If there was ever any doubt that Beijing benefits from a strong currency (CNY, quote), it’s over now. China is beginning to test the influence of its money on the world economy, and it’s doing so with Iranian oil.
According to a report in The Financial Times, Iran is now accepting the reminbi in exchange for its oil. That’s important for both countries’ exports and imports.
As the Times points out, “Tehran is spending the currency, which is not freely convertible, on goods and services imported from China.”
The Times attributes the Iranian deal to tensions with the United States over Iran’s nuclear ambitions. However, more countries are likely to follow suit as they recognize China’s global economic might.
If more nations take the Chinese coin, Beijing will have less use for United States and European government debt. China will no longer need US dollars or euros to pay for foreign goods and services, and gold (GLD, quote) will also get less attractive.
Expect more influence for China, and an easier transition from a manufacturing-driven economy to a service-oriented economy. But beware harder times for the United States and Europe as they lose influence to the dragon.