This led some pundits to speculate that this step was a sign that the renminbi would inevitably replace the US dollar as the world's "reserve currency."

Having reserve currency status is a big deal. Because the terms of the 70-year-old Bretton Woods Agreement basically made the US dollar the world's reserve currency, the US essentially sets global monetary policy. Foreign banks, businesses, and governments have no real choice but to hold trillions of dollars to facilitate trading and settle debts.

In other words, reserve currency status creates a huge demand for dollars worldwide. And that's a huge advantage for the US because it allows its government to build up enormous budget deficits, year after year, without eroding the value of the dollar or raising interest rates.

Without reserve currency status, the US would follow the path of every other country whose spending far outweighs revenues. Think of Argentina in the 1990s or Venezuela today. That's what the US would look like if the dollar lost reserve currency status.