If the rumours about China moving to denominate its trade in Renminbi are true, then rationally there should be a long-run fall in the value of the USD. That implies a long-term drift upwards in oil prices (along with everything else). What will the market do? Who knows?

Wishing don't make it so ... and neither does whining!

The only way for the Chinese to denominate its trade in its own currency is to trade its own currency. The Chinese have to get out there in the real world and get dirty. Just like the other countries have done, like USA Japan, Eurozone, GBP,Canada, Mexico, etc.

The Chinese want desperately to avoid this because their currency is basically worthless ... It only has two things going for it, (Three if you consider it not being a dollar as a virtue.)

Many currency analysts believe the Renmimbi/Yuan is overvalued. This is mainly because of the dollar- denominated trade imbalance between China and the US. What these analysts miss the imbalance is structural rather than founded in currency. The trade is actually a looping of the US supply chain overseas to China - we pay the Chinese doppelgangers (of the US workforce) a fraction of US wages and we pay in dollars. This wage difference - between what the Chinese slaves actually earn and what their USA counterparts would earn - is the imbalance, not the relative value of Yuan/dollar.

This wage imbalance is reflected as a virtue to the Yuan. To redress this imbalance it is not a currency adjustment that is needed but for workers in both countries to achieve real wage parity ... which would eliminate the need for China trade in the first place!

Since currency analysts refuse to discuss the disastrous effects of our government and business policies on our own workers, the analysts' emphasis is always on the more abstract 'trade imbalance'. In effect the US has shipped its workers' savings overseas to China. If US workers could have kept jobs and earnings over the past twenty- five years there would be accumulated US savings, instead the Chinese have them ... doing neither themselves nor American workers any good. The Americans can't use the savings to repair damaged balance sheets - or prevent them from being damaged in the first place. The Chinese are too greedy and stupid to spend (invest) the dollars in the only place they can be spent ... in America. The Chinese may as well not have the dollars at all, for what they do - or don't do - with them!

This is what torments the Chinese endlessly, the effective worthlessness of their massive cash hoard. They can only spend it in America and it has value only IN America. The Chinese can buy petroleum with dollars ... then the money and the petroleum is gone ... wasted.

Even OPEC doesn't want Yuan as a dominant currency; if the USA is forced to buy Yuan, Americans will simply drive (a lot) less and crude prices will plummet. If the blame for high gas prices can be shifted to China the risk is that Americans will simply boycott gas and also boycott Chinese goods ... an extremely costly gambit for China. The oil producers night gain more (hopefully) valueable yuan but would certainly gain a lot fewer of them. USA is oil's Number One Customer, not China, this could change literally overnight and the undertainty of such a change is a great risk to the producers. This uncertainty would outweigh any benefits that producers might gain from the shift from dollars. Accepting Yuan is one thing but subsituting one for the other is not likely and the circumstance of buying oil with yuan alongside dollars risks having the oil market putting a relative real value on the yuan ... intolerable to the Chinese.

Another considered virtue of the Yuan is really nothing more than the 'scarcity premium' the Yuan commands. Because the Yuan doesn't ever leave China except to go to trading powerhouses like Belarus and Argentina there are few Yuan in circulation compared to dollars. In order for the Chinese currency to trade internationally at a level of say ... the Japanese Yen, the government would have to print a lot more Yuan ... and the value the Yuan commands due to scarcity would evaporate. This would create a tremendous dilemma for China as id does not have much domestic demand ... printing a lot of Yuan to satisfy international demand (if it was to be a reserve currency) would push prices up in China - the country would soon experience severe inflation/stagflation. That domestic inflation would make the yuan worth less and the dollars worth a lot more - Chinese would seek to repay debts and buy goods with dollars and the dollar demand would increase its value.

Keep in mind, for the yuan to be a truly international currency it would have to trade freely for other currencies within China, something that is not allowed currently. Since the Chinese also do not have a well- developed finance sector - along with no real contracts, transparency, rule of law, property rights, etc. - credit and money supply creation would be heavily dependent upon the Beijing government rather than the private sector. The yuan would likely to be quite volatile/unstable as a consequence.

If China chose to export some of their domestic inflation to its (new) Yuan- trading partners such as Iran, Sudan or Venequela these would soon demand dollars instead of the rapidly devalueing Yuan. Because of the structural wage imbalance mentioned above, China couldn't be able to export any inflation to is number one trading parter.

I've mentioned this before in other comments but the 'instant inflation' outcome is never given consideration by currency analysts and holds true for any other fiat medium considered as a substitute reserve currency for the dollar. Replacing the dollar by the Euro or the Yen or an IMF marker would require printing a lot more of them. The inflationary effect of such an increase would automatically eliminiate what is desired of the substitute reserve currency. Since the dollar wouldn't simply disappear, the 'Niewe' currency would simply become a proxy for the dollar .. s substitute dollar, something you take when you can't get your hands on the real thing.

Another special claim the Chinese make is that the Yuan is backed ... with a large dollar reserves! I will leave to the Chinese to explain how the derivative Yuan can have more value that what it is derived from.

The Chinese are helpless to control their own destiny. The smart move for them is to sell their Treasuries back to the US for printed dollars and use that cash to buy other currency reserves. This means the Chinese would have to buy dollars in the markets, but the market would then determine the real value of the yuan - rather than the bleating of the Chinese ruling caste.

The Chinese are buying gold but this is not as a currency basis. It is likely that the gold would disappear as soon as convertability was announced so the Chinese may as well not buy the gold. The Chinese don't seem to have figured out Steve's first law of economics: the cost of managing a surplus increases more rapidly than the increase in size of the surplus itself. The cost of managing eventually exceeds the value of the stuff. Theoretically, a large enough surples of anything would be worthless while its management cost would be infinite!

Next, let's take a Look at China's upstanding business partners outside of the USA: Belarus (tyrant), Iran (Jew- hating madmen), Sudan (genocide), Venezuela (madman), Russia (tyrant)... good grief! The reserve status of the dollar was earned with blood ... America defeated Hitler and Tojo and liberated the world at great sacrifice. What have the Chinese earned with blood? They cannot peacefully manage a bunch of pacifist monks in Tibet! Who is taking any steps to redress the financial crisis? The heavy lifting is being done by the US at great risk to the future economic health of the country. The US is trying even if wrongheaded, the Chinese are bystanders, whining becaue they cannot get their own way. If the Chinese wish to have a leadership role in the world they must earn it by leading. Currently, China does not lead anything, except rhey are the 'world's leader' in worthless, cheap junk, poisoned food and climate- destroying pollution.

For all of his faults there is no Chinese equivalent to Obama. It is the fact, the reality of Obama's Presidency, not the man himself that gives stature to the US that the Chinese cannot hope to achieve by any means. Stature cannot be conferred by the whining of Chinese politicians and bankers to the IMF or in the Wall Street Journal.

Chinese prosperity today is a direct outgrowth of US business' and government decisions to transfer wealth from American working people to China. That country is now left to its own devices, the wealth transfer is over. What does China have going for it now that the US gravy train has stopped running? A massive and growing population (overshoot), a desertifying agricultural base, Fouled water and air, millions of highly inefficient factories/businesses/automobiles, a huge - if eompletely inept - miiitary, a bloated commercial/industrial infrastructure that does not produce what the locals need - how many salad shootes and battery drills do Chinese consumers buy? - and wages too low and unemployment too high to afford these goods even if they were to be somehow desireable!

The question is what is the future of the country rather than the future of the currency? I wouldn't hold my breath on Yuan as any kind of trading or reserve currency.