China has to push for all oil trading out of Iran/Russia to be done in Yuan and for GCC countries to increasingly settle China oil trades in Yuan or it will just buy more from Russia and Iran
Renminbi (RMB)/Yuan Appreciation & Internationalization
- Thread starter supercat
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China has to push for all oil trading out of Iran/Russia to be done in Yuan and for GCC countries to increasingly settle China oil trades in Yuan or it will just buy more from Russia and Iran
I've been reading various commentators online in the past couple of months on their takes. Most people are bullish on gold and believe we are moving away from dollar reserve currency. This article by David Goldman is interesting
I must say that I don't quite understand the path he took. The basic evidences look reasonable, but the implication and conclusion are not really things I can grasp. There are obviously implications for USD losing value. High period of inflation after 15 years of near 0% interest rate is not a crazy idea. Having too much foreign holders of your debt is also a problem, but I don't really know how that would work on in practice.
I must say that I don't quite understand the path he took. The basic evidences look reasonable, but the implication and conclusion are not really things I can grasp. There are obviously implications for USD losing value. High period of inflation after 15 years of near 0% interest rate is not a crazy idea. Having too much foreign holders of your debt is also a problem, but I don't really know how that would work on in practice.
David Goldman IIRC had a lifetime career in investment banking industry for one of the big name giants, I think as a strategist of some sort? He might be operating off of some assumptions or understandings that are common sense to him (and hence he deems don't need elaborating).
Yes, he clearly is a very smart person and understands what he is talking about. There are real issues in the current system, but i'm not really sure what's the correct approach if you live in America.
If you look at the price of gold, it's gone from around 500 back in mid 2000s to 2000 right now. So, that's pretty good return for 15 to 20 years. But stock has grown a lot in the back 10 years too. You'd have to be going for a real doom day play to buy gold right now.
But if USD really does lose its reserve status in the next year (which I think is very unlikely), the devastation of American economy and its stature around the world and its general power will be immense. So, the internationalization of the Chinese currency has much to do with fortune of USD. And there are definitely things that China can do to trigger a "run" on USD. For example, has more countries sell oil/gas/coal in RMB, so countries keep more RMB reserves to buy energy vs USD. Of course, it can more rapidly sell its own treasuries and other us bond holdings.
Just do want Russia did to EU -- refuse to take USD as payment. This will force US to buy foreign currency, hence causing exchange value of USD to drop, not to mention additional transactional fee. China is probably not likely to take this step until it has deposed of USD in its reserve, barring unexpected developments.
My cheap 3 cents.
It is the word he did not mention, which is confidence. A market of currencies could be priced at any level. Confidence that those investments in such and such a currency must be maintained, otherwise without confidence then investors will dump that sucker, and lower prices for US assets, including the USD. Actions of the US government must give investors with the moo-la-la confidence that their investments have a good sound basis.
The value of the US dollar may and can decline, not just measured against other currencies, but what about traditional money, such as gold and commodities! When the price of gold goes up, the US dollar automatically declines. That is why I say it will be a rally of everything!
This piece of news I missed entirely.
We keep searching for the single replacement for the dollar, and there will not be one. But could the currency suffer weakness by a thousand cuts? That seems a more likely scenario. The author and investor Ruchir Sharma points out, “Right now, for the first time in my memory, we have an international financial crisis in which the dollar has been weakening rather than strengthening. I wonder if this is a sign of things to come.”
Markets follow the path of least resistance. If everyone knows or believes there are clear upper limits to the dollar, the only path is down. Fareed Zakaria is not a financial guy, but his columns are much better now, he has a real grasp on what he writes about now. He knows what the important points are. Before he we was just clueless. Guess he grew a wisdom the last couple of years, which is surprising. Usually when someone like him who would write crap articles for years and suddenly write decent stuff, something happened. When were is a banking crisis, and there is none of the usual flight to quality, then something has changed. Who knows? Maybe there was a flight to quality but the Asians were selling into that.
What the price of gold, to see what a rally of everything could look like.
Ask the question another way, what is the purpose of dollar hegemony?
To keep the price of the dollar high and stable. It is what Clinton and Obama wanted, a strong dollar policy.
