Yuan could soon sit inside elite basket of currencies

The Chinese yuan is gathering prestige in the eyes of the International Monetary Fund, a move that could set off alarm bells in Washington.

When the IMF executive board meets on Monday, it is expected to decide on a recommendation to include the yuan, also known as the renminbi, in its basket of elite currencies known as special drawing rights (SDR), Business Insider reported.

Special drawing rights do not trade freely but they are considered important because the IMF values its crisis loans, for example to Greece, in SDRs. China asked for the yuan to be included last year but it has been considered too tightly controlled to qualify, says BI, adding that it could be weighted between 10 and 16 percent of the SDR basket. The last time the SDR was rebalanced, in 2010, the U.S. dollar accounted for 41.9 percent, the euro was 37.4 percent, the British pound was 11.3 percent and the Japanese yen was 9.4 percent.

The decision, which approved would go into effect next September, is sure to raise questions as to the continued hegemony of the U.S. "greenback" as the world's reserve currency.

In the early 1970s, then-U.S. President Nixon negotiated a deal with Saudi Arabia whereby in exchange for arms and protection, the Saudis would denominate all future sales of oil in U.S. dollars. Other OPEC members agreed to similar deals, ensuring perpetual global demand for greenbacks. The dominance of the U.S. "petrodollar" continues to this day.

The era of U.S. dollar dominance, however, could be coming to an end, due to increasing competition from the world's second largest economy and primary consumer of commodities: China.

China and Russia have been furiously signing energy deals that indicate their mutual energy interests. The most obvious is the $456 billion gas deal that Russian state-owned Gazprom signed with China in 2014, but that was just the biggest in a string of energy agreements going back to 2009. That year, Russian oil giant Rosneft secured a $25 billion oil swap agreement with Beijing, and last year, Rosneft agreed to double oil supplies to China in a deal valued at $270 billion.