China just dumped the dollar system

[HongWu]

China "Attacks The Dollar" - Moves To Further Cement Renminbi Reserve Currency Status | zero hedge

Too much formatting for me to cut and paste. Just check out the link.

Soon we'll all be doing international trade in RMB.

 

[Solomon2]

Good news, long overdue. However, it is not enough for China to make its currency fully exchangeable for it to really be used as a reserve currency. That requires the establishment of yuan-denominated external debts. No prospect of that in sight, is there?

 

[HongWu]

Chinese banks already lend RMB to western businesses. McDonald's recently raised capital by issuing RMB-denominated bonds. No reason why PBOC cannot sell bonds to foreign central banks.

 

[Solomon2]

Chinese banks already lend RMB to western businesses. McDonald's recently raised capital by issuing RMB-denominated bonds. No reason why PBOC cannot sell bonds to foreign central banks.

I agree. But PBOX seems rather squeamish in doing so, yes? Why should they seek foreign lenders when there is so much capital available from the savings of millions of Chinese? They have to work on making bonds and such tradeable. As the Europeans have discovered, it takes not just tens but hundreds of billions of dollars of foreign-held debt to establish a currency as a reserve currency.

 

[SekrutYakhni]

The Great Recession of 2008-2009 suggests that China can no longer afford to treat the Four Uns as theoretical conjecture. The post-crisis era is likely to be characterized by lasting aftershocks in the developed world – undermining the external demand upon which China has long relied. That leaves China’s government with little choice other than to turn to internal demand and tackle the Four Uns head on.

The 12th Five-Year Plan will do precisely that, focusing on major pro-consumption initiatives. China will begin to wean itself from the manufacturing model that has underpinned export- and investment-led growth. While the manufacturing approach served China well for 30 years, its dependence on capital-intensive, labor-saving productivity enhancement makes it incapable of absorbing the country’s massive labor surplus.

Instead, under the new Plan, China will adopt a more labor-intensive services model. It will, one hopes, provide a detailed blueprint for the development of large-scale transactions-intensive industries such as wholesale and retail trade, domestic transport and supply-chain logistics, health care, and leisure and hospitality.

Did they just realize that? (pun intended) I said this in 2010 that China needs to encourage domestic growth as they have huuugue population to look for.

But the so called economists on this forum were jumping too hard on me...

 

[webber]

China is backing the dollar system actually

we are just racing each other printing papers

 

[cross1993]

@HongWu

We can not abandon the USD. Because RMB is not freely convertible, it can not replace the USD.
If China do not support the USD, Euro will be the only winner.
China and the USA will be the losers, Because most of our reserves are USD...

 

[bronx]

@HongWu

We can not abandon the USD. Because RMB is not freely convertible, it can not replace the USD.
If China do not support the USD, Euro will be the only winner.
China and the USA will be the losers, Because most of our reserves are USD...

You are being misled by Western Media . China's Total reserves is US$2.xx Trillion or Euro$3.xx Trillion or AUD$2.xx trillion . The use of USD , Euro$ or AUD$ in this case is merely as a benchmark....(in financial parlance, we say , it is merely descriptive , NOT distinctive .)

China's ACTUAL holding of US Treasuries as of Dec 2010 is just slightly more than 1.1 Trillion , or about 35% of their total reserves.

http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt


You have to remember most of China’s wealth is not in dollars, it is in renminbi-CNY.

If China were to dump the USD$ treasuries , they would lose on their USD$ international reserves, but they would gain on every other asset that they own.

I think the question is: What issue is big enough to play that card? .
Dumping US$1.1 trillion is a SMALL price to destroy the USD$ , when every other asset class China holds will shoot through the roof.....

The one that fears ...will be the ones left holding the USD$ when it is dumped...It is like musical chairs, and right now, China decides when the music stops .

 

[Solomon2]

China and the USA will be the losers, Because most of our reserves are USD...

