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The Globalization Process for the Yuan
Japan and
China will promote direct trading of yen and yuan
without using dollars and will encourage the development of a market for
companies involved in the exchanges, the Japanese government said over the
holiday weekend.
Japan will
also apply to buy Chinese bonds next year, allowing the investment of Yuan
that leaves China to Japan to remain in China, the Japanese government said.
Encouraging direct yen- yuan settlement should
reduce currency risks and trading costs.
China also
announced a 70 billion yuan ($11 billion) currency
swap agreement with Thailand last week as part of a plan outlined in October
to promote the use of the yuan in the Association
of Southeast Asia Nations and establish free trade zones. Central banks from
Thailand to Nigeria plan to start buying yuan
assets as the global Yuan market continues to be developed quickly. Investing
in Chinese debt has become easier for central banks as issuance of yuan-denominated bonds in Hong Kong more than tripled to
112 billion yuan ($18 billion) this year, and
institutions were granted quotas to invest onshore. Japan will start to buy
"a small amount" of China's bonds, a Japanese government official
said, on condition of anonymity because of the ministry's policy, without
elaborating. Yes, it is small, but the systems are now in place. Expansion of
these is happening and has the potential to burgeon!
China is
Japan's biggest trading partner with $340 billion in two-way transactions
last year. The pacts between the world's second- and third-largest economies
mirror attempts by fund managers to diversify as global, financial markets
remain volatile and decaying. It marks a major leap forward of the
internationalization of the Chinese currency, a step that has been developing
for the last few years, from tiny beginnings. It signals that the Chinese
banking system has developed to the stage where they can handle international
transactions of note. The development of the banking system is clearly far
advanced, so expect the enlargement of the international Yuan market to
pause, as this leap in size settles in and any teething problems eliminated.
The next step
after that is to go completely global!
First Step of Many Chinese Trade Bloc the Initial Target not the Deposing of
the Dollar
It would be
wrong to see these moves as purposely attacking the dollar. China's motive is
as simple as the world has seen new world power gain strength. We're
witnessing the post-initial steps of the growth of a Chinese empire,
encompassing its Asian trading partners and bringing them into a new Asian
Yuan currency bloc. Initially, Chinese economic development has focused on
internal growth spreading from the South and Eastern parts of China into the
hinterland north and west of the country as the nation slowly but steadily
lifts itself out of poverty. Financially, China isolated its currency from
global influence as its banking system was so underdeveloped. But with
government pressure and the capabilities the Chinese people banking is now
racing to catch up. The Chinese government wants Chinese banking and trade to
succeed and throws its full weight behind these developments. This has
resulted in far quicker-than-anticipated entry into the global financial
world. Careful to ensure that China benefits fully from these developments
and not foreign businesses, China is sucking knowledge and wealth out of the
developed world in its quest to fully develop its 1.3 billion people. It's
naive on the part of the developed world -- whether it is Europe or the
States -- to think that China will assist them with their debt and banking
problems unless it ties directly into the development of China.
This is a
financial war, involving, not lives but livelihoods, and China is winning
every step of the way.
The financial
world may belittle the present moves as still very small in money terms in a
global context, but structurally the move should make the developed financial
world jump to attention.
Consequences:
Developed World Losing Power and Heads into Worse Crisis
The reason
why the developed world has seen the debt and banking crisis wreak such
havoc, so far, is that its growth has diminished to the point where it's
having difficulty employing their young.
With such
reduced cash flows, the size of debt burdens becomes overwhelming. When the
developed world enjoyed strong growth, the present debt burdens were
manageable. But not any more! The central banks of
the developed world have had to create new money to fill the holes left by
the dropping value of financial assets and try to hold such money printing at
those levels or see inflation take off; there will, however, come a time when
the developed world will have to pay more interest to raise loans as trust in
their currencies diminishes. Should this happen, their debt mountain will be
completely unsustainable, not only in Europe but in the United States as
well.
Should
interest rates rise - and the Fed will not let that happen by choice --
because of falling foreign investment in the dollar, then Treasury and other
Fixed interest markets in the developed world would be in danger of
collapsing.
US Dollar as the Sole, Global Reserve Currency to End!
Of
considerably more importance is the impact on global foreign exchanges and
the role of the U.S. dollar as the world's sole global reserve currency. For
more than two years now Gold, Silver Forecaster have been predicting
that the day would come when Chinese exporters/importers would offer and bid
prices for goods in the Chinese Yuan. Well it has arrived, albeit confined to
Asian trade at the moment.
As of now,
$350 billion in global trade will disappear, replaced by Yuan/Yen trade.
Where will these dollars go? Over time they will be sold off and head home
through a falling exchange rate. That's why we'll see the Yuan appreciate, but
only initially, as the Chinese ensure that demand is met by foreign sales of
Yuan for non-U.S. currencies.
As time
passes the process of the internationalization of the Yuan will primarily be
at the expense of the dollar. At some point in this process, the rise of the
Yuan and the fall of the dollar from its throne will become visible on
foreign exchanges and in the financial picture inside the U.S.A. and Europe.
At best, we'll see the Yuan join the world's current leading currencies in
global trade, but rising in the future to potentially the prime global,
reserve currency at worst.
But this
process could take more than five years or less if the Chinese government
pushes it hard.
The
consequential pressures on the global currency system, which presently is
dependent on the U.S. dollar for its credibility, will undermine the entire
global monetary system. When control of the monetary system was entirely in
the hands of the developed world, both sides of the Atlantic, gold could be
side-lined. But with this new Chinese empire, the new currency bloc has
divergent interests from the developed world.
The developed
world is seeing the beginning of its loss of control over gold!
Asia, as well
as emerging nations worldwide, have seen the importance of gold in their
reserves and continue to press for an increase in their holdings - almost
preparing for the day when global cooperation is reduced by trade wars,
protectionism and the like. The spectre of a world
split into two financial and trading parts is now in front of us. While this
is still in the future, it's a visible probability. In such a financial
climate, consistent with its history, gold being independent of national
obligations and links must return to the system in one form or another. But
how?
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