The way China manages it's currency is very different to how the US manages theirs.
China maintains strict controls on capital flows in/out. A reserve currency requires free convertibility. Holders need to move large sums instantly without permission. China has repeatedly tightened these controls during stress periods (2015-16 devaluation fears, for example).
Limited access to Chinese bond markets and equities for foreign institutions. Reserve currency status requires deep, liquid markets where central banks can park hundreds of billions. US Treasury market is $26T and extremely liquid. Chinese government bond market is smaller and less accessible.
Reserve currency issuer must run persistent current account deficits to supply the world with currency. China's economic model is built on export surpluses. They'd need to fundamentally restructure their economy.
>Reserve currency issuer must run
This is PRC's fundamental disagreement. US reserve currency morphed into high liquid, high speculative instrument to fund unsustainable debt, hollowed out domestic industry (triffin)... but this is not by design. It's the result of emergency adaptations moving off gold, then people post rationalize the trinity musts (open capital, floating rates, independent central bank) is what makes reserve when it's unintended structural outcome from failed gold peg.
Now we see hints of end stage USD reserve behavior, debt snow balls and reserve controller will pull the our dollar, your problem card. This US doing current conniptions trying to either reduce USD strength or inflate away debt... costly instability. People forget, liquidity / storage only matters to sovereign buyers who needs reserve for utility... everyone else (now plurality) are private buyers who buy for returns. If we enter end of dollar cycle and USD reserve cost them money, then they go elsewhere
Elsewhere is what PRC wants to offer, HIGHLY CONTROLLED, BUT STABLE reserve pegged to PRC industrial chains, i.e. real economy instead of speculative financialization. This what recent yuan reserve talk is from (note it was old Xi speech republished in Qiushi), so the propose model isn't even in response to current USD conniptions but prediction on end life of US behavior when USD reserve goes from exorbitant privilege to just exorbitant.
It's precisely because logical outcome of current reserve "musts", i.e. triffin charity/global good that makes it ultimately a stupid arrangement where the system breaks when US/owner can't afford to maintain or develops bad habits (deficit spending). Hence, what PRC plans to offer in parallel: stable regulated reserves for "real economy" financial utility. Stable Yuan "bank" reserve can coexist with volatile USD "casino" reserve. Now of course this all heterodox theory, but we are seeing theory of USD reserve limits peaking it's head, and PRC not retarded enough to pickup triffin baton. IMO PRC fine with US dealing with triffin headache and IMO betting US will fuck global creditors when shit hits fan, i.e. they waiting for USD reserve to implode due to inherent contradictions, to show world precisely why yuan reserve not modelled to repeat same mistake.
No one sane is going to trust the CCP to manage a reserve currency. The euro would be a much better choice.
1. No one sane trusts EU after RU sanctions either.
2. Euro share of SWIFT shrunk from ~40% to ~20% post URK war. Part of this technical (t2 reforms), i.e. actual reduction not as dramatic, but Euro as toxic as USD with even less leverage.
Meanwhile PRC went from single digit % cross border settlements 10 years ago to 50%+, plenty of the world trust PRC with their money, not just money but PRC alternative to SWIFT financial plumbing, CIPS. Meanwhile PRC also recycling it's surplus USD to lending... i.e. they're financing more than imf/worldbank/paris club right now. Another indicator that countries "trusts" PRC to manage monetary system, or rather they balancing from losing trust of west.
TBH trust is western mindless muh reserve orthodoxy nonesense. Ultimately PRC has much stronger reserve posture for the same reason US did... for 80+ years countries needed USD for US techstack and then petrodollar, aka modernity was locked behind USD, all the other muh reserve "needs" is downstream of that. Need > trust.
Ironically where trust actually comes in is whether PRC TRUSTS others. Qiushi suggests PRC stable reserve functions something like panda bond lending, where PRC lends liquidity to trusted VIP (real economy) players. Everyone else can keep gambling with USD reserve with high likelihood of debasement. It looks like PRC doesn't want be THE reserve, they want to be VIP reserve while THE (USD) reserve burns.
> 1. No one sane trusts EU after RU sanctions either.
The RU sanctions were implemented 'only' because RU invaded another country. If you don't plan on invading countries is there much to worry about?
To a certain extent if you 'just' want to participate in the world economy the EUR seems fine. If you're looking to start geopolitical drama with military actions, is there any currency of a major economy that would not be a risk? Major powers tend to want stability, which would allow them to stay major, so would frown upon anyone stirring the pot (besides, perhaps, another major power: see China with Russia against UA/EU).
Europe wasn't breaking sovereign immunity / sovereign bank seizures when historically fighting each other, current actions historically unprecedented. So the answer is war is not sufficient excuse for RoW. EU extra delulu because RU/UKR not even over direct EU/NATO territory i.e. EU breaking sovereign immunity over "peripheral" interests. Like EU seize/sanction US when? Point of sovereign immunity is provide some semblance of neutrality for rest of world to do their thing while drunks fight, neutrals still want to buy from the drunks, EU has made things both hard not neutral.
Settlement and reserve currencies are two very different things. The USD isn't great as a reserve currency but it is still better than all the other options.
Settlement is leading indicator / proxy of trust. The point is countries trust in PRC running financial pipes is increasing, because vs US/EU, PRC simply look more responsible.
USD treasury isn't great now AND trending towards bag holding catastrophic "our dollar your problem" depending on debasement velocity. Hence central banks ditching dollar for gold etc... it's still currently better than other options in the sense that no other options really exist except metals with no counter party risk. More this happens the more exorbitant and less privilege USD becomes, the worse it serves as reserve, the more opening for alternatives. This where PRC eventually comes in, i.e. recent reserve talk is for eventuality not hand off. In the meantime they are banking on USD being not great, and getting worse. Which increases rates -> increase debt finance / servicing cost. The system is getting worse for everyone, including US. Don't underestimate watching US debt servicing growing from 1T to 2T in a few years when US realizes exorbitant reserve currency without privilege is not worth maintaining. Waiting for US to recognize USD reserve isn't great for US is part of the transition.