SDRs in their eyes

China-dollar: China is still hooked on the dollar — but that doesn’t stop it delivering the occasional diss to Uncle Sam. Its latest is a move to buy $50 billion of bonds issued by the International Monetary Fund, denominated in the IMF’s own currency, the Special Drawing Right. Consider it another baby-step away from the greenback.

True, the amount at stake is a tiddler. It doesn’t address China’s main problem of what to do with its $1.7 trillion pile of dollar assets, since the bonds are paid for in renminbi. Nor will it directly increase China’s influence in the IMF, which still underweighs the country’s economic size, while overstating other members such as the EU and Saudi Arabia.

What the IMF deal may do, though, is further insinuate the renminbi into a world economy ruled by the dollar. Central banks which borrow from the IMF's pool of cash could now wind up getting Chinese currency. They might swap it straight back for US dollars, which would help China trim its dollar pile by a micro-millimetre or so. Or they might use them to buy Chinese exports directly.

That fits with Chinese plans to test-drive the renminbi as a vehicle for trade. Tentative export-import deals have already been inked with Brazil and Malaysia, and currency swaps with other emerging economies. Hong Kong banks are settling export trades in the “redback”, while HSBC and Bank of China have issued renminbi bonds.

This is child’s play for now. But the slow-burn campaign to unseat Uncle Sam is gathering pace. In March, a Chinese banker’s idea of using the SDR the global lingua franca was seen as wacko. Now the idea of a non-dollar reserve has entered the global debate. China still sits on too many spare dollars, but now it wonders aloud how not to.

There’s little chance of the dollar losing its supremacy for years. For one, China would need to unwind its giant trade surplus with the US – the very thing that enshrines the greenback as global currency of choice. But one day, the dollar’s crisis moment will come, helped by the subtle digs of its chief detractor.