The Yuan comes to North America?

Most of you know that the US dollar exists currently as the worlds exclusive reserve currency. For context, the USD became the world’s reserve currency after the Bretton Woods conference, primarily because the USD was backed by gold. It also helped that America was the strongest and fastest growing economy post WWII… Sadly, neither of those still hold true today.

Those 5+ decades greatly benefited the US economy, but the dollar is now backed by nothing but the brilliance of our central planners (we are on what many call the PhD standard now), and we are certainly no longer the fastest growing economy in the world. This has created serious challenges for a global economy that must find ways to manage accumulations of surplus dollars, especially in light of the monetary policies that have followed the financial crisis of 2007.

Today the world is growing tired of being captive to the USD as the reserve currency. They are sick dealing with the collateral damage caused by US monetary policy.

Seizing the opportunity to take advantage of this scenario, China has made no secret of its ambition to make its currency the Yuan globally traded and convertible.  The current news that both Canada and Germany are seeking to become currency hubs for the yuan is a significant development towards realizing China’s vision.

And here is where you should pay attention to the answer to the question asked above: As the yuan gains a foothold in Canada it will be important to watch the impact of a currency alternative to the USD on other NAFTA members… like Mexico in particular.  As we shared recently at the Arizona Mexico plenary, and in this blog, the  relationship between the US and Mexico must now include the presence of China because the days of the dollar as the sole global  reserve currency may be numbered.

China has been pursuing a globally traded yuan for some time now and a major yuan trading hub in North America would be a significant development. Stay tuned here as we follow the developments of this story and look thoughtfully at the unintended consequences that impact you, the investor.

Does this scenario concern you?

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