China To Challenge US Dollar Reserve Currency Status

[Hasbara Buster]

China To Challenge US Dollar Reserve Currency Status

By Mark OByrne

October 04, 2012 "Max Keiser" -- At the Clinton Global Initiative last week Goldman Sachs CEO Lloyd Blankfein said that the US could risk its status as the world’s reserve currency…

Today’s AM fix was USD 1,786.50, EUR 1,380.92, and GBP 1,109.01 per ounce.
Yesterday’s AM fix was USD 1,777.25, EUR 1,374.73and GBP 1,102.38 per ounce.

Silver is trading at $35.08/oz, €27.13/oz and £21.84/oz. Platinum is trading at $1,707.00/oz, palladium at $664.50/oz and rhodium at $1,180/oz.

Gold edged up $3.40 or 0.19% in New York yesterday which saw gold close at $1,778.50. Silver initially climbed to $34.848 then it fell off in afternoon trading and finished with a loss of 0.06%.

Gold inched up on Thursday, continuing its 4th day of gains as investors await more clues from central banks on further stimulus plans.

Today, The ECB has a rate decision at 1145 GMT and Bank of England at noon local time.

Investors will watch the key the nonfarm payrolls figure on Friday to determine if QE3 is beginning to stimulate the US economy.

Alan Wheatley, Global Economics Correspondent for Reuters has written a very interesting article, ‘Analysis: China’s currency foray augurs geopolitical strains’ where he emphasizes China’s desire to wean out the US dollar’s currency reserve status.

China is actively taking steps to phase out the US dollar which will decrease volatility in oil and commodity prices and deride the ‘exorbitant privilege’ the USA commands as the issuer of the reserve currency at the centre of a post-war international financial architecture which is now failing.

In 1971, U.S. Treasury Secretary John Connally said, “It’s our currency and your problem”.

China is frustrated with what it sees as the US government’s mismanagement of the dollar, and is now actively promoting the cross-border use of its own currency, the yuan, or also called the renminbi, in trade and investment.

China’s goal is to decrease transactions costs for Chinese importers and exporters.

Zha Xiaogang, a researcher at the Shanghai Institutes for International Studies, said Beijing wants to see a better-balanced international monetary system consisting of at least the dollar, euro and yuan and perhaps other currencies such as the yen and the Indian rupee.

“The shortcomings of the current international monetary system pose a big threat to China’s economy,” he said. “With more alternatives, the margin for the U.S. would be greatly narrowed, which will certainly weaken the power basis of the U.S.”

Zha’s comments were highlighted at a seminar in Bahrain this week on the geopolitics of currencies organized by the International Institute for Strategic Studies, a London think tank.

GoldCore brought up these issues back in 2005. Rising economies of China, India and the Middle East are looking at trading options that do not include the greenback.

Not only the East but their financial ministry colleagues in the West are also questioning the current monetary order. Change is certainly around the corner.

At the Clinton Global Initiative last week Goldman Sachs CEO Lloyd Blankfein said that the US could risk its status as the world’s reserve currency if congress fails to act and the “fiscal cliff” program of tax increases and spending cuts is enacted January 1st.

If the US continues its trillion dollar deficits and does lose its reserve currency status what will a world without a reserve currency look like? That is what economists, think tanks and finance ministers are grappling over today.

John Williamson, one of the foremost academics on exchange rates, and a senior fellow at the Peterson Institute for International Economics in Washington examined the benefits of the US dollar’s reserve status.

He recognized two ways that US power is enhanced in the world economy by the greenback’s dominant role, which he doesn’t see challenged in the next 25 years.

First, the $3.2 trillion in official reserves that China has accumulated in maintaining the yuan’s semi-fixed peg to the dollar tie Beijing’s policy hands. That is because any hostile gesture, such as a threat to shift out of dollars, would destroy Chinese wealth.

Second, because of the extensive private use of the dollar globally, the United States is better able to enforce a financial embargo such as the one now directed against Iran.

China also faces risks including foreigners reinvesting their yuan back into China’s security markets. Such inflows may alter exchange rates and interest rates and would weaken the Communist Party’s grasp on their economy which would create an unpredictability that is against the iron rule it enjoys.

