Each step forward by the Chinese to make a foothold for the yuan is one step backwards for the grip the dollar has held over the globe. This topic has several nuances to it, let’s take a look from several vantage points. As a spoiler, any “steps back” in today’s fiat currency world are steps toward a break in confidence. Call it deflation or hyperinflation, a break in the confidence of fiat currency will end with many currencies being replaced, this is a major part of your coming “re-set”.
The first and most obvious is we live in a world with an economic and financial pie of a given size at any point in time. Each deal, each transaction and each “platform” that is done or created by the Chinese for using yuan instead of dollars means the size of the pie “slices” change. Any increase in the usage of yuan means a smaller slice for the use of dollars. Yes, theoretically the pie gets larger over time and we’ll get to this shortly, I am simply saying here that in a static system, more yuan usage means less dollar usage.
The next logical step is to equate the usage of a country’s currency with “power”. As any currency becomes more popular for usage, the confidence in that country also increases and vice versa. In today’s world (but not for long?), fiat currencies with no backing are free to create. In the case of the dollar since 1971, more usage (via petro-dollar reinvestment) allowed for more “creation” of dollars and thus the power generated from the “privilege” to print. This so far is simple logic and merely a description of how our monetary world works.
China has done many things over the last several years with an eye to moving their currency, the yuan forward. They have purchased massive amounts of gold to be held as reserves, we will very soon find out how much they have accumulated as they announce for their entrance into the SDR. China has also set up two dozen “currency hubs” all over the world in major cities. They have done this to aid in the conversion of local currencies into and out of yuan. Clearly this move will aid and grease the gears for trade done with China. It will also aid in currency movements looking to “buy” yuan if deals are contracted to settle in yuan. In essence, China is simply “making it easy” to purchase and use their currency. They have also set up credit facilities such as the AIIB and new exchanges for gold, the SGEI. China is actively seeking “new customers” and trade partners along the “Old Silk Road” as they can see the writing on the wall …as well they should since they are the ones doing the writing!