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How Well is China Doing at Promoting Yuan Usage in Global Trade?

I keep hearing the Renminbi (Yuan) will replace the US dollar in global trade. Let's compare global trade usage in 2014 and 2015 to 2019 and 2021.
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RMB as World Payments Currency in Value 2014

RMB World Payments Currency 2019 and 2021

RMB as World Payments Currency in Value 2021-04

RMB Global Trade Usage Summary

  • January 2014: 1.39% 
  • January 2015: 1.81% 
  • April 2019: 1.88%
  • April 2021: 1.95%

The above charts and stats are from Swift's RMB Tracker

Surprised? 

If you have been reading and believing reports for the last 10 years how the dollar was going to hell and the yuan would soon replace the dollar as the world's reserve currency, you may be surprised.

Reports stress yuan usage is up an amazing 40% since January 2014. 

The above charts show the real picture. Up 40% from where?

 US Dollar’s Status as Dominant “Global Reserve Currency” Drops to 25-Year Low

US Dollar's Declining Hegemony

WolfStreet pretty much has the picture correct in its March 21 report US Dollar’s Status as Dominant “Global Reserve Currency” Drops to 25-Year Low

US dollar global transaction usage and foreign reserve usage has been in a slow decline for a long time. 

Trump's tariffs likely goosed the decline.

Nervousness Over Dollars?

But it seems, central banks have been getting just a tad nervous and want to diversify their holdings – but ever so slowly, and not all of a sudden, given the magnitude of this thing, which, if mishandled, could blow over everyone’s house of cards.

I do not believe this has anything to do with central banks getting nervous. Rather, it is simply a function of increasing trade in Euros and other currencies.

USD Share of Global Official Reserves 

USD Share of Global Official Reserves WOLF

Wolf accurately notes 

The euro, which combined the currencies of the member states into one currency, thereby combining their weight as reserve currency. Since then, the dollar’s share has dropped by 11 percentage points.

In 2016 the IMF added the RMB to its basket of currencies in it Special Drawing Rights (SDRs) bucket. That and China's growing influence was supposed to be the end of the dollar.

 What Are SDRs?

SDR stands for "Special Drawing Rights" which is the way the IMF lends money.

SDRs are not even a currency. They cannot be used in transactions and there is not  a market for them or a way to trade them. Rather, SDRs are valued as a basket of currencies that can potentially be converted to any major currency.

SDRs are IMF loans that total 0% of transactions. But that does not stop nonsensical hyperinflation articles. 

 SDR Flashback 

SDRs as a Fraction of Total Credit Market

I created that chart in 2017 to accompany this post: Rude Awakening for the US in January? No, Just More Alarmist BS From Rickards

Dear President Trump,

Over the last couple of years I’ve been all over TV… from Fox News to CNBC, CNN and Bloomberg. I’ve been telling our fellow Americans that the financial global elite was planning to issue their own globalist currency called special drawing rights, or SDRs.

And that those elites would use this new currency to replace the U.S. dollar as the global reserve currency.

Make no mistake, if the IMF is planning to use Distributed Ledgers to replace the U.S. dollar with SDRs. And just to be clear, when SDRs take over, the American people will be left with devalued dollars.

The transition from a U.S. dollar system to a new system dominated by SDRs will be messy. Stocks will collapse… and will stay down. There will be no recovery this time, because the U.S. government won’t be able to come to the rescue like they did in 2008. ...

Jim Rickards

I commented "Even if the IMF does something in January of 2018 with distributed ledgers, it will be as meaningless as the IMF’s original implementation of SDRs 48 years ago."

The Total Amount of SDR’s at that time was a miniscule $204 billion (somehow I came up with $285 billion then) and is still at that level today.

What a hoot. Here's another.

RECOMMENDED ARTICLES

Trusted US Government Currency Advisor

Do this right now is of course "buy our special report" today. I have a whole slew of such predictions by Rickards and others. 

Rickards is Full of Laughs

Please recall my September 2017 article: Rickards: “Next Financial Crisis 6-8 Months Away” Got Popcorn? Gold?

"Got popcorn?" was my sarcastic comment.

His urgent "please buy my book" financial crisis idea was based on nuclear war with North Korea within 8 months.

Death of the Dollar Theories Circulate Endlessly

Yet Another Death of the Dollar Story

On May 7, 2020, regarding a South China Market post, I commented Death of the Dollar Theories Circulate Endlessly

Every 2-3 years we hear the same foolish talk about a major Chinese sell-off USD reserves and how it will be the death of the dollar. It's that time again.

Petroyuan's Crash at Birth

Petroyuan Dollar Crash Thesis

Anyone recall how the petroyuan was supposed to crash the dollar?

To refresh your memory, please see Petroyuan's Crash at Birth April 21, 2018.

Meanwhile, in the real world, let's discuss what it takes to to be the world's global reserve currency.

Reserve Currency Status Requirements

  1. Floating Currency - China Fails
  2. No Capital Controls - China Fails
  3. Large Liquid Bond Market - China Fails
  4. Property Rights - China Fails
  5. Willingness to Run Trade Deficits Sacrificing an Export-Based Economy - China Fails
  6. Global Trust - China Fails

China fails in six out of six requirements.

Perhaps some day China will meet all of those requirements but until then, do yourself a favor and go back to sleep.

For those keeping score, SDRs fail 1, 2, 3, 4, 5, and 6 as well.

Heck, SDRs are not even a currency. 

What About Digital Currencies? 

Central bank digital currencies are coming. China appears to be the leader.

Perhaps of China becomes the first adopter in a meaningful way and RMB usages jumps a percent or two. If so, expect more nonsensical death of the dollar calls. 

However, the main impact of central bank digital currencies is the world will be able to tell the US where to go regarding sanctions.

Right now these currency trades all go through US banking system and Swift. 

Europe had been looking at ways to avoid US sanctions on Iran and Russia. Once transactions no longer have to route through US banks, guess what?

The US cannot unilaterally enforce sanctions. 

That could have a far bigger impact on dollar-denominated transactions and oil prices than anything China does. 

Meanwhile, US dominance is shrinking, but China cannot and will not be the major beneficiary until the RMB floats and China has a large, trustworthy bond market

China Announces It Will Fix the Price of the Yuan at a Basically Stable Level

On May 24, I commented China Announces It Will Fix the Price of the Yuan at a Basically Stable Level

The pledge to peg the yuan to "basically stable" and "reasonable and balanced levels" is anything but a supply and demand market-driven floating rate. 

What a joke announcement. China tried to fool everyone with meaningless words.

China is not close to success at promoting the yuan as a reserve currency.

Given requirement 5 above "Willingness to Run Trade Deficits Sacrificing an Export-Based Economy" it's highly questionable whether China wants what people presume it's after.

Mish