Gold is the ultimate commodity. If that is going up, we can be sure other stuff is going up.
Okay, guess we can automatically see the obvious now.
What happens with the base inputs goes up? Costs goes up.
Who is the biggest manufacturer around? China, China, China, Chyna!
But China now moving up the valued add chain.
To make a long story short here, blah blah blah, if the cost of the base input has increased, then when we slap on the value added (another input like an alloy for example which charge extra), but since the cost of the base input goes up, we mark up the same percentage, then we mark up the same percentage for the alloy, for the value added.
The costs in manufacturing under this normal business scenario, it cascade it upwards.
Remember, who makes the shit, and who buys the shit.
If the US dollar declines 2% against RMB, due to value added how that works, the stuff from China could be going up 10% 15% who knows due to value added.
Of course, that in turn will get the gold bugs all excited.
It could be there time, gold, gold, gold!
Ask the question another way, what is the purpose of dollar hegemony?
To keep the price of the dollar high and stable. It is what Clinton and Obama wanted, a strong dollar policy.
Gold is the ultimate commodity. If that is going up, we can be sure other stuff is going up.
Okay, guess we can automatically see the obvious now.
What happens with the base inputs goes up? Costs goes up.
Who is the biggest manufacturer around? China, China, China, Chyna!
But China now moving up the valued add chain.
To make a long story short here, blah blah blah, if the cost of the base input has increased, then when we slap on the value added (another input like an alloy for example which charge extra), but since the cost of the base input goes up, we mark up the same percentage, then we mark up the same percentage for the alloy, for the value added.
The costs in manufacturing under this normal business scenario, it cascade it upwards.
Remember, who makes the shit, and who buys the shit.
If the US dollar declines 2% against RMB, due to value added how that works, the stuff from China could be going up 10% 15% who knows due to value added.
Of course, that in turn will get the gold bugs all excited.
It could be there time, gold, gold, gold!
Decoupling is inflationary.
Every second article we read about China is about decoupling.
Every article we read about inflation, decoupling is rarely mentioned if ever.
It is like the politicians cannot make the connection that decoupling will cuase inflation.
Every second article we read about China is about decoupling.
Every article we read about inflation, decoupling is rarely mentioned if ever.
It is like the politicians cannot make the connection that decoupling will cuase inflation.
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People have been predicting the end of the dollar as the world's reserve currency for decades now. It will eventually happen. But I don't think it will be anytime soon.
The world is not sticking with the dollar as the world's reserve currency out of love for America or have blind faith in their abilities.
But it is because there is at the moment simply no alternatives to the dollar and the world is so deep in to the dollar system that trying to get out will cause themselves considerable pain.
But as the US economy continues to disfunction and American behaviour on the world stage becomes increasily erratic. The two in my view are linked, as domestic disfunction is fueling insecurity about its role and place in the world and is in turn fueling its increasingly erratic behaviour in its foreign policy. The dollar's role in the world will continue to deminish.
But even with the dollar as the world's reserve currency is not going to help them with their domestic economic problems or prevent a catastrophe. There is too much debt, too little savings, massive asset bubble's, trillions in toxic assets and debt, a economy that is structured to consume rather than to produce, political disfunction, social tensions are not going to be resolved by having the world's reserve currency.
The world is not sticking with the dollar as the world's reserve currency out of love for America or have blind faith in their abilities.
But it is because there is at the moment simply no alternatives to the dollar and the world is so deep in to the dollar system that trying to get out will cause themselves considerable pain.
But as the US economy continues to disfunction and American behaviour on the world stage becomes increasily erratic. The two in my view are linked, as domestic disfunction is fueling insecurity about its role and place in the world and is in turn fueling its increasingly erratic behaviour in its foreign policy. The dollar's role in the world will continue to deminish.
But even with the dollar as the world's reserve currency is not going to help them with their domestic economic problems or prevent a catastrophe. There is too much debt, too little savings, massive asset bubble's, trillions in toxic assets and debt, a economy that is structured to consume rather than to produce, political disfunction, social tensions are not going to be resolved by having the world's reserve currency.
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