Of the four BRIC currencies, perhaps China's Yuan is a logical replacement for the dollar at some point, since China has been lending the US money. China is better placed than the U.S. to provide a reserve currency for the 21st century because it has a large current account surplus, focused government, and few of the economic worries the U.S. faces. While such a major change is some way off, the Chinese government is laying the ground for the Yuan's positioning. China will soon want to see the Yuan included in the International Monetary Fund's special drawing rights basket, as well as seeing the Yuan used as a means of payment in bilateral trade.
China's currency is a long way from overtaking the dollar as the world currency, and even if that occurred, there likely would be some intermediate steps. At the present time, China manages its currency too closely to be a world currency. The good thing about China's currency right now is that its management techniques keep the currency undervalued and its purchasing power much higher than other countries that are more freely traded. With China's Yuan pegged to the dollar, an emerging conflicted country's currency is unlikely to replace America's monetary unit anytime soon.
In conclusion, a possible BRICs takeover of the world reserve is unlikely to happen soon, if at all, with China's Yuan as the most likely single currency to eventually become the next world reserve. At the end of the day, whether or not people agree with U.S. economic policy, the dollar is still currently the best selection for the world reserve on a relative basis.
Paul Keough, PhD, MBA is the President at Turnkeough Corporation (www.turnkeough.com). You can reach him at paul.keough@turnkeough.com.
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