Well, here we go. It's January 18-th and the petro-yuan is here (although it might take a couple of days to do so). Comments?
My comment is that things change and we will see if the world prefers China over the USA in their international dealings. In my opinion it is a be careful what you wish for moment.
It is not about preferring on over the other. Right now if a country wants to do international transactions they must do through US banks because everything is denominated in US dollars. That is one of the cool things about being the country with the world reserve currency. Much of our ability to sanction relies on this power. The other thing is that so long as demand for the dollar remains high we can borrow large amounts of money at very low interest rates (which we have been doing). In reality this is too much power for one nation to have and to be honest we have been abusing this power. Regardless - the thing about the "petro-yuan" or the new method of payment the IMF is touting is that this represents an "alternative" as opposed to a replacement for the US dollar. It is not a one or the other scenario. Many nations will used both. The issue is that it represents the end of a single world reserve currency and an end to the absolute dominance of that currency. This is a big deal. Some have claimed that our policy in Libya and Iraq was on the basis of those countries promoting alternate methods of international payments - primarily to get around sanctions. Not sure if I believe this but, it is possible as attacking these countries did not make much sense.
Once/if China provides a viable option and if they gather enough political and military clout then the reserve currency will switch to the Yuan and the world will have to live with the power that China will have. As to the IMF "Basket" option I think that is dead on arrival a part of the concept of the reserve currency is trust in its stability. The IMF cannot provide that and I do not think a majority of countries in the world will accept the risk.
The name of the instrument the IMF is promoting is called Distributed Ledger (SDF) special drawing rights. This would use block chain if memory serves. Thing about this one is that individuals, and I don't think corps either, will not be able to use, just Gov'ts. I doubt that the yuan will be made the world reserve currency. The move away from the US dollar as the world reserve currency is more a move away from a world reserve currency in general rather than a move away from the US dollar. There simply will not be one (IMO). I see a serious alternative (or alternatives) to the US dollar appearing within 5 years. With Trumps spending spree the deficit will probably be around 25 Trillion at that point (assuming a market meltdown does not happen in which case it will be worse). Interest rates will already have begun to increase in anticipation of these alternatives. Once they are firmly established I would expect interest rates to move closer to the historical average which is around 6%. Currently average interest on our debt is roughly 2.25%. Our annual interest payments on the debt are 450 Billion. If this ave goes up to 4.5% .. the interest on 25 Trillion would be over 1.1 Trillion/year. Current revenue is 3.6 Trillion so this represents just over 30%. 30% interest as a ratio of income is when red lights go off at the IMF - The ship is taking on water faster than it can be bailed out and changes need to happen immediately or the ship will sink. This is the scenario that I worry about.
I can't help but believe our abandonment of Pacific trade organization, failure of negotiations with China, use of US banking to project US power, and imposition of tariffs support this move by China. Surely the dollar becomes less of a global currency as our leadership states that our policies will be strongly oriented to "America First".
Even if this attempt doesn't work for them it will give them experience with the global money market.
We use the force of our banking, the fact that significant commodities are denominated in dollars and related tools in decided favor of US policy and our own economy. I would expect China to do the same.
