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The Dollar’s status as the world’s reserve currency knew its difficulties. Towards the late 1960’s, the number of dollars worldwide far exceeded the amount of gold at the Fed’s vaults. This led the Fed to announce it will no longer be able to convert dollars to gold at the aforementioned ratio, or any other, effectively departing from the gold standard. Another act often considered to counter the depart from the gold standard was an agreement signed between the U.S. and Saudi Arabia in 1973, by which Saudi Arabia's oil sales would be denominated in U.S. dollars. Naturally, this incentivized oil purchasers to hold U.S. dollars, thus creating the "Petrodollar System".


The Dollar’s status was further brought into question in recent years, as the Fed’s dovish monetary policy resulted in a surge of dollar notes entering circulation, or rather the vaults of various foreign entities. Primary central banks responded to the Fed’s actions and sought to weaken their own currency, in order to preserve their local industries competitive exporting edge. Most notable among these were the ECB and Bank of Japan. 

In 2008, at the beginning of the financial crisis, the People’s Bank of China chose to peg its currency, the Renminbi, to the dollar at a fixed rate. The Renminbi strengthened from 6.83 CNY to the USD in June 2010, to around 6.21 nowadays. Additionally, China increased the amounts of gold at its vaults in recent years, paving to road to speculation that the Renminbi could someday replace the dollar as the world’s primary reserve currency. Many of the worlds' central banks either already shifted portion of their reserves from USD to CNY, or are planning to do so. Nigeria and South Korea are two examples.

Many of China's recent deals to purchase energy, including the giant natural gas deal signed last month with Russia, are rumored to be denominated in CNY and not in USD, effectively circumventing Petrodollar. However, it is hard to imagine the Renmibi taking the crown as the world's top reserve currency without China further opening its capital market. A global interest in Renmibi could lead to its appreciation, which would work against Chinese exporters. That means that gaining the status of a reserve currency, which was very lucrative in the past, seems nowadays more as a honey trap. 

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