Currency wars are not new and often rising economies show their resentment of incumbents, notably the USA, who they view as printing money first and worrying about the effect on the global economy later.

Surjit Bhalla, Indian economist and author of “Devaluing to Prosperity” feels the massive undervaluation of the yuan was a major reason for China’s meteoric rise and the deep economic imbalances that led to the 1997/98 Asian financial crisis and the 2008 global crash.

He sees little merit in greater international use of the yuan but expects Beijing to push up its real exchange rate by 3-5% a year in order to help lift private consumption to at least 50 percent of national output over time from around just 35 percent now.

“This will be one of the most remarkable win-win situations of recent times,” said Bhalla, chairman of Oxus Investments, a New Delhi hedge fund. “Currency peace is breaking out. There have been currency wars, but now is time to enjoy the peace.”

** China To Challenge US Dollar Reserve Currency Status :** Information Clearing House: ICH

 

[Fanling Monk]

In a immediate term no one can challenge the dollar supremacy as the world reserved currency and we're merely striving for the RMB to be the alternative currency when the dollar is not conveniently available for our trading partners. Don't turn the spot light on us please for we don't want the Yuan to go the ways of the Euro and the Yen when the mighty Uncle Sam takes notice..

 

[JayAtl]

yes .003% is going to challenge 85% . Not this all over again. These talks of grandeur...

 

[SinoChallenger]

In a immediate term no one can challenge the dollar supremacy as the world reserved currency and we're merely striving for the RMB to be the alternative currency when the dollar is not conveniently available for our trading partners. Don't turn the spot light on us please for we don't want the Yuan to go the ways of the Euro and the Yen when the mighty Uncle Sam takes notice.

Quit acting like an infant wetting his diapers.
Yes, we are challenging the US dollar. Because we are the SINOCHALLENGER!!

What are they going to do? Our 3000 nukes are waiting! Go ahead..... make our day

 

[Abhishek_]

Quit acting like a coward. Yes, we are challenging the US dollar. Because we are the SINOCHALLENGER!!

more like mentally challenged

 

[SinoChallenger]

As our military power grows stronger and stronger, China openly demands superpower recognition!!

INTERVIEW/ Wang Jisi: China deserves more respect as a first-class power - AJW by The Asahi Shimbun

The distrust over the mutual long-term strategic intentions between the United States and China is worsening, said Wang Jisi, a top expert of American studies in China.

In a recent interview with The Asahi Shimbun, the dean of the School of International Studies of Peking University pointed out that the recent U.S. policy decision of “rebalancing” to the Asia-Pacific region has further complicated the situation by deepening the concern and the suspicion of U.S. intentions among the Chinese general population.

He co-authored a report, “Addressing U.S.-China Strategic Distrust” with Kenneth Lieberthal, director of the John L. Thornton China Center of the Brookings Institution. Wang said that since China had already ascended to first-class power status in the world, “it deserves more respect.”

Regarding the on-going dispute between Japan and China over the Senkaku (Diaoyu) Islands in the East China Sea, Wang suggested, “The Asian wisdom is that if we cannot solve a problem, we can shelve it and do other important things.”

Excerpts of the interview follow:

* * *

Question: Is the “strategic distrust” between the United States and China really getting worse?

Answer: Since Lieberthal and I published that joint study (in March this year) I don't see any improvement of the atmosphere in the relationship. When we wrote it, we both felt uncomfortable with the prospects of a long-term rivalry between the two countries. We also saw some harmful attitudes toward each other. As scholars and analysts we thought it was our responsibility to point out the mutual strategic distrust and then try to find a way to reduce it. I think this distrust has, unfortunately, been consolidated on both sides and is getting worse.

For instance, I think many Chinese commentators in the last few months have argued that Washington is taking advantage of our territorial disputes with Japan, the Philippines, and Vietnam, and so the real problem is not something between China and its neighbors but between China and America. They believe that Washington is trying to drive a wedge between China and these countries in its strategic “rebalance” at China's expense. They say “the truth is that the United States is behind the scenes.”

Q: Do you feel the same way?

A: Personally I have strong reservations about this view. I think the Americans are surely taking advantage of China's problems with its neighbors for obvious geopolitical considerations. However, I cannot accept the argument that the United States is ultimately responsible for all these problems. To blame the Americans would not help to solve our disputes with other countries.

