[ForexNews]

A report in the FT quotes official sources as saying that Brazil and China will work towards using their own currencies in trade transactions rather than the US dollar. The report also argues that while the introduction of the SDR as the new international reserve currency is unfeasible now, bilateral deals between Beijing and its trading partners could promote wider international use of the renminbi, which in turn would enhance China's political clout around the world.

This highlights that good news for the world (and even for the US) is bad news for the USD. The growing confidence that recovery is coming means that other priorities can be pursued. It also shows that QE and unprecedented fiscal expansion comes at a cost. They introduce huge uncertainty into US monetary policy that can't be deflected by just stating the US is in favour of low inflation and a strong dollar policy.

That said, it is very unlikely that the USD's reserve currency status faces any serious risks for now. It doesn't matter what currency trade is denominated in (except for pure transactional balances). What matters is the currency denomination of the assets that that are held in portfolios. It is not possible for China to increase the importance of its currency without allowing it to appreciate. Similarly one of the criteria for a reserve currency is that it be liquid, which usually means an open capital account.