Since the global recession, which originated in the United States and nearly collapsed many reigning economies including the US and China, the latter has become the highest investor in the US treasury bonds. China now owns around trillion dollars of US Debt through its investment in US treasury bonds. This has provided China an unmatchable leverage against the US in the global economic playground. Until now, Chinese Yuan was only convertible directly into USD or Yen in international trades. But, China has already entered into currency convertibility agreements with Australia and New Zealand to convert Yuan directly into their respective national currencies. This will cut the US Dollar completely out of the process for converting Yuan into native currencies. Also, Yuan has appreciated against the US Dollar by more than 5% in the past nine months. With an ambitious goal of 2400 tons of Gold imports per year, China is soon poised to become the largest Gold reserves holder in the world, overtaking the United States. 

Once China starts backing its Yuan as a “hard, gold backed currency”, it will provide Yuan quite an unbeatable edge over an increasingly fluctuating and declining US Dollar. Dr. Pippa Malmgren, the President and founder of Principalis Asset Management, who once served as an economic advisor under the President Bush’s administration asserts that “The most interesting piece of the puzzle is that the Chinese have emerged as the biggest buyers of gold, mainly off-market. They want the yuan to emerge as a hard, gold-backed currency in a world where everyone else has chosen to inflate and devalue. The recent bilateral currency deals with Australia, France, Russia and Singapore, and many others, reflect this desire to displace the USD as the world’s reserve currency.”

Though there is a sliver of hope in the recent improvements in the US NFP and unemployment data, they are mere mists of smoke as a sustainable economic recovery is yet to take form in the western world.  With the growing unease in the European economies and US markets, a new order in the Global economy is in the offing. Only time will tell, whether the Chinese dragon will assume the leadership of this new global order!