China would certainly gains some advantages from having the CNY become the world’s reserve currency.

Steve Brown –
"Can China Dethrone US$ as Global Reserve?"
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– Flash Points –

1 – It will be hard for the yuan to displace the US$ as reserve currency.
2 – Any devaluation of the US$ or in US bonds would hurt China.
3 – The holder of the reserve currency has a great “privilege.”

– Synopsis –

For various reasons, it would be difficult for the CNY to replace the US dollar as the world’s reserve currency. But it would not be impossible. 

Don’t Dump Dollar Yet

China has several close ties to the US dollar. For one thing, the CNY is essentially pegged to the dollar. Also, China holds vast amounts of US treasuries.

Any drop in the value of either the dollar or the treasuries could be very bad news for China. Consequently, it would be neither easy nor judicious for China to dethrone the dollar as reserve currency and replace it with the CNY.   _{(Image source)}

Dethrone Dollar Now 

The one option China has is to reveal its supposedly massive holdings of gold, and then partially back the yuan with gold. The yuan would appreciate considerably, and that strength could help it displace the dollar as reserve currency.    

In the late 1990s, the partially gold-backed Swiss franc became so strong that it almost overcame the dollar – until it threatened the Swiss chocolate and cheese merchants. The Swiss powers that be quickly reined in their franc. But that too had the inevitable negative effects.

– Insight from Outside –

Given the growth and strength of the Chinese economy, it’s very likely that the yuan will eventually displace the US dollar as the world’s reserve currency.

As is well known, any global reserve currency can hold that status for only a limited time. The simple fact that a currency acts as the world’s reserve virtually ensures its downfall. The US dollar will soon meet that fate. 

Advantage China 

Holding the world’s reserve currency might have some drawbacks. But it certainly has its advantages. If the Chinese are having any concerns about their yuan dethroning the US dollar, all they have to do is consider the “exorbitant privilege”  it bestows on the holder.     _{(Image source)}

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