Q: What is the root cause of this distrust from China's point of view? Lieberthal said that it came from China's historical perspective. Do you agree?

A: Yes. It comes partly from China's understanding of history. When I was a student, we were told that the United States was an evil imperialist power. According to our textbooks, the first big event between the United States and China in modern history was American's announcementｓ of its “Open Door Policy” in 1899 and 1900. Well, it may sound as a positive policy to many historians in the West and Japan, since it demanded China open itself to the outside world. But our reading is that the United States was as sinister and greedy as other Western powers and Japan. It wanted to get a share from their aggressions of China without having to pay a price.

And then we were told of the long history of America's hostility toward China. The United States was supporting the Guomindang (the Chinese Nationalist Party) against the Communist Party and the revolution it led. It was responsible for launching the Cold War. And then it was also responsible for the Korean War, and the Vietnam War. The younger generations in China are educated to learn about the same stories. Then the United States bombed China's Embassy in Yugoslavia in 1999, sells weapons to Taiwan, and tries to separate Tibet and Xinjiang from the rest of China, and so on.

Q: Does the change of power balance between China and the United States in recent years have any impact on this distrust?

A: Sure. When we say China is “rising up,” most observers in China hold the belief that the United States is a declining power. “They are No. 1 today, we are No. 2, but sooner or later we will catch up and become No. 1.” This is what some Chinese are dreaming of. So hypothetically the United States should take China's interests and aspirations more seriously than before, and should change its international behavior.

For instance, the Americans should be more accommodating to China's demand of not selling weapons to Taiwan. The reality, however, seems just the opposite. As a result, many Chinese believe more strongly that the United States is making every effort to prevent China from rising up in order to keep its own primacy in the world.

Q: Some scholars argue, even the Chinese, that China's shift from a development autocracy to liberal democracy is inevitable, even if it may take a long time. Is this the right way to look at China's future?

A: I think a few liberal-minded intellectuals make such a kind of projection or argument. But the mainstream thinkers do not accept that. They insist that China is undergoing a process of democratization that differs from the Western standard. You can have a Communist Party rule, one-party rule, but also democracy and the rule of law. We call it “democracy with Chinese characteristics,” or “socialist democracy,” but no one believes it is perfect.

Q: As the Chinese society or its governance system evolves as you described, will the distrust with the United States decrease?

A: It's not necessarily true that we will be more distrustful of the United States if the political system remains basically unchanged. But the Americans will not like this, because if China is more successful in sustaining its economic development and consolidating its political system, then it may pose more challenges to the United States.

Q: So, it's not about the political system or ideology but it's about competition between China and the United States?

A: Yes, it's about political competition between the two systems. The interesting thing is whether this will turn into a geopolitical competition between the two powers. I think that is more worrisome to the United States than to us.

China is more concerned about its internal stability, fearing that the United States wants to subvert the Communist leadership. The distrust is that the United States doesn't want to see a China under the Communist Party rising up. China feels it is defensive, as it is not doing many things in the world that are directly challenging the U.S. hegemony. China does not. We don't support the nuclearization of North Korea or Iran, and we oppose terrorism. China plays a constructive role in the global economy and governance.

The prevalent American view is that they are not very much concerned about China's internal development. They hope China's political system will be transformed into democratization but are not able or willing to do many things to facilitate this transformation.

They are more concerned about China's international behavior that might challenge the United States’ hegemony or leadership role in world affairs. In this sense, the Americans are also defensive. Beijing protects its leadership in China, while Washington defends its leadership in the world. This is the essence of China-U.S. relations.

Q: But as China's national power increases, isn't it only natural that it eventually challenges U.S. dominance?

A: Well, I think the leadership in China is very prudent and very sober-minded. The leaders always say that we are still a developing country. You know, it will take decades or even a hundred years for China to catch up with the United States in terms of comprehensive power. And Beijing has never accepted the notion of a “G2” or China as number two in the world.

So it will not be China's strategy to enter into a geopolitical competition with the United States, and/or to harm the United States’ interests everywhere. Beijing is trying very hard to avoid another Cold War.

