I read that many countries are bypassing the USD to change to other currency pairs and China is aggressively promoting the use of their currency .
The whole "bypassing the USD" thing is a
furphy. China buying its oil in rubles or renminbi, or Iran buying its oil in euros, makes absolutely no difference to the value of the dollar or the demand for dollars or anything.
Here's why. Imagine a world where China is buying oil from Russia. Normally what they'd do is: a Chinese company buys US dollars; hands them to the Russian oil company in return for oil; and the Russian company sells those US dollars for rubles (or more likely doesn't, because rubles are about as popular as herpes right now).
Now if China decides to pay in rubles, all that happens is the intermediary "buy dollars" step disappears - but so does the "sell dollars" step! The net demand for dollars doesn't change. The price of a dollar doesn't change. Valuing a barrel of oil in rubles, or renminbi, or stones or shells or whatever, doesn't change the value of the dollar because in this case, the dollar is just a unit of account.
What's the implication if US loses its reserve currency status?
This is a great question, and a controversial one; there isn't a good answer. Valery Giscard d'Estaing coined the phrase "exorbitant privilege" to describe the US's reserve currency status, but that was back in the 1960s, when there really was an advantage to having reserve currency status.
These days, there are
very serious economists arguing that the US reserve-currency status is an exorbitant burden, and that the US should be encouraging people to use other currencies for their reserves.
Michael Pettis writes:
"When foreigner central banks intervene in their currencies -- and otherwise repress their domestic financial systems -- they automatically increase their savings rate by forcing down household consumption. As their savings rise, the excess must
be exported, often in the form of central bank purchases of U.S. government bonds. [...]
"But being able to take on debt is not a privilege. When foreigners actively buy dollar assets they force down the value of their currency against the dollar. U.S. manufacturers are thus penalized by the overvalued dollar and so must reduce production and fire American workers. The only way to prevent unemployment from rising then is for the United States to increase domestic demand -- and with it domestic employment -- by running up public or private debt. But, of course, an increase in debt is the same as a reduction in savings. If a rise in foreign savings is passed on to the United States by foreign accumulation of dollar assets, in other words, U.S. savings must decline. There is no other possibility.
"So where is the privilege in all this? Ask any economist to describe the greatest weaknesses in the U.S. economy, and almost certainly the list will include the gaping trade deficit, the low level of savings, and high levels of private and public debt. But it is foreign accumulation of U.S. dollar assets that, at best, permits these three conditions (which, by the way, really are manifestations of the same condition) and, at worst, causes them to deteriorate."
What that wall of text means is:
basic economics says being a reserve currency has more disadvantages than advantages. Reserve currency status hurts your manufacturing sector, hurts employment, and causes a trade deficit. I'm not sure if I'd go so far as to say the French finance minister was
wrong - and to be fair, economic thought has changed a lot since the 1960s - but there's certainly a lot more nuance to it than just
"reserve currency is always good and the US should be proud of it, so, shut up".
The IMF's SDR is the supranational currency that is being used to replace the USD as reserve currency. SDR here being a composition of various currencies with gold taking up a certain percentage of it and the BRICS currencies (Yuan, Ruble, Rupee, Real) forming part of it as well.
Are you high?
The SDR is a basket of USD, JPY, EUR and GBP. There's no gold in it, and no BRICS currencies.
China was making lots of noise about "oh why isn't the yuan included in the SDR basket", but that's not going to happen until the yuan is fully convertible. No-one would want to have a reserve currency that you can't sell when you need to.
The IMF SDR is it being used? As in i dont see it in currency pairs like USD/SGD, USD/JPY..i read that now many countries are able to do trade without having to change to USD first before changing to another countrie's currency.
Majestic kind of has the wrong idea about what an SDR is. An SDR is basically an accountancy thing - the IMF and the World Bank and a bunch of other supranationals use the SDR as their currency unit when they're doing their accounting.
Countries can also hold some of their FX reserves in SDRs - each country was given a slug of SDRs by the IMF back in 1969, and another slug in the depths of the crisis in 2009, the idea being that countries with weak foreign reserves could sell their SDRs to countries with strong foreign reserves to bolster the weak countries' currencies. So in that sense they're kind of a thing.
This IMF factsheet is a really good explainer of "what an SDR is".
In currency terms, an "SDR" is a basket of four currencies - one SDR is worth about 60 US cents, plus 40 euro cents, plus 10 pence sterling, plus 12 yen.
But nobody other than central banks and supranational organisations uses SDRs. Nobody else can trade them. And if you were trying to conduct trade in SDRs, it's sort of inconvenient to have to handle piles of four different currencies to settle the trade. So SDRs are really not a thing.
One thing I forgot to add: the answer to "is it being used" is "apparently no". The biggest holders of SDRs are developed nations, who already have chunky FX reserves, so they don't really need the SDRs. As a reserve currency it's pretty much a dud.
Actually i dont really know what i am looking out for honestly, im just trying to sniff out the mega trends and any other insights?
Yep, no worries, this is an admirable goal. You just need to make sure you're not led astray by bad info on the way to those insights.