The dominant reserve currency changes over time and surprise surprise usually is the currency of the dominant global power. We are in an interesting time not just for American secular transitions but for international games. I believe China sees the opportunity that may unfold, and that they want to become a reserve currency, but they may not want to be the reserve currency (yet). Russia and the G20 nations have been itching for international currency change. A little blurb was out pointing out what seems to be obvious to many gold investors but is coming from an insider, the Chinese want to back the yuan with gold and make it a hard currency. This makes sense if they want to become a reserve currency or the first among equals in a future international basket of currencies (specs have treated the yuan as a 1 way ticket of currency appreciation). As a thought experiment, what if the gold backing is because China has a weak currency and they need the gold protection?
The Chinese have for decades now performed a process of money printing where they recycle export earnings into USTs to keep the yuan artificially low in a peg to the dollar. This was duplicated by other Asian nations after the '97 financial crisis, much to the delight of Western manufacturing which engaged in global wage arbitrage and could rely on labor staying steadily cheap for years. They rack up reserves and people perceive it as strength. Having the now 2nd largest economy in the world, do they really need those reserves? Shouldn't they be able to back off? They can't. Their economy is a big black box with wild estimates and tons of bad loans that no one truly understands. They also are now prey to the cheap labor pull in Vietnam and other locations. China's UST recycling was through money printing so they imported significant inflation from the US. China's citizens are much more susceptible to basic commodity inflation because China imports food as well as spends more on food as a percentage of their income compared to Americans. One would think a nation concerned with taming the inflation tiger and keeping food costs down would allow their currency to appreciate faster, but China doesn't.
The Chinese have the weaker currency and have been using the dollar as the stronger currency to anchor their economy. They are making the switch to backing with gold because they need something to back it to, and they see the dollar having a crisis soon. China is part of the dollar system, and a major part of its crude mechanism with reserve recycling. They are still rickety. They can't operate like the US, UK or Germany where reserves are light in relation to their economy. If China had a stronger currency, they could stop accumulating reserves and let it be. Problem is that the currency is not traded, is slowly being used in bilateral agreements and is an enigma if allowed to trade freely. They have to back it with yuan because of their weaknesses. With $3 trillion in reserves, they should be able to say that they are set, but they can't. The international community doesn't trust them, so gold is their dad signing the lease agreement with them. I'm of the view that China is slowly making moves to take over the euro's space and have the option to be the reserve currency or not. They could just be setting up an Asian sphere of control. While they seem to have their act together, it doesn't hurt to look at their moves from the point of view that they are a weaker hand.