are crying out against you. The cries of the harvesters have reached the ears of the Lord Almighty."

This very scripture will be fulfilled in our lifetime.

Wed, 04/09/2014 - 04:17 | 4638493 ebear
ebear's picture

Anything in there about Uranium?

Wed, 04/09/2014 - 04:33 | 4638499 Seek_Truth
Seek_Truth's picture

@ebear - + 1 greenie from me.

Wed, 04/09/2014 - 07:11 | 4638602 fattail
fattail's picture

1Peter 2: 18. Slaves, obey your masters, not only those who are good and considerate, but also those who are harsh.  

Your over lords request you pay your taxes, buy cheap shit from China, root for the red team, or blue it doesn't matter, and shut the hell up.  But never lose your religion because you are so much easier to control in one big group of scared little children.

Wed, 04/09/2014 - 08:39 | 4638764 fiftybagger
fiftybagger's picture

Servants, be subject to your masters with all fear; not only to the good and gentle, but also to the froward.

1 Peter 2:18

King James Version (KJV)

 

You see my friend there are indeed consequences to using the vaticanus manuscripts over the textus receptus.  That's why the Vatican has tried to destroy the Bible for nearly 2 centuries.

http://www.youtube.com/watch?v=GijmNGyBJE0

 

Wed, 04/09/2014 - 08:29 | 4638739 Agstacker
Agstacker's picture
Proverbs 22:7

King James Version (KJV)

The rich ruleth over the poor, and the borrower is servant to the lender.

 

http://www.biblegateway.com/passage/?search=Proverbs%2022:7

Wed, 04/09/2014 - 23:15 | 4641987 Seek_Truth
Seek_Truth's picture

"'They will throw their silver into the streets, and their gold will be treated as a thing unclean. Their silver and gold will not be able to deliver them in the day of the LORD's wrath. It will not satisfy their hunger or fill their stomachs, for it has caused them to stumble into sin." - Ezekiel 7:19

Tue, 04/08/2014 - 22:53 | 4637991 undertowed
undertowed's picture

Be prepared. The scent of a dollar "crash and burn" is in the air.

Tue, 04/08/2014 - 22:57 | 4638009 NoDebt
NoDebt's picture

Tut, tut.  Japan first, thank you.

Tue, 04/08/2014 - 23:43 | 4638137 SgtShaftoe
SgtShaftoe's picture

Yup, you're right, but that wave is going to be 100' tall crashing over 3' sea walls.  It could take everybody out. 

 

"Just because nothing bad has happened over the last 10 min. doesn't mean a disaster isn't 5 seconds away" - ME

Wed, 04/09/2014 - 01:50 | 4638333 Tall Tom
Tall Tom's picture

Which Black Swan are you most likely to choose?

 

Japan Hyperinflation? Yeah. It could happen.

China Property Bubble Pop? Yeah. That may happen before the Japan Hyperinflation.

Euro Meltdown? (We survived that but almost lost it in 2011.)

The Meltdown on the Highly Leveraged Derivatives Market??? It is most likely that it will be a consequence rather than a causal factor.

The Federal Reserve Taper? It may be the match that lit the fuse.

 

Who knows what will cause the calamity. But the certainty is that they will lose containment of contagion as the entire system is Fragile.

 

There are not enough fingers for the holes in the dyke...er...dike...when the dike is made up of fingers.  (The typo was intentional.)

 

The best that you can do is become antifragile through diversity.

 

May the Good Lord be with you as the calamity approaches. It is not a matter of if, but, when.

Wed, 04/09/2014 - 04:35 | 4638500 Seek_Truth
Seek_Truth's picture

+100 for "May the Good Lord be with you as the calamity approaches. It is not a matter of if, but, when."

Tue, 04/08/2014 - 23:02 | 4637996 Pairadimes
Pairadimes's picture

The yuan may very well be the next reserve currency, but not for very long. The Chinese economy does not have the durability to support such a lengthy transition to domination. This is a good thing, since every nation with a central bank is busy destroying the equity in their currencies. The next reserve currency should be 'none of the above'.

