China is clearly a major player now in the global financial system. We know that in July they will be a leader in the BRICs summit meeting which will establish a new reserve currency fund and publish details of the new BRIC's bank which would offer an alternative to the World Bank. China is clearly aligning with Russia in an effort to offset the US and EU and promote wider use of currencies other than the US dollar.
Even as China works to "globalize the yuan" as this article notes, some are questioning if China will suffer problems from its own massive debt and the possibility that Chinese banks may have a lot of troubled loans on their books. This week Bloomberg runs an article explaining how China found billions in fraudulent loans where commodities like gold were sold multiple times to back loans.
So what is the potential impact of all this on the global monetary system?
China will obviously continue to work steadily to internationalize the yuan. This is described in the article linked above as a 5 step process. Here is a quote from the article:
Analysts widely forecast five steps in yuan internationalization: 1) yuan used and circulated overseas, 2) yuan as a currency of account in trade, 3) yuan used in trade settlement,4) yuan as a currency for fundraising and investment,
We see here that establishing the yuan as a "global reserve currency" is one of the steps. But this process is described in this article by Chinese officials as a 10-15 year project. Not something they expect to happen soon.
While that is ongoing, what are the problems China might have to deal with? The second article linked above notes that the path of Chinese debt is "unsustainable" just as the path of US debt is unsustainable. Here is that quote from the article:
"The buildup of total debt, unprecedented in recent history, is leading to mounting repayment pressures. The bank estimated that interest payments were equivalent to 13 percent of GDP in March, up from an average of 7 to 8 percent in recent years. This high ratio is eating up an increasing share of corporate profit and government revenues and crowding out new investment, which makes a pick-up in growth momentum in 2014 all the more difficult to achieve. . . . . . .