Is China Making a Bid to Replace the Dollar with the Yuan?

China targets emerging markets to increase the presence of the Chinese yuan

Recently, China suggested that a global reserve currency be adopted — one based on special drawing rights on the International Monetary Fund. However, Chinese officials must have realized at the outset that such a suggestion would probably not be seriously considered. Instead, China has been arranging swaps with emerging markets and trying to increase the number of countries using the Chinese yuan.

Right now, the main swap is focused on Argentina. China arranged a swap of Argentine pesos for Chinese yuan. The swap provides backing for the peso — and establishes the yuan as a reserve currency of sorts. The Forex Blog reports on the likely motives behind the currency swap:

In actuality, the swap was probably proposed by China in order to demonstrate its sincerity in seeing the Dollar replaced as reserve currency. Especially among developing countries and/or Asian countries, many of which represent major trading partners, China is keen to increase the supply of Yuan.

If China can get more emerging markets and others to increase their own supplies of yuan, a global reserve currency via the IMF to replace the dollar won’t be necessary. It could be that China’s true aim is to get people thinking that maybe the dollar shouldn’t be the world’s reserve currency, opening them up to the idea of a new currency backed by China.