Tue, 04/08/2014 - 22:55 | 4638000 Confundido
Confundido's picture

As much as I cannot see the USD continuing to be the reserve currency, I have to disagree with the view that the Yuan will take over. Reserve currencies belong to market, liberty friendly nations. Neither the USA nor China belong to this category. If the yuan becomes pegged to gold, then gold will be the reserve currency, but not the peg.

Tue, 04/08/2014 - 23:14 | 4638075 SgtShaftoe
SgtShaftoe's picture

I think this is the road that those in power have colluded to sell.  If it will work for any measurable length of time remains to be seen.  It certainly won't last long.  I think the IMF SDR (with world influence) is ultimately the direction of travel, but WTF do I know, that's just an educated opinion. 

Wed, 04/09/2014 - 09:28 | 4638893 Raging Debate
Raging Debate's picture

Confundido - The IMF is telling you reality. China already IS the reserve currency. And who says a fascist country can't be the peg? China is where America was at in 1932.

How about attempted gold confiscation by FDR? If you read history America acted fascist in the 1930's and funded fascist Nazi Germany with the goal of a EU, for a bigger potential trade partner. Sad it isn't love that makes the world go around it's money.

During these transitions a lot can go wrong and does. Adolph went full retard. China could act militarily as a distraction if they get large scale rebellions during there depression they have now entered. Russia could feel cornered and betray this alliance if they get squeezed between America, the EU and China and go full retard. You could have military coup here in the US if the bankers don't accelerate learning how to manage the ability of self-determination and I wager the middle class would support such, causing far more dangerous international meddling where we go full retard. It is wise to continue to hedge. If you can't afford residence outside a major metro have 90 days food and water and means to defend yourself, a bug out backpack to survive a couple months (don't forget the wilderness
survival guide!) may save your life.

As for Truth Seeker and scripture: If you have read the bible cover to cover
you may not be so fear focused. Lots of Christians quote Revelations and as an analyst I agree it is coming true, to the letter and to the point. But most ignore the ending which states that the tent of God will reside with man forever and He will wipe every tear from there eye and death will be no more.

Look to science now as well, particularly quantum physics. We're punching holes in 4D. It is now only a matter of this last nasty evolutionary cycle to play out and you'll see fulfillment of that promise in Revelations. I find it useful to balance those that had prophetic visions such as bible writers with understanding the why of things, not just God this or that. I have a relationship with God out of love, not fear. Evolution on this plane is a bitch but we're less than 50 years from not just punching holes in 4D but exploring it. If I had had visions or what not, I refer to that as statistical probability. With quantum physics, it is possible to predict say the weather at 99.7 percent. If I have understanding, it is to do something useful as a servant, note there is a difference between servant and slave.

There is much truth in what was written in "seek God and you will find him" That does not mean one must become a Christian either. Enough said, Tall Tom is right it is a financial blog. Last word, may God bless all of us, including our misguided insider, control freak leadership.

Tue, 04/08/2014 - 22:55 | 4638001 Dr. Engali
Dr. Engali's picture

It seems that events are accelerating in preparation for the collapse of our current system. Goldman's moves if late combined with the fact the morgue is getting out of the commodities business is very telling. You layer chatter like this in there and it's becoming obvious that the world is ready to ditch the dollar. It bares repeating, if you aren't fucking prepared you better get it in gear. Big changes are coming, and it's going to happen fast.

Tue, 04/08/2014 - 22:58 | 4638020 NoDebt
NoDebt's picture

Yes, but Japan is the canary in the coal mine.  They go first.

Tue, 04/08/2014 - 23:01 | 4638033 Dr. Engali
Dr. Engali's picture

It matters little who goes first. If Japan goes the carry trade will drag the U.S. right down with it.

Tue, 04/08/2014 - 23:39 | 4638127 NoDebt
NoDebt's picture

Not without a delay.

We may not have to wait too long to find out how this plays out after all.  Nikkei is bombing downward (bigtime, again) while the rest of Asia is green.  Japan is already toast.  They just haven't admitted it to themselves yet.  

Wed, 04/09/2014 - 01:54 | 4638338 Tall Tom
Tall Tom's picture

Delay times shorten with an exponential collapse. Do not count on that delay to be long lived.

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