I can think of two reasons for China to be cautious: First, it's only in the past two decades that China has sent students abroad to learn modern macroeconomics, and as I can attest the first ones studied it in secret from their Chinese government sponsor, sneaking economic books to read in their science labs. Second, for the past several hundred years China's governments have often issued or employed bad money, currency that did not maintain its purchasing power.

Still, things are proceeding slower than I think could be the case: China should have started accumulating precious metal reserves in the 90s, should have moved into the Euro sooner, should have made the yuan convertible a year or two ago, and should have issued tradeable bonds for big capital projects a decade ago. But while the purchasing power and economic might of China's citizenry would have been greater, I think the prospect of high labor costs and unemployment does not please China's leadership.

 

[bronx]

I can think of two reasons for China to be cautious: First, it's only in the past two decades that China has sent students abroad to learn modern macroeconomics, and as I can attest the first ones studied it in secret from their Chinese government sponsor, sneaking economic books to read in their science labs. .

You're assuming that China Talents can only originate from within China itself . Secondly , that the learning curve is linear .

The reality is that both of these premises are false . The China Government today attracts global talents from all over the world . Their preferences will of course be home grown talents- followed by OCs (Overseas Chinese) and then anyoone else that is 'talented'. And Yes, they do pay Top dollar .

What many socities have learnt in 10 years , can in some instances be learnt in one year . A very good example is how China has avoided the pitfalls of a Recessive Economy from Japan.

China has learnt very much from the last Global Financial crises (GFC). I see very interesting times ahead...

 

[Aramsogo]

You are being misled by Western Media . China's Total reserves is US$2.xx Trillion or Euro$3.xx Trillion or AUD$2.xx trillion . The use of USD , Euro$ or AUD$ in this case is merely as a benchmark....(in financial parlance, we say , it is merely descriptive , NOT distinctive .)

China's ACTUAL holding of US Treasuries as of Dec 2010 is just slightly more than 1.1 Trillion , or about 35% of their total reserves.


If China were to dump the USD$ treasuries , they would lose on their USD$ international reserves, but they would gain on every other asset that they own.

Bronx, first welcome. Second, what the heck is "distinctive vs. descriptive in financial parlance." I've worked capital markets for 14 years and I've never heard those terms. I just asked two PhD economists in my dept and they've never heard of it. I Googled it and the term is used in patents. What are you talking about? Thank you.

 

[CardSharp]

Bronx, first welcome. Second, what the heck is "distinctive vs. descriptive in financial parlance." I've worked capital markets for 14 years and I've never heard those terms. I just asked two PhD economists in my dept and they've never heard of it. I Googled it and the term is used in patents. What are you talking about? Thank you.

I'm confused too, AUD =/= Euro =/= USD. If you throw 2.xx trillion USD around on the forex, things will likely go kaboom and you can't anyways, it's not like China is holding liquid dollars.

 

[CardSharp]

Anyways there is no possibility that the Yuan can be a reserve currency. China may want to see it as a regional reserve currency in a couple of years, that's it.

 

[Aramsogo]

The article is saying that the PBoC is willing to start making the Yuan a defacto reserve currency. This may indeed happen because China is the source of much of the world's manufactured goods. The Yuan would essentially be backed by these goods. The dollar is not backed by goods, but by the power of the US Military.

At the same time China doesn't want the Yuan to float because then the currency would be vulnerable to attack by the West. In the end, I just don't see America sitting back and allowing this to happen. America would rather overthrow King Abdullah or the CPC before they let petroleum trade in Yuan.

 

[CardSharp]

The article is saying that the PBoC is willing to start making the Yuan a defacto reserve currency. This may indeed happen because China is the source of much of the world's manufactured goods. The Yuan would essentially be backed by these goods. The dollar is not backed by goods, but by the power of the US Military.

At the same time China doesn't want the Yuan to float because then the currency would be vulnerable to attack by the West. In the end, I just don't see America sitting back and allowing this to happen. America would rather overthrow King Abdullah or the CPC before they let petroleum trade in Yuan.

Wow that's actually a pretty major move, would be very interested in seeing how it pans out.