But this is somewhat in contrast with the popular views in China. One popular view is that China has already surpassed Japan as number two, and should not be afraid to challenge America. According to this view, China should behave more like the United States in the world--ready to use military force or economic weapons to coerce other countries to accept China's righteous demands. They argue that Beijing is now “too soft” in its relations with the United States, Japan, or the Philippines. They have nostalgic feelings about the Mao era when China was, allegedly, more defiant to the outside world.

Q: One of the reasons why Americans are worried that China may challenge the U.S. dominance is what happened between 2009 and 2010, what we call “an assertive China.” What should we read into that series of actions and behavior that China demonstrated?

A: My reading of this very recent history is that most Chinese, especially government officials and diplomats, would argue that China was not assertive; China was more defensive or even passive, in such incidents as the sinking of the Cheonan, a South Korean Navy corvette. We didn't know at the time and don't know today whether the crisis was in fact provoked by North Korea. It could be a setup by the United States and South Korea. China then took a neutral position, saying, “We are sorry about the sinking of the warship, but we cannot simply blame North Korea for what it says it did not do.”

Over the South China Sea, China didn't send warships to occupy islands we say are ours, but we were provoked by some of the neighboring countries. And over the Diaoyu Islands, China didn't provoke the crisis, either. So we say we are defensive. And then, all of a sudden you say, “China is more assertive, China is more aggressive.” People here are perplexed and suspicious about a U.S. manipulation over all these issues.

Q: What is your own view?

A: What I see today is that the government is more sensitive to public opinion, public feelings within the country. The Chinese government is sandwiched by external opinions and internal opinions. Internationally China is seen as increasingly assertive and arrogant. But internally people criticize the government for being too passive and timid. In response, China's official statements are tougher than before but its actions are still quite prudent.

Q: You wrote in the report, there is a sense that China has already ascended to a first-class power status in the world and “China should be treated as such.” What do you want exactly?

A: Well, in the IMF and World Bank, China should have a larger say. And then you cannot simply state that the world is divided into democratic countries and undemocratic countries and that China does not have a legitimate place in the world because it is an “undemocratic” country. Because China is so successful, it deserves more respect. You should not neglect China, though it still has a lot of shortcomings and weaknesses.

Q: What makes you think that you are not respected enough?

A: I am not speaking for myself on this point. Many people in China will say to the United States, “Why do you continue to invite the Dalai Lama? We don't like him.” And “why do you support human rights activists in China?” “We won't accept Taiwan as an independent state. Don't sell U.S. arms to Taiwan.” “In your (media) reports regarding China's internal affairs you still portray a negative image of China, as if we are not a legitimate power in the world.” “You should pay attention to our sovereignty over the islands in the South China Sea.” And so on and so forth.

And now we say the Diaoyu Islands belong to China. Well, you don't necessarily accept that. But you have to say, “We recognize China has such a position.”

Q: So, what happened to “Tao Guang Yang Hui” (meaning “not to show off one's capability but to keep a low profile&#8221? Has it disappeared?

A: I think the spirit of this principle should be respected and followed, but not its exact wording, because “TGYH” may not sound very positive. If you look at the dictionary, it means that you hide your ambitions for future use, and when you are stronger, you may want to resort to force and retaliate.

The original meaning was that China should be patient and unperturbed in not challenging the West and concentrating on domestic reform and opening, as Deng Xiaoping pointed out in internal meetings in a specific time frame when China was weak and diplomatically isolated after the Tiananmen crisis in 1989.

Now the circumstances are very much different from that time, and the phrase causes confusion and doesn't really serve China's interest. And this cannot explain China's overall behavior. When you say “TGYH,” it's simply a posture toward the United States. What would be the point of talking about “TGYH” with the Japanese or the Indians, or over issues like the financial crisis and climate change?

Q: It seems that the U.S. “pivot” or “rebalancing” to the Asia-Pacific region exacerbated this “strategic distrust” on the part of China. Actually I heard a professor from Renmin University say that this rebalancing is a strategic threat to China.

A: I think there is some truth to that. The truth is that part of the rebalancing notion is based on the fear that China might challenge the United States in the Asia-Pacific region.

The United States is doing a number of things that worry China. For instance, establishing a U.S. Marines training center in Australia, strengthening its security relationship with Japan, and even trying to multilateralize its strategic arrangements in East Asia.

