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China Offers Next Step In Removing Dollar From Reserve Currency Status

Tovarish

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August 5th official representative of the People's Bank of China (PBOC), published an article in a leading publishing Chinese market journal, which suggests that now would be a good time to convene a new "Bretton Woods" in order to create and implement a new reserve currency based on gold to replace the dying dollar. China owns more than 10,000 tons of gold bullion in reserves. They accumulate at a feverish pace since 2008. In fact, they are likely to accumulate with the era of Mao Tse-tung. Beijing's leaders decided five years ago to collect gold and overturn the United States, with its armada of money papier-mâché artisans and bankers,with engaged in espionage and the desire for hegemony. Some sources also told us that at the Kremlin, perhaps, lies the 20 000 tonnes of gold in reserves. They have gold as long as that of the Vatican. Orthodoxy has a large gold reserve in Moscow.
Power comes from the east, along with the gold. Approaching a new chapter. More details here - China
 

Fisher

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I doubt that China's ever become the reserve currency but it would not surprise me at all if at some point in my lifetime there is created an independent world currency and each nation's currency is pegged off that, including the US Dollar, to add greater stability to currencies. China's currency will definitely become increasingly relevant in global markets though. All that said, it feels a little like the "Sky if falling so buy gold (from me) because its prices are falling too"
 

cpwill

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China has initiated a policy of forgoing the dollar as the medium of trade with several nations with which it has trade agreements. They are definitely trying to weaken the influence of the dollar.

That being said, replacing the dollar with gold is just :lamo

Especially for China, given its 20th Century bimetallic history.
 

Coin

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If they do it, they'll end up like Libya.
 

obvious Child

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Not going to happen any time soon.

A reserve currency requires faith in the bank behind it. The Fed has that faith from the markets. China's central bank does not. Furthermore, a reserve currency has to float without restrictions. The Yuan does not, nor will it in the conceivably future as the PRC ensures a stable currency to ensure a stable economy. PRC's only real claim to legitimacy is economic growth as their political repression forbids real democracy. Furthermore, China's currency has not stood the test of time where the dollar has.

China has a long way to go before it's even rationally conceivable that it could replace the dollar as a reserve currency.
 

JP Hochbaum

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The only reason the USD is the reserve currency is because we export the most currency of any nation. Why do we export dollars and how? we buy things from other countries. The status of being a reserve currency is meaningless.
 

cpwill

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Not going to happen any time soon.

A reserve currency requires faith in the bank behind it. The Fed has that faith from the markets. China's central bank does not. Furthermore, a reserve currency has to float without restrictions. The Yuan does not, nor will it in the conceivably future as the PRC ensures a stable currency to ensure a stable economy. PRC's only real claim to legitimacy is economic growth as their political repression forbids real democracy. Furthermore, China's currency has not stood the test of time where the dollar has.

China has a long way to go before it's even rationally conceivable that it could replace the dollar as a reserve currency.

the main critique i would interpose here is that "global" is a very different story from "regional".
 

cpwill

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The only reason the USD is the reserve currency is because we export the most currency of any nation. Why do we export dollars and how? we buy things from other countries. The status of being a reserve currency is meaningless.

well... so far it has allowed us to get lots of cool manufactured stuff and materials and labor in return for little pieces of green paper.
 

JP Hochbaum

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well... so far it has allowed us to get lots of cool manufactured stuff and materials and labor in return for little pieces of green paper.

Our reserve status hasn't allowed that, you are confusing the effect (reserve status) with the cause (ability to buy stuff, international trade agreements, etc..).
 

obvious Child

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the main critique i would interpose here is that "global" is a very different story from "regional".

Still shouldn't matter. China's central bank has not demonstrated it is trustworthy. And the political interests of the PRC do not necessarily match with what people globally or regionally are looking for in a reserve currency.
 

cpwill

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Still shouldn't matter. China's central bank has not demonstrated it is trustworthy. And the political interests of the PRC do not necessarily match with what people globally or regionally are looking for in a reserve currency.

It does matter, especially when talking about economic dominance and relative levels of trust. For a Cambodian going to visit his relatives in Vietnam, Chinese currency might (in a near-term future where SE Asia is dominated by China) make perfect sense.

Worth noting is that the first step (divestment from the dollar as a means of exchange) is already occurring between China and several of its trading partners.

But perhaps you can point to the varying actions that have equaled such trust for the fed and distrust for the PBoC in the region?
 

cpwill

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Our reserve status hasn't allowed that, you are confusing the effect (reserve status) with the cause (ability to buy stuff, international trade agreements, etc..).

uh, no, I think you're backwards here. The demand for the dollar abroad isn't there because we printed alot of them, we were able to print alot of them because there was demand for them abroad. Otherwise Zimbabwe would have the worlds' reserve currency.
 

obvious Child

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It does matter, especially when talking about economic dominance and relative levels of trust. For a Cambodian going to visit his relatives in Vietnam, Chinese currency might (in a near-term future where SE Asia is dominated by China) make perfect sense.

Depends where his relatives are. I found that in cities relatively close to borders, many vendors will take multiple currencies so the guy is better off just not converting period and paying fees. Second, Vietnam, at least in the major cities not near China don't take Yuan so the guy is going to get dinged twice, converting from Cambodian to Yuan then to Vietnamese money. Furthermore, this market is relatively small. Usually regional in size will refer to sizable transactions rather then small petty cash like that. China is trying to get contracts in Yuan but it's hardly taking off. And ultimately, the big banks are still going to favor the US over China regionally.

Worth noting is that the first step (divestment from the dollar as a means of exchange) is already occurring between China and several of its trading partners.

Which is relatively small compared to the total trade. They're trying, but it's slow at best.

But perhaps you can point to the varying actions that have equaled such trust for the fed and distrust for the PBoC in the region?

PBoC hasn't been around long enough first. Second, the activity between the PBoC and the Zombie State banks is enough of a reason to question how a PBoC will prioritize. China still has billions if not trillions in NPLs on state banks that will be saved first in the event of a problem. How can you trust a central bank that will throw everyone else to the dogs to save China related NPLs?

I will admit that significant portions of Fed Trust are largely emotional and traditional. The recent QE has raised some questions, but there's nowhere else to go for a reserve currency.
 

MMC

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It does matter, especially when talking about economic dominance and relative levels of trust. For a Cambodian going to visit his relatives in Vietnam, Chinese currency might (in a near-term future where SE Asia is dominated by China) make perfect sense.

Worth noting is that the first step (divestment from the dollar as a means of exchange) is already occurring between China and several of its trading partners.

But perhaps you can point to the varying actions that have equaled such trust for the fed and distrust for the PBoC in the region?

Indeed it does CPW :2wave: .....already China and Russia have signed a pct dropping the US dollar when trading. Plus the Arab nations are pushing a measure as well. Then China and Brazil signed a pact last year. Which don't count some other South American Countries either. So there quite a few that want to get out of switching up out of US dollars.

Which they are working for another Currency. Yet none has come to bear fruition.
 
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