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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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