But, I don't think the whole thing is directed against China. There are very important reasons why the United States wants to strengthen its economic relations with Asia. We should welcome a constructive U.S. role in making the Asia-Pacific region more prosperous. And we should try to establish a good working relationship with the United States in the region, in both economic and security affairs.

Q: But is it possible with this strategic distrust?

A: That comes to the core issue: whether China can successfully transform itself into a sustainable economy and a solid and stable political system. If we don't embark upon enough political and economic reforms in China, then things will not turn out very bright.

Q: Isn’t the current system “solid and stable”?

A: Look at the recent incidents in China. The Bo Xilai case is one example. And then we see a lot of social unrest and mistrust of the government among the population. These problems must be coped with seriously before we can really boast of being a first-class world power.

Q: And finally, about the Senkaku issue. It is the actual, serious problem that Japan and China are now facing. What do you think we should do about it?

A: Calm down. The Diaoyu Islands are not an issue that can be solved easily, and I don’t hold out any strong hope that the dispute over its sovereignty can be settled in my lifetime. The Asian wisdom is that if we cannot solve a problem, we can shelve it and negotiate – I mean, put it aside and do other important things while keeping the respective nationalist position. It may not be “politically correct” to say this in China at this moment and probably not in Japan, either. But we have to overcome these immediate obstacles and focus on other priorities that are in our best long-term interests.

 

[Fanling Monk]

There's no need to challenge the mighty dollar because in time it'll collapse by itself with the mismanagement of various Administrations and the Congress. It it does collapse which currency is likely to take over? Win the war without firing a bullet, so to speak.

LOL they might have to go back to gold stand.


No less an authority than Goldman Sachs CEO Lloyd Blankfein said at the Clinton Global Initiative last week that the United States could risk its status as the world's reserve currency if congress fails to act and the "fiscal cliff" program of spending cuts and tax increases is enacted January 1.

Actually Blankfein's statement was the reverse of the truth; enaction of the "fiscal cliff" program, halving the US budget deficit at a stroke, is one of the few outcomes that could AVOID the US losing its reserve currency status. But on the assumption that the politicians continue to misbehave after November 6, that trillion-dollar deficits continue, and the US does indeed over time lose its reserve currency status, what will a world without a reserve currency look like?

There is no relatively recent historical parallel we can examine to answer that question. The world has had the dollar as undisputed reserve currency since 1945, or really since 1939. Between 1914 and 1939 there were two reserve currencies, the dollar and sterling, with sterling more used in the 1930s than the 1920s, because that decade, once Britain went off the Gold Standard, was a period of robust health for the British economy, while the United States was mired in depression and isolationism. For more than a century before 1914, the world's undisputed reserve currency was sterling, although there were various regional alternatives.

To see a world with multiple reserve currencies, you thus need to go back to a world before sterling's sway, which in practice means before Britain's smashing victory in the Seven Years War (1756-63) took it to both military and economic supremacy.

In those years numerous currencies circulated, with their use being determined largely by their local availability. In the American colonies, for example, the greatest circulating medium was not gold (British) guineas, whose supply was very limited, but silver "pieces of eight" from the Spanish colonies, coins of 8 reals that had been minted to the same standards since a currency reform in 1497 - these remained legal tender in the new United States alongside the dollar until as late as 1857. When Long John Silver's parrot squawked "pieces of eight" it was expressing a rational preference as to the reserve currency in which its pirate horde should be denominated.

At the same time or a little later, a German currency reform of 1751 made the Maria Theresa thaler, also silver, the common currency of the German speaking world, even those parts of it that were Protestant and did not acknowledge her supremacy as Holy Roman Empress. In this case, the coin's reserve currency status spread far beyond Germany; it was minted in six mints outside the Austrian dominions, and circulated not only in Africa but also the Middle East long after Maria Theresa's death in 1780, coins minted after that date being date-stamped "1780" even though they were freshly minted.

Thus when my father first visited Saudi Arabia in 1963, Maria Theresa thalers were still circulating - doubtless many of the local inhabitants, users of the Muslim calendar, were unaware that it was no longer 1780 in the outside world! The last coiner of Maria Theresa thalers was not Austria but Britain, which finally abandoned the practice in 1962, after representations from the post-war republican Austrian government.

