Wednesday, April 7, 2010

China Takes Another Step Toward Ridding Itself of the U.S. Dollar

For anyone who doubts my view, please review this quote made by Zhou Xiaochuan - Chairman, Monetary Policy Committee of the Peoples Bank of China last year in March 2009 (hat tip to DC in NJ): "AN INTERNATIONAL RESERVE CURRENCY SHOULD FIRST BE ANCHORED TO A STABLE BENCHMARK ".

Follow the money, not U.S. politicians blowing smoke and bubbles...Just as Tiny-Brain Tim Geithner makes a pathetic pilgrimmage over to China in order to beg them to let their yuan rise in value against the U.S. dollar, this news report from Bloomberg hitting the tape today is no doubt not coincidental to Geithner's visit: "China is considering allowing the yuan to trade against the Russian ruble, South Korean won and Malaysian ringgit to promote its use in cross-border trade, an official at the China Foreign Exchange Trade System said."  Here's the link: LINK

I have maintained that China has been promoting trade using the yuan with many countries as a move to shift global trade from being dollar-based to yuan-based. It makes sense now that China is the largest exporting country. In addition to the above move, China has engaged in multi-billion currency swap transactions in the past with several countries in order to promote trade with those countries using the yuan instead of the dollar. Here is the key statement by China as referenced in the article by Chinese Premier Wen Jiaboa: "China is seeking greater use of the yuan to reduce reliance on the U.S. dollar after Premier Wen Jiabao said last month he is “worried” about holdings of assets denominated in the greenback."

For some reason, it is convenient for policy makers and politicians in this country to blame global economic imbalances and this country's extreme current account deficit on the relative value of the Chinese yuan. Perhaps the U.S. should look in the mirror at itself and understand that a large part of the massive economic and financial problems here come from the catastrophic spending deficits and debt accumulation by both the Government AND the private sector. It's popular to assess just U.S.Government debt vs. GDP and say the U.S. is not the worst offender. But when you combine all public and private debt in this country, the Total U.S. Debt/GDP ratio is the highest in the history of the universe. And this doesn't include the trillions in "hidden" debt liablities, like the $500 billon underfunding of the California State Pension Fund which was disclosed yesterday by the NY Times.

Perhaps the Obama Administration should consider that there may be some painful unintended consequences from trying to get China to do what Obama wants them to do, as per this comment from Zhang Yanling, vice chairman of Beijing-based Bank of China Ltd: “If the yuan is expected to be a strong currency, neighboring countries will prefer to hold the yuan instead of the dollar,” she said. And don't forget, the U.S. Government has been the world's largest currency manipulator since the Bretton Woods Agreement, which established the U.S. dollar as the global reserve currency...If the Obama Administration would confront the vast economic and financial problems right under its own nose with real change and reform, it would go long way toward solving the issues that Obama is conveniently blaming on China...

It recalls the famous quote from Pogo from the 1950's: "we have met the enemy...and he is us."


  1. You know the American motto, blame someone else for your problems!

  2. Yup. Gold/silver are stronger than mustard gas right now...even with the rally this week in the dollar

  3. Gold just broke the $1140 mark....something is up, or down :)


  5. i'm hopefully going to get around to doing a thorough blog on gold tonight. gold/miners had one of their best periods of return back in 2006 Jan - May and it was preceded by period in which gold AND the dollar moved up in tandem. That may be happening now...

  6. Seems like there's a better argument to be made that the Yuan would *devalue* if floated

    "Albert Edwards Vindicated: Discusses China's Upcoming Trade Deficit, And Why CNY DEVALUATION Is Now Increasingly Likely"

    Good for gold. Bad for US exports, USD (US will devalue further to prop up exports), and whoever happens to be in political office when it happens.

  7. I don't think a deval is in the cards for the yuan. What i DO think is in the card, eventually, is that China will accumulate gold until they know they have more than the U.S. at least reports (we all know that gold ain't there anymore), and then China will roll out a gold-backed yuan and require that anyone who trades with China will have to settle the trades in the new yuan. At the same time, they will REVALUE the price of gold up by several multiples.

    If China can restore gold as a currency anchor, and China owns the most gold in the world (as a central govt, notwithstanding the total gold held in India by the population), a big gold reaval (don't forget FDR reval'd gold up by 75% in 1933) it will effectively make China the most wealthy country in the world...

  8. Unusual looking Gold chart today. Are we at 2% yet?

    Joe M.

  9. LOL. Listen to the latest Eric King interview with ADrian Douglas/Narvey Organ (who was at the CFTC hearings):

    Murphy told me a lot of shit will hit the fan over the next few weeks - I think this is one of the pieces of poop

  10. "I think this is one of the pieces of poop"
    Dave please... I thought this was a family oriented blogsite.

  11. Seconding what Dave in Denver said. That KingWorldNews report is a definite must-hear.

    Oh, yes...poop, poop, poop.

  12. One would think China wants a copper/steel backed currency the way they keep buying that stuff, crazy!