What Happens If The Yuan Replaces The Dollar As The Main Reserve Currency

09-09-2009 • NuWire Investment

The chance that the dollar will be replaced by the Chinese yuan seems to be growing, as is China's determination to make it happen. The list of potential implications is very long, and includes several scenarios that are almost apocalyptic. Let’s consider the Top Five: Global Gloom Leads to U.S. Doom: The U.S. dollar goes into freefall for the simple reason that if no country has to hold dollars any longer, they won’t. Instead – thanks to the ragged state of the U.S. government’s finances – many countries will dump greenbacks fast as they can, which will only put additional pressure on an already-strained U.S. financial system, which in turn will further damage our economy. Inflation Inflates: Inflation will strike here with a vengeance, as anything bought, sold or priced in dollars will instantly rise in price to offset this fall. Repatriation Risk: With the dollar serving as the world’s de facto currency, U.S. companies bear very little exchange rate risk when the time com