The dollar would lose reserve currency status, not through a sudden attempt at fiscal probity, but through a further period of current policies, trillion dollar deficits accompanied by random large-scale Fed buying of Treasuries and agency bonds. At some point, whether because of a resurgence in inflation or the dawning of doubt about long-term US solvency, international demand for both dollars and Treasury bonds would decline sharply, and the world would seek the benefits of diversification.

One such avenue of diversification would be gold, but with the world's central bankers fanatical in their determination not to consider a gold standard, this would simply drive the price of gold up to extraordinary heights, at which its price risks were so great that conservative investors would not dare hold it for more than a small portion of their assets. Accordingly the search would be on for an alternative store of value and currency in which trade could be denominated.

None of the major currently available alternatives look very attractive. Sterling is in the same pickle as the dollar; the coalition government's cuts in spending have been minimal and the Bank of England's purchases of gilts huge. The yen suffers from an overhang of government debt second only in size to those experienced by Britain at the end of the 1815 and 1945 world wars (other than debts that eventually defaulted). The renminbi, or yuan, is over-controlled by China's communist government, and in any case China's economy is full of hidden mysteries like the bad debts in the banking system.

The euro, generally fairly well managed because of the large influence of the German Bundesbank on the European Central Bank, suffers from the feckless nature of several of its Mediterranean members. In this context I have referred several times in these columns to Spain being well run, and thus not a major problem. I hereby withdraw that judgment. It never occurred to me that Spain's economically most important region, itself fiscally mismanaged and responsible for a large part of Spain's problems, would choose the middle of a financial crisis to attempt to hold a referendum on independence.

Whatever the merits of independence for Catalonia (and it is only one of the independence movements throughout Europe likely to appear now that the European Union has made the nation state appear largely redundant) there can be no question that opening the matter at this juncture is an action of gross irresponsibility and malice.

The world's reserve currencies will thus primarily be smaller units, whose importance will swell as their sponsors see the opportunity to obtain massive seignorage revenues from having their currency circulate worldwide. There are likely to be several varieties of reserve currency, each tailored to the needs of particular users.

Asset-only investors will be in despair at the difficulty of finding a unit that does not cause their assets to shrivel like icebergs under a Mediterranean sun; consequently they will demand reserve currencies that pursue Volckerite monetary policies and behave as far as possible like Gold Standard vehicles.

Entities heavily engaged in international trade will want a unit that favors neither buyers nor sellers, but pursues a middle course between the world's major trading blocs.

Borrowers will want to continue benefiting from negative real interest rates and will look for currencies with sloppy monetary policy and balance of payments problems, which are unlikely to strengthen greatly. Asset-only investors will seek to avoid these currencies, but financial institutions, with liabilities denominated in weak currencies, will be persuaded to invest in them by the salesmanship and financial engineering of Wall Street. Mismanaged currencies, with excessive budget and payments deficits, will eventually become unacceptable to international investors, but the financial machine will denominate a lot of long-term bonds in them first.

It's likely that artificial currency units, such as the International Monetary Fund's Special Drawing Right, will also be substantially used, while in some regions where trade is largely intra-regional the region's currencies may come to be used for cross-border trade even though they are not acceptable on a global basis.

It all sounds very jolly and free-market, reminiscent of the buccaneering days of the early eighteenth century, except for one factor. "Pieces of eight" and Maria Theresa thalers had a real value; they were silver coins and in the last analysis had the value of the silver contained in them. This will not be true of the multiple reserve currencies of 2015-16, which will be paper money, with only the value that confidence in their issuing countries gives them.

By definition, however a world of multiple reserve currencies is one where there is no unit of value in which complete confidence is held. While a major unit such as the dollar can survive a moderate lack of confidence, that may not be true of reserve currencies that derive from relatively small economies.

If for example the Canadian dollar becomes used as a worldwide reserve currency, the Bank of Canada will need to supply the world with Canadian dollars worth many times the value of the Canadian domestic money supply and its economy itself. No doubt Wall Street will oblige through the swap mechanism, supplying the world with unlimited supplies of Canadian dollars for which a global demand has suddenly arisen. However, the currency's position would then be highly unstable; any crisis or change of government in Canada could cause global demand for Canadian dollars to collapse, in turn collapsing the value of the world's Canadian dollars.

