News & Analysis
Yuan Reserve? We're not Betting on It
How the Yuan Could Take the Dollar's Crown ... China could eclipse the United States sooner than many think as the yuan (renminbi) becomes a major player on the word stage that could put the dollar in the shade. – CNBC
Dominant Social Theme: China is a super power waiting to take over the world.
Free-Market Analysis: CNBC tells us that the Chinese yuan could soon overtake the dollar as the world's reserve currency. It's a common perception because China has expanded so rapidly over the past 40 years.
China has truly experienced a great leap forward, though we're on record as questioning how much is due to expansive monetary policy and how much is due to the innate healthiness of the socio-political, entrepreneurial and economic system. (We've often stated we think central bank monopoly money has a lot to do with China's Greatest Leap Forward.)
In a sense this issue about the yuan reserve currency is a kind of shorthand meme for the progress of China itself. The power elite wants to make clear how formidable a competitor China is to the West. The yuan provides a platform for a subdominant social theme: Even the Red Dragon's money could topple King Dollar. How powerful is that!
In fact, we don't see it. We've been expecting a "landing" that is harder rather than softer because of the immense amount of currency that has been pumped into the Chinese system. So we don't see it. The dollar may topple from its perch but not because the yuan displaces it. Reserve currencies don't work that way.
It's true that China has considerable heft on the world stage. China is now the world's second biggest economy and its currency is similarly enhanced. The yuan – also called the renminbi for international purposes – is being positioned several ways from an international perspective.
First, Chinese officials are using it for trade-settlements purposes, then for investing and, finally, they are trying to encourage other countries to use it as a reserve.
The Chinese have created swap deals agreed with Australia, Russia, Japan and Brazil, according to the article. The Japanese yen is exchangeable, as well. And the dominant economic power in Asia is no longer Japan but China.
Here's some more from the article:
In 2009 China allowed its currency to be partially convertible outside the country, setting up the offshore deliverable-CNY market for Hong Kong (the CNH) which will likely spread to other jurisdictions. RBS reports that from a basis of nearly zero four years ago CNH-denominated deposits now total some 500 billion.
"Economic prowess has clearly shifted from Japan to China," analysts at Citi said in a research note. "Hence policymakers in Asia are more wary of relative strength of their currencies versus China than Japan."
Simon Derrick, chief currency strategist for BNY Mellon, has been tracking the foreign currency reserves China holds and has kept a keen eye on policy announcements by the country's politburo.
He highlights a marked decrease in growth of foreign currency reserves the country holds. September's third quarter figure showed foreign exchange growth of 2.76 percent year-on-year. Last year the same figure showed 20.9 percent growth."
... All this suggests that the first quarter of next year could prove an interesting one. Although further clues (one way or another) will likely surface through January and February, the most likely point for an announcement will come on or around March 14," he said, adding that the date was significant as it coincides with the National People's Congress in Beijing.
There are other views, however. Larry Edelson, financial analyst at Weiss Research is quoted as saying, "The world is headed toward a new reserve currency, either backed by the IMF SDRs (special drawing rights), or some other neutral basket."
We would tend to agree with this.
The next step is not a reserve Chinese currency but a global currency.
Setting up another country reserve system is probably not going to happen. Special circumstances contributed to the dollar reserve in the first place.
The US dollar reserve system is based on the Saud family declaring to the world that oil is to be priced in dollars. For this reason, countries have had to hold dollars.
That system is eroding now. But there is still no compelling reason for the countries of the world to hold Chinese currency. It is not, strictly speaking, a "reserve."
Conclusion: Next stop, a global SDR basket of currencies?
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Posted by Danny B on 12/04/12 11:31 PM
Bischoff, good to see you. I started a thread at a free energy group. I've quoted you heavily and made it clear that the pearls of wisdom were from you.
Click to view link
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Posted by Bischoff on 12/04/12 09:53 PM
@ nrm
NRM: "Paper money needs to be put out of our misery. Gold needs to become the next currency for settling international trade."
BISCHOFF: What needs to be put out of our misery is "irredeemable", "managed" currency to be replaced by "redeemable" currency with a value standard. The best standard for measurement of value is gold.
Gold makes for a lousy currency, but as a standard of value it can't be beat. RBD currency based on the gold standard is ideal to settle international Bills of Exchange.
You are absolutely correct, SDRs are a joke.
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Posted by Danny B on 12/04/12 09:13 PM
China doesn't necessarily have to have the reserve currency to have a currency in great demand. The Western CBs have orchestrated things so that there is NO gain on investments.You can't make a buck anywhere.
"This all works, by the way, only because all of the world's central banks are working in concert so that there is no imbalance and money cannot be invested off-world."
Click to view link
They print in unison and Nobody can escape.
"will be breached in 2013 as the Fed takes in and monetizes somewhere between 80-100% of all new Treasury issuance."
ZIRP begets ZIRP. NO YIELD.
China, on the other hand is selling Yuan bonds even though they have plenty of reserves and don't need the money. China is buying and mining every ounce of gold that they possibly can. China is recasting ALL of those good-delivery 400 oz. bars into 1 KILO bars.
