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An interesting
article in the Financial Times got me thinking once again about the popular notion that the Yuan is about to replace the dollar as the global reserve currency.
Please consider a couple brief snips from
Beijing in fresh TV censorship move
The Chinese
government has stepped up
censorship of local television
in a sign of the broadening
of a political crackdown that has landed many dissidents in jail.
China has severely clamped
down on activists since February when an anonymous online appeal called for demonstrations along the lines of the “jasmine revolution” sweeping north Africa and the Middle East.
Authorities have detained
scores of human rights lawyers, activists, and writers. They have also arrested Ai Weiwei, the contemporary artist.
Reserve
Currency Requirements
So what does this political crackdown say about the likelihood that the Yuan will soon replace the US dollar
as the world's reserve currency? First consider what it takes
to be the world's reserve currency.
1.
Deep, liquid, open bond markets
2.
Floating currency
3.
Property rights, civil rights
4.
Political stability
5.
Political freedom
China flunks on at least
4 of 5 points, and arguably all 5. It may be a
decade before China even floats the Yuan. How long before China has a deep, liquid, bond market? You tell me, because I don't know, but I assure you it is not in the next three years.
For further discussion please
see Bogus Threats to US Reserve Currency Status: No Country Really Wants It!
Yet somehow hyperinflationists persist in spreading nonsense that the
Yuan is somehow on the
verge of replacing the dollar as a global reserve currency and that may cause hyperinflation.
There certainly may be more local trading in the
Yuan. In fact, it is likely. That does not imply the death of the dollar or the loss
of reserve currency status and it certainly does not portend hyperinflation.
Hyperinflation is the complete
loss of faith in a currency. Should that happen to the US, the entire global banking system blows up. Global trade blows ups. If China refuses US
dollars, then China's
exports to the US stop, overnight. So do Japan's.
So what does that do to the economies of Japan and China? What would that do to the economies of Canada and Australia?
Think about Chinese and Japanese exports and the demand
for commodities.
Whether they realize it or not, that is the story hyperinflationists peddle. It simply is not a credible story as noted in Hyperinflation Nonsense.
Hype Sells
No Virginia, the US Dollar is Not Headed to Zero any time soon. Might the dollar slowly decay over decades? Sure why not? It already has. However, that is not hyperinflation.
Yes, the US has problems,
so does Japan, so does
China, so does the
Euro-Zone, and so does
the UK. Indeed global currency
problems and insolvent banks are everywhere one looks.
However, myopic eyes are primarily focused on the US. Here's the
deal. The US dollar is not suddenly
going to zero vs. the
Pound, the Yen, the Yuan, or the Euro, yet that is what
hyperinflation implies.
Why is the
"hyperinflation is imminent" scare everywhere you look? The answer is simple: Hype Sells.
The bigger the hype, the sexier the story, and the more people are attracted by it.
Mish
GlobalEconomicAnalysis.blogspot.com
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Mish's Global Economic Trend Analysis
Thoughts on the great
inflation/deflation/stagflation debate as well as discussions on gold,
silver, currencies, interest rates, and policy decisions that affect the
global markets.
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