Will the Yuan potentially be the new reserve currency?

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mrobinson's picture
mrobinson
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Posts: 71
Will the Yuan potentially be the new reserve currency?

Hi guys

Would someone be able to inform me why the Chinese currency wouldn't be the worlds new reserve currency.

Recent performance of the Euro weakening due to Europes Central Banks money printing policies, not to mention the continued money printing from the US surely would have to favour the Yuan.

I understand the Chinese also print money, but with cash surplus and increased gold supply surely this would place China in a similar position the US enjoyed after the war when it was agreed the US would be the reserve currency.

As all Fiat currencies are in trouble, what would happen to the Yuan if the Chinese decided to back their currency with Gold.

Some news indicating the Chinese maybe travelling along that path.

http://www.asianews.it/index.php?l=en&art=14131&size=A01/03/2009

http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=82afe43d-8d3c-494d-894d-113c196ed750

Also regarding the link below which tends to support the Chinese being the reserve currency, is the information about the Yuan going into hyperinflation and dumping US dollars to save their currency correct? Appears to be a lot of debate about the subject, but it makes logical sense, but i need smarter brains than me to determine if the causes are correct.

http://www.marketskeptics.com/2009/01/hyperinflation-will-begin-in-china-and.html

 All the best and warm regards

 Mike

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bearing01
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Re: Will the Yuan potentially be the new reserve currency?

I think that if a country right now came out with a gold backed currency then the world would immediately run to that currency as a storage of wealth.  It would however undermine the USA and Bernanke's ability to con the world into keeping their US dollars.  Therefore, I don't think such a new currency will come out for at least another year or two.

My guess would be Saudi Arabia, Russia and/or China could get together and develop either a gold backed currency or a commodity based currency.  That would give their currency world superiority while driving the final nail in the coffin of the dead American economic empire.  The American economy will collapse because of the monetary policy we have been following since October 2008.

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pleaseremoveme
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Re: Will the Yuan potentially be the new reserve currency?

The theory of hyperinflation presented by the marketskeptics paper is that at first banks increase their reserves because of a recession, and then basically spend it all at once, because of a loss of confidence.

In the current systems money is created by banks, and when governments need more money, they have to borrow. This work as a protection against hyperinflation, as more borrowing leads to higher interest rates. To cooperate with hyperinflation, governments have to use force against their banks. That would be pure suicide, and I can see that happening in the Weimar republic, and in Zimbabwe, or in Eastern Europe, where the banking systems were relatively weak and powerless, and the governments relatively stupid. And it is imaginable that it happens in China, although I would be surpriced. But in the U.S.? Or here in Europe? Furthermore, the idea that rising prices in yuan will lead to rising prices in dollars... I don't see that happening either: this will be compensated by the exchange rates. Surely, Amerika has to pay of it's debts to China and return the trade deficits somehow, but how that necessarily leads to hyperinflation on either sides of the ocean.

What returning to the gold standard concerns: it cannot be done. Not before banks buy loads of gold, thereby raising the gold prices to even higher levels, and devaluating the fiat money even more in the process. Strong deflationary policies would