No more western standards for weight. It's true that there was quite a bit of tungsten that showed up in Hong Kong but, threats from the Triad soon sorted that out.
China knows both Triffin and Gresham. ALL yield has been destroyed in the West. China could offer gold backed bonds or a gold Yuan. Even the Swiss Franc is negative.
China could probably maintain a gold-Yuan even if it had huge internal problems. China doesn't have to have the reserve currency if it has a gold-redeemable currency.
Western CBs are trying to orchestrate the situation so that there is NO viable place to put all that bubbly cash.
The eventual result will be akin to throwing an Alka Seltzer to a seagull.
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Posted by navmagdale on 12/04/12 08:41 PM
@The Daily Bell
NWO has demonized Putin who they claimed to be a Communist even though Zyuganov (the Communist leader and most Communists) hate Putin like they do.
Soros' aim is the destruction of Russia as a world power. Eliminating Russian influence and replacing it with new regimes hostile to Russia is his goal.
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Posted by nrm on 12/04/12 06:30 PM
"The next step is not a reserve Chinese currency, but a global currency."
Gold needs to become the next currency for settling international trade.
Paper money needs to be put out of our misery.
No IMF.
No SDRs.
Enough already.
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Posted by rossbcan on 12/04/12 06:29 PM
@Hugo_de_Groot
"It is human nature to borrow too much. Especially governments"
To borrow, is to make a "promise to pay", or, "to be in debt servitude until you do pay"
In the case of governments, they "bait and switch" the ownership of debt and thus, servitude. The individuals (within government) who choose to borrow are the ones whom also "choose to repay", unless, of course, we ACCEPT their "self-decreed", UNACCOUNTABLE (one of a near infinite number of synonyms for: irresponsible).
I do not agree, nor consent. That used to be good enough for the law. To collect requires "initiation of aggression", prima facie criminal.
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Posted by rossbcan on 12/04/12 06:00 PM
DST: "China is a super power waiting to take over the world."
If you are not to be perceived as the bully you are, your prey must be inflated, hyped up and, perceived as a threat, undeserving of sympathy, and, you, the bully must be perceived as doing everyone a favor by dealing with "upstarts and those whom, in general, do not toe the line" (ie; act free).
Let's forget all about the "king of the hill" game, unwinnable, since to "win" is to ally all others against you, either out of self-defense from your predations, or, in faint hope of being the next "king" (master predator).
Darwin warned us. Only the predators listened:
Click to view link
... and, once upon a time, the LAW:
Click to view link
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Posted by Hugo_de_Groot on 12/04/12 02:53 PM
Hi DB,
I doubt that the Yuan wants to become the new reserve currency. This because of the triffin dilemma. The SDR would solve that indeed but I think it does not stand too much chance.
So far I quite a few movements toward gold to fulfill the role of settlement between countries. The ECB marks its gold to market on their balance sheet. Putin and Medvedev showed off with gold in their hands on pictures and stated they like the Euro model with marking the gold to market. Mr Zoellick when in function as head of the Worldbank suggested to use gold as a reference point to value/price currencies. The Islam searching to reintroduce gold and silver money (Dinar and Dirham). Even greenspan is still positive to goldstandard. This are only a few examples.
To me it makes sense but only if 'the new goldstandard' does not have a fixed price in fiat but a free floating price. Even Rickards agrees that his goldstandard point of view works if gold gets repriced periodically. It is still a gold standard that way :)
It is human nature to borrow too much. Especially governments... . That history has proven.
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Posted by victorbarney on 12/04/12 02:32 PM
You can "choose" to believe this or not, but as proven by England(i.e., "the sun never sets upon the British Empire"), America is England's brother and WE, HAVING NOTHING LEFT TO ACCOMPLISH, GET THE TWO-WITNESSES OF REVELATION, CHAPTER 11 TO PUNISH U.S. SEVERELY, LEAVING ONLY 144,000 anglo-saxon's left alive, also as written! Did i mention that the tribe of Joseph replaces the tribe of Dan(Irish) as being protected(Rev. chapter 7)? Just saying what's already been written by far better men than I...
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Posted by SoCal fellow on 12/04/12 12:18 PM
Friends, I think you need to look at the big picture from a different angle. Please have a sharp, fast-reading elf read, 'The Source Field Investigations,' 'Life Before Life,' 'Proof of Heaven,' 'The Law of One (Book One is sufficient)', and 'Seth Speaks.'
It could well be that China (and Russia) are on the side of good, opposite the U.S., and that a gold-backed yuan is being quietly set up in the background as the new international reserve currency. I could be wrong about the yuan; but, whatever the specific mechanism, I feel comfortable that a new, gold-backed reserve currency is in the works.
To wit, this analysis seems, at first, far-fetched, but upon reflection is eminently plausible and possible:
Click to view link
Reply from The Daily Bell
We've written the same thing many times. But in our view it more likely a currency basket that may include some gold ...
And China and Russia are (at least partially) controlled at the top by the West, in our view ...
Not something provable, of course.
