China is Racing to Make the Renminbi Fully Convertible (just as it promised).
The Chinese Central Bank made that promise years ago, before anyone imagined that, when that blessed day arrived, it might be considered as attractive as the dollar. Yet that outcome becomes daily more likely as the dollar continues is precipitous loss of value – 75% in the past 10 years according to money trader Tullet Prebon – and the renminbi continues to strengthen.
Analysts have begun to speak of (the impossibility of) the renminbi challenging the dollar and envisioning a win-lose currency war.
But China has different agenda; one that's more of a win-win outcome and one, overall, that will do much to stabilize our rickety international financial system. It takes the pressure off any single currency to act as a global money, and relieves the inherent dependence this creates upon the issuer's internal politics.
For the past 10 years China's finance ministry have been advocating, implementing, and test-driving a settlement "currency" called Special Drawing Rights – a basket of the world's currencies weighted according to their trading settlements the previous day.
In such a basket we might expect to see the dollar, euro, and renminbi each providing 30% of the total and other currencies the remainder.
From China's point of view this accomplishes two goals: bumps the dollar off its perch without breaking it, and eases the renminbi into circulation without starting a currency war.
Now all they have to do is wait for the opportunity to move SDRs center stage...