China’s Recent Actions Indicate They May Soon Drop The U.S. Dollar
15 Comments »Giordano Bruno
Neithercorp Press – 10/25/2009
As we have reported in previous articles, China and its economic decisions will be a major tipping point for the U.S. Dollar and its eventual collapse as the world reserve currency:
http://neithercorp.us/npress/?p=105
http://neithercorp.us/npress/?p=167
China has taken several steps already in separating itself from its dependence on the U.S., including a recent dumping of U.S. Treasury Bonds:
http://english.people.com.cn/90001/90780/91421/6734461.html
And the purchase of $50 billion dollars in the IMF’s world currency, the SDR (Special Drawing Rights):
http://www.chinadaily.com.cn/china/2009-09/03/content_8648691.htm
China has also stated repeatedly that the U.S. Dollar should be replaced as the world reserve currency:
http://www.youtube.com/watch?v=u_5_KCKeM4k&feature=player_embedded
However, these actions were only just the beginning as China has now taken concrete steps to replace the U.S. as its main export market.
In the past, main stream economists have argued that China would never break from the Greenback, mainly because the vast portion of their export markets were dependent on U.S. consumption. However, Chinese exports have faltered significantly due to the economic downturn in the U.S., not to mention, the Greenback’s rapid drop in the past two months is threatening the value of nearly $1 Trillion in U.S. T-Bonds the Chinese still hold. The Chinese no longer have any reason to maintain static ties to the U.S. or the Dollar.
This became more apparent in the past week when China announced at the ASEAN conference in Thailand that the CAFTA free-trade agreement will be finalized January 1st, 2010. This agreement includes RMB-regionalization, meaning, the institution of the Chinese Yuan as a standard currency between all the member nations of ASEAN, much like the Euro in the European Union:
http://english.people.com.cn/90001/90778/90861/6792566.html
“Alongkorn Ponlaboot, deputy minister of commerce of Thailand, believed RMB would play a more important role in bilateral trade between China and ASEAN in the future.
He said yuan was a very stable currency and expanding its use could help reduce risks faced by the ASEAN countries in using the U.S. dollar, which has become highly volatile as a result of the global financial crisis.
Pung Kheav Se, general manager of Canadia Bank Plc. of Cambodia, echoed Thailand’s deputy minister, saying trade between China and ASEAN kept growing and less risk by the use of RMB would benefit both sides…”
The article continues…..
“Xu Ningning said new economic situation had created stage in Asia for RMB. The three FTAs between ASEAN and China, Japan and the Republic of Korea, respectively, will build a wider platform for RMB exchanging.
“Although it needs time to breed a new trade market or a new currency market, the CAFTA is believed to create new space for the regionalization of RMB,” Xu said.”
The ASEAN and the advent of CAFTA is essentially the formation of an “Asian Union,” with the Yuan and most likely the SDR as the universal currencies, all of this being formed quietly without the open admission that it is an “Asian Union.” It also opens up a trading block that could support China while they drop the U.S. Dollar entirely and break ties with our failing economy. This began with an announcement by the Chinese Central Bank last year indicating that they would begin a “baby step program” to use the Yuan in international trade:
http://news.bbc.co.uk/2/hi/asia-pacific/7799541.stm
It appears that this “baby step” program has now moved into high gear, as the Yuan hurtles towards reserve currency status. But this is not all…
China has also been making economic headway with Russia, as Russian vice-premier Minister Alexei Kudrin recently stated that Russia will soon include the Chinese Yuan in its Foreign Exchange Reserves:
http://english.people.com.cn/90001/90778/90859/6792509.html
Russia has recently reduced its holdings in U.S. dollars and replaced them with Euros. Now, they plan to move into the Yuan and the SDR. This means that the Greenback’s role in international trade is being slowly suffocated.
China has also recently been strengthening its ties to France:
http://english.cpc.people.com.cn/66102/6791515.html
And some African Nations, including Guinea, which is controlled by a repressive military regime:
http://finance.yahoo.com/news/ChinaGuinea-deal-highlights-apf-1060239020.html?x=0
China has become incredibly bold in its political and financial moves in the past year. The Chinese have taken advantage of the recent economic weakness of the U.S. and are now pushing for oil drilling contracts in the Gulf of Mexico, even though Congress refused their requests to purchase UNOCAL and their drilling rights 4 years ago:
http://www.latimes.com/business/la-fi-china-oil22-2009oct22,0,2776603.story
“Four years after denying a Chinese bid to buy Unocal, the U.S. may be in too weak an economic position to object. Rebuffing China could also push it into the arms of countries hostile to the U.S.”
Chinese investors and the Communist Government have also been snapping up U.S. Real Estate on the cheap due to the housing bubble collapse:
http://www.msnbc.msn.com/id/29162036/
http://www.businessinsider.com/when-the-chinese-come-for-our-real-estate-2009-6
I believe all of these actions indicate that China is repositioning itself as a power center in the world economy, and is hedging its wealth in preparation for an announcement that they will drop the U.S. dollar. I also believe that this announcement could come as soon as next year.
If China dumps its remaining U.S. treasuries and stops using the dollar as a reserve currency, our economy as we know it will end. It is as simple as this. Numerous nations will follow China’s lead into SDRs and the Greenback will plummet even further into the abyss, most likely resulting in hyperinflation and the insolvency of our massive national debt. Without question, all eyes should remain on China in the next year.
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