This article was written by JC Collins and originally published at Philosophy Of Metrics
"There are signs lately of growing disaffection with the United States dollar." – Yves-Andre Istel, former vice chairman of Rothschild Inc.
Sometimes the most obvious truths are hidden right
in front of our eyes. Our inability to not see or acknowledge these
realities often leads to sudden jarring moments of realization which
can’t be ignored. These rare moments leave us feeling shocked and
betrayed but with no one to blame, so the human socioeconomic
collective roams the wasted lands of the hinder mind in search of new
reference points.
We are presently on a trajectory course heading
directly for one of these historical moments. It can even be argued
that much of what is happening in the world today, and has been over the
last few years, is the quest for new reference points, not just by the
individual, but also the state machinery of the industrialized west.
Like all trajectories there is a landing and the
decent has begun. But it will not be a descent into madness and mayhem,
but a solid landing in the midst of confused winds. Like every single
reserve currency before it, the United States dollar is caught in the
swirling vacuum of monetary deficiencies and is desperately seeking
escape. But in escape they are attempting to secure resources and
global opportunities for their lineage based wealth.
What is clear from all public statements and
official publications is that the United States no longer wishes to hold
the world’s primary reserve currency, as it has been both a blessing
and a curse. As the now infamous quote by Kyle Bass about killing the
dollar has been heard by all interested parties, and some time has
passed us by, it can be determined that the dollar he was referring to
was the reserve dollar and not the American currency itself.
At the same time China has made it absolutely clear
that they have no interest in making the renminbi the international
reserve currency. They have observed in great detail the path that
primary reserve currencies take and do not wish to see their once again
burgeoning power in the world wane, as it did in the face of western
industrialization.
Like currencies are now pegged to the value of the
US dollar, other currencies will soon be pegged to the value of the
renminbi, but neither currency will be the primary reserve currency by
which international trade is balanced. What we are heading towards is
the expansion of the Special Drawing Right basket of the International
Monetary Fund.
The basket currently is valued on four reserve
currencies, being the US dollar, Japanese yen, British sterling, and the
Euro. Every five years the basket is adjusted and we are now entering
the time period when this could happen. Though China doesn’t want the
yuan to be the primary reserve currency of the world, they do wish to
see it internationalized and become one of the reserve currencies which
make up the SDR basket valuation.
With the renminbi added to the SDR basket there will
be a greater sense of stability in the international monetary system.
The events of the last few years are much better understood in this
manner.
The much discussed BRICS Development Bank and
Contingency Reserve Fund have more to do with strengthening the renminbi
for inclusion into the SDR basket and less to do with any dreamed up
attempts at overthrowing the dollar. Those who promote the storyline of
a BRICS overthrow of the US dollar are directly proven wrong by the
public announcements and publications of the BRICS countries and
institutions themselves.
Other means by which the renminbi will be
strengthened before its inclusion into the SDR basket is found in the
upcoming international offering of yuan denominated gold from the
Shanghai Gold Exchange. This will begin on September 26th and will work
parallel with China’s attempts at diversifying its assets by importing
large amounts of gold from the west, as well as balancing sovereign
debts from the past.
Indirectly, those promoting baseless theories of the
eastern overthrow of the dollar are proven faulty in their analysis by
the fact that foreign reserves of US dollars continue to increase and
gold is still flat at best, leading to the solid conclusion that the
economic banking interests in the world are continuing to support the
dollar system in order to facilitate the transition to the multilateral
system and inclusion of the renminbi into the SDR basket.
How else would you explain the increasing expansion
of the renminbi in the foreign currency reserves of central banks
around the world? These numbers are hardly reported and are not
required to be, even though the currency has not been internationalized.
In the last year over 50 central banks have been actively increasing
their holdings of renminbi, both onshore and offshore. These central
banks are located in Asia, Africa, South America, and Europe.
In essence, the internationalization of the Chinese
currency is already taking place as shown in the vast amount of
currency swap agreements and trading hubs being set up around the
world. There is a frantic pace to this defacto internationalization,
such as the two Canadian provinces of British Columbia and Ontario
working together to quickly implement the trading hub here in Canada.
Whether the renminbi has been given official reserve
status or not matters little when the world has already embraced the
currency. In the post Everything Will Be SDR Compliant, it is detailed how the BRICS countries still support the mandates of reforming the international system through the IMF.
In other official publications it has been made
clear by all sides, including the BRICS countries and the US Treasury,
that support exists for this restructuring of the global system, not
just for the IMF, but also for the United Nations and the G20.
Here is another recent publication from the Centre for International Governance Innovation, or CIGI, titled China’s Goal in the G20. It further supports everything I’ve been stating here since January.
The world is clamoring for an alternative to the
dollar as the primary reserve currency. This does not mean the American
currency will collapse. In fact, the rest of the world is ensuring
that it doesn’t as they hold large amounts of the asset in their foreign
reserve accounts.
And in turn central banks around the world are
dramatically increasing their foreign holdings of the Chinese asset, all
in preparation of balancing the global system when the renminbi is
ultimately included in the SDR basket valuation. This one event will
change the world we live. It is just sad that though most will know and
sense that something has happened, they will be unable to put their
finger on exactly what that change is. Those in the western world will
feel less exceptional and those in the east will feel empowered and
encouraged for future growth.
But yet there is hope for the west as detailed in the post The New Industrialization of America.
In previous posts I’ve discussed the usage of
substitution accounts where debts between the US dollar and the renminbi
can be quietly balanced without disrupting the international economy.
Somewhere within the hidden chambers of these substitution accounts lay
the real reason for the delay on the 2010 Governance and Quota Reforms
for the IMF.
But once the renminbi is included into the SDR
basket, the world will be then left to face the large amount of
sovereign debt which will require consolidation and restructuring
through the issuance of SDR denominated bonds. Though there are proxy
wars for the control of resources taking place around the world, all
sides are working silently and closely together on balancing the
substitution accounts and getting the renminbi prepared for its rise to
one of five reserve currencies included in the SDR basket. Then the
real work begins.
This year is far from over when it comes to the economic transition
which is taking place. We need to keep our eyes open and observe the
truths as they unfold.
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