Yuan is Not a Paper Shelter for a U.S. Dollar Collapse

Last week, the United Nations warned that the U.S. dollar could collapse. With a potential default looming and the recent expansion of the Federal Reserve's balance sheet, the possibility of an outright collapse of the dollar--while still largely far-fetched in the short-term--seems more and more possible in the future. The Market Oracle released a piece on Wednesday in which they outlined why investors seeking refuge from the U.S. dollar in its Canadian counter-part are wallowing in futility: with deep economic ties to the U.S. and largely U.S. dollar-dominated foreign reserves, the Canadian economy and its currency will inevitably befall the same fate as the United States. Does this hold true for all other world currencies? Or is it possible for investors to find refuge in another fiat currency? Given the parameters set by Market Oracle, investors should find a country with a currency that is economically isolated from the United States and has foreign reserves which are Underweight U.S. dollars. Does such a country with such a currency exist? China and its yuan have received a lot of press. However, the yuan does not seem like a great fit. China is a major exporting country and the U.S. is its biggest customer. China also has massive foreign reserves, (which it has recently attempted to diversify) but the U.S. dollar still makes up a dominant portion. Interestingly, less than 2% of China's reserves are gold. Thus, it may be that in the event of a dollar collapse, the yuan fails to appreciate as investors anticipate. Traders looking to play a weaker U.S. dollar might consider PowerShares DB USD Bearish Index UDN. UDN attempts to maintain a value inversely corresponding to the strength of the U.S. dollar and may rally if the dollar continues to decline. As the world's reserve currency, a collapse of the dollar would have far reaching financial effects. Seeking shelter in the yuan might prove foolhardy.