You may not have heard of this yuan yet – but the renminbi officially has a new, unofficial nickname – the “redback.” That’s right, it looks and sounds the way you think it’s trying to look and sound. Not only is the renminbi note red, but it’s got a picture of Mao on the front. Okay? – let’s get that part out of the way. (See: the difference between “yuan” and “renminbi”)
Recent reports indicate that China’s currency is on track to become one of the world’s top three trading currencies in just 3-5 years. That’s not so hard to believe, now that China is already the world’s largest auto maker, the world’s largest producer of rare metals, the second largest holder of US debt (the largest is now actually the Fed itself) and potentially a vastly larger economic market than the U.S. ever was.
How Your Strategy Should Change if The Redback Becomes a Reserve Currency
Rise of the Chinese Redback
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With China’s economic ascendancy, and the U.S.’ self-imposed currency devaluation (in tandem with a host of self-inflicted economic wounds left to fester over a decade or more), you might start hearing the “redback” moniker more often. Especially if the renminbi becomes one of the top three currencies worldwide.
See: Reasons Why a Higher Yuan is Bad for the USD
Could the redback replace the greenback? Depends on how you mean “replace.” If the question concerns the world reserve currency, then yes, to some degree the redback will replace the dollar. Major powers like Russia and Brazil will hold less greenbacks and start storing some of their reserves in redbacks, especially as they do more trade with China.
At any rate, you can stop picking on the Canadian “loonie” now. All three of these names – greenback, redback, loonie – pertain to various sorts of living things like spiders and birds (I do hope you knew that the “loonie” refers to the Loon, a specific type of duck).
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The renminbi would already be an important currency, if the Chinese government didn’t have it so locked down with capital controls. You can scarcely buy or sell bonds in renminbi, or even the currency itself.
@Philip – I don’t think that will remain the case forever, though. There’s already so much hot money on its way to China merely after the announcement of QE2 (to say nothing of the general inflow they’ve seen over past 5 years); they’re trying to keep the doors shut (or opening just gradually) so they aren’t hit with a tsunami. When you think about all the surplus capital looking for profits, it’s understandable. They’re just trying to merge into the global economy on their own terms, which just shows the kind of implicit power they already have.
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