Yuan Marches Toward Reserve Currency Status

by Kevin D. Freeman on May 27, 2013

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CHINA-RUSSIA-DIPLOMACYWe’ve covered this in previous posts. Now, however, both Australian and New Zealand have announced direct trade with China in their own currencies, bypassing the U.S. dollar. Many other Chinese trading partners are looking to follow suit. This is significant as it further diminishes the role of our dollar as the global reserve currency. It is also a stated goal of China, the BRICS nations and Russia.

Here is the announcement regarding New Zealand from The Wall Street Journal:

By REBECCA HOWARD and JAMES GLYNN

WELLINGTON, New Zealand—Seeking to help its exporters, New Zealand is negotiating with China to make their currencies directly convertible, a spokeswoman for Prime Minister John Key said.

Most of New Zealand’s exports to China are agricultural products—particularly milk powder, meat and wool—while most of its imports from there are computers, mobile phones and clothes. Above, sheep shearering near Dunedin, New Zealand in September.

Wellington’s push is aimed at driving down costs for companies that do business with China, which is close to overtaking Australia as New Zealand’s No. 1 trading partner . . . [To CONTINUE READING at The Wall Street Journal . . .]

Here is the previous announcement regarding Australia:

The Wall Street Journal
April 8, 2013, 4:00 a.m. ET

China, Australia Reach Currency Deal

By ENDA CURRAN

SYDNEY—Australia and China have agreed to allow each other’s currencies to be directly converted, Prime Minister Julia Gillard said Monday. Starting Wednesday, the Australian dollar will be directly convertible into the yuan and vice versa.

Australian Prime Minister Julia Gillard called the deal a ‘huge advantage.’

Australia will be only the third country to have such an arrangement with Beijing, which is expected to cut costs for local companies doing business in China, Australia’s biggest trading partner. Only the U.S. dollar and Japanese yen are at present directly exchangeable with the yuan.

The agreement does away with the need for companies and currency traders to first convert their Australian dollars or yuan into U.S. dollars . . . [To CONTINUE READING at The Wall Street Journal . . .]

If you don’t think this is a BIG DEAL, consider this from Russian News Services:

Year of the yuan: China’s explosive currency goes global

Published time: May 01, 2013 07:51

The ‘people’s currency’ of China is redefining the global economic monetary system. The closed-capital pariah is blossoming into a reserve standard and is hedging appeal against the indebted dollar and the untested euro, piquing foreign interest.

Degenerating credit quality across the board has prompted asset managers to shy away from the dollar, euro, Japanese yen, British pound, and Swiss franc. And some are turning to the yuan, a currency that 10 years ago was completely off limits to foreign investors.

An HSBC forecast projected that by 2015, the yuan will become one of the three most used currencies in global trade, in league with the dollar and euro. The report, issued in April, also foresees a third of China’s cross-border transactions being carried out in yuan.

China has been making a concerted effort to establish itself as an international currency reserve. China already has agreements with Russia, Vietnam, Thailand, and Japan allowing trade to be settled in yuan instead of dollars . . .
[To CONTINUE READING at RT . . .]

This is a shift in strategy inside China that most Western observers have chosen to ignore. The Chinese are less and less viewing America as a target market and more often seeing us as a weakened opponent. Of course, there are serious internal strains with the existing model in China and rapid adjustments may be required. The new plan is built on rising nationalism with the hope that internal problems will be glossed over by a major strategic shift.

The Russians almost seem gleeful that the Yuan is emerging rapidly to challenge the U.S. dollar. This matches with very public statements by Putin. Now, consider the following link sent to us by one of the serious Russia watchers in Europe (Thanks, Torsten). We have selected a few excerpts but the entire post is well worth reading:

Russia’s Plan For The BRICS To Dismantle The Dollar System

SUNDAY, MAY 12, 2013 AT 3:38PM

Contributed by Valentin Mândrăşescu, Editor of Reality Check @ The Voice of Russia. Former commodity trader, economist, journalist. Nomadic lifestyle. When not in Moscow, he can be found travelling across Eastern Europe. Areas of interest: world economy, East European politics, and the theory of propaganda.

The status of the US dollar as the world reserve currency gives the US a number of advantages over other countries. The world’s most important commodities are priced and traded in dollars, even if most of these commodities are not produced in the US. The fact that the world’s financial system is based on the dollar allows the Federal Reserve to export inflation to other countries, while the Federal Government runs a huge deficit with impunity.

So far, only China has been active in challenging the dollar supremacy. The internationalization of the yuan is an official priority of Chinese leaders . . .

A week before the recent BRICS summit in Durban, the Kremlin administration has silently produced a document (PDF) which describes the Russian strategy in the context of BRICS cooperation. The document makes for a fascinating read for anyone brave enough to plow through the dense Russian legalese. The strategy has been designed in the “inner circle” of Vladimir Putin’s team, so it is safe to assume that it represents the official view on the BRICS future . . .

The goals are clear. In the section titled “Strategic goals,” the first point on the BRICS’ agenda is the reform of the world financial system in order to make it “fairer, more stable, and more efficient.” In the later chapters, it is spelled clearly that this “reform” is actually a dismantling of the dollar system . . .

As BRICS countries try to achieve the rest of their stated goals, it remains to be seen if the dollar system survives the joint onslaught of the biggest emerging economies.By Valentin Mândrăşescu, author of the pungent article on the inner machinations of Russia…[To CONTINUE READING at Testosterone Pit Blog . . .]

This isn’t new. We have covered it multiple times in this Blog. But, these realities are largely being ignored by arrogant Western leadership and events are progressing much faster than most believed possible. The implications are huge. The reality is that we are in a Global Economic War and the Russians understand this. Here are some excerpts from The Voice of Russia from this January:

Vedomosti reports that Sergey Glaziev, the economic mastermind behind the Eurasian Union, sent an official report to Kremlin, stating the necessity of a radical revamp of Russia’s economic policy in the wake of the second wave of global economic crisis. “Unknown sources” have provided the media with the contents of this highly controversial document, igniting a fierce debate in the press and blogosphere.

Glaziev’s report features apocalyptic predictions in regard to the state of the world economy but the most interesting part of the text refers to the so-called “currency wars”. Basically, one of the most influential advisors of the Russian president accuses both the US and EU of “legalized aggression” through unbridled monetary emission . . .

Sergey Glaziev considers that such a policy is actually a form of legalized aggression and that the world is in a state of financial war.According to the conclusions of this report Russia “cannot win this war” without some major changes in its own economic strategy. Vedomosti reports that Vladimir Putin assembled a crack team of experts from Russian Academy of Science with a mission to create a brand new economic policy. Glaziev is reported to be the team’s liaison in the president’s administration, while the team itself is led by Alexander Nekipelov, a member of Rosneft’s board of directors.

According to the preliminary conclusions of this team, a radical revamp of Russia’s economic policy could lead to spectacular results. Glaziev’s report indicates the following key elements required for sustainable growth: radical increase of the savings rate, investment in breakthrough technologies (up to 4% of the GDP), and creation of a strong and self-sufficient banking system. Although the nation’s economy is considered a top priority, national problems cannot be solved without mitigating some of the global risks . . .A reform of the global financial system, spearheaded by Russia, is reported to be one of those solutions.
[To CONTINUE READING at The Voice of Russia . . .]

The BOTTOM LINE:  What we view as a global marketplace our enemies view as a global battle space.

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