The 18th century was well aware of the problems a collapsing paper currency could cause; it had a healthy suspicion of US "continentals" and French "assignats". However, since the Weimar crisis of 1923 we have not experienced any such crisis in relation to a major trading currency. In a world of multiple reserve currencies, we will undoubtedly at some stage experience a collapse in which a major part of the world's trade paper and international investments becomes worthless.

At that point, with the world economy severely damaged and confidence in paper money destroyed, even the world's current central bankers may be forced, kicking and screaming, back onto a Gold Standard.

Asia Times Online :: Asian news and current affairs

........


@ US-Challenger

Okeydokey kid, you have your say, now go back to your video games and let the elders take care the business end.

 

[Juice]

I love when people bark about the "gold standard", as if it were any less fiat money than paper. If you want real value...base your money on cheeseburgers or cigarettes.

 

[Korean]

In order for the yuan to be a reserve currency, China must run a massive trade deficit of something like half a trillion dollars a year. After all, foreigners must have yuan bills in their hands to be able to use it. But the moment China runs the massive trade deficit, Chinese economy collapses and unemployment rate shoots up, so the CCP cannot run a trade deficit.

In other word, becoming a reserve currency is impossible for an exports-dependent economy like China. This is why yen never became a reserve currency, and why the yuan can never become a reserve currency.

 

[Rig Vedic]

I love when people bark about the "gold standard", as if it were any less fiat money than paper. If you want real value...base your money on cheeseburgers or cigarettes.

Yes, gold is arbitrary, with the added disadvantage that you can't easily adjust the money supply to counter inflation or deflation.

 

[Developereo]

Lots of countries are negotiating bilateral deals to avoid the dollar. Why single out China specifically?

I love when people bark about the "gold standard", as if it were any less fiat money than paper. If you want real value...base your money on cheeseburgers or cigarettes.

You need to pick something that is
a) intrinsically valuable, i.e. in demand,
b) available in sufficient volume to be useful globally,
c) rare enough, i.e. can't be cooked up in everyone's backyard

 

[Fanling Monk]

In order for the yuan to be a reserve currency, China must run a massive trade deficit of something like half a trillion dollars a year. After all, foreigners must have yuan bills in their hands to be able to use it. But the moment China runs the massive trade deficit, Chinese economy collapses and unemployment rate shoots up, so the CCP cannot run a trade deficit.

In other word, becoming a reserve currency is impossible for an exports-dependent economy like China. This is why yen never became a reserve currency, and why the yuan can never become a reserve currency.

One of the reason the US dollar can be the reserve currency because the world at large have confidence in the dollar. There are much more dollars circulated outside the US than the US itself. The people in Russia panicked when the US decided she wanted to print a new version of hundred dollar bills more than a decade ago was a proof of that. If the dollar collapses the savers of the world, be they the people, the corporations or sovereignty funds have to find the next strongest currency to park their savings.

As long as the Yuan has the confidences of the above players there will no troubles for those countries that have abundant of Yuan to sell because the savers and traders of the world would gobble them up like sweet candies. So trade deficit not a necessary criteria for a country to use her currency as reserve but rather the confidences of the world have on her currency.

 

[Korean]

As long as the Yuan has the confidences of the above players

Which it won't. After all, whose gonna have a confidence in some 3rd world totalitarian country's currency which has a 10% counterfeit rate?

Better yet, what can you do with yuan? Nothing, except for exchanging it for dollar at Hong Kong and then taking home dollars.

 

[Fanling Monk]

Which it won't. After all, whose gonna have a confidence in some 3rd world totalitarian country's currency which has a 10% counterfeit rate?

Better yet, what can you do with yuan? Nothing, except for exchanging it for dollar at Hong Kong and then taking home dollars.

It's a matter of opinion and I believe mine is as strong yours if not better. At least I'm not as bias as you even though I'm on china's side because I humbly said " as long as"

BTW did you read my whole post or you're too in a hurry to talk no time to read.

 

[Korean]

It's a matter of opinion and I believe mine is as strong yours if not better. At least I'm not as bias as you even though I'm on china's side because I humbly said " as long as"

BTW did you read my whole post or you're too in a hurry to talk no time to read.

Just think Japan and why yen never became a reserve currency, even though Japan was a far more advanced and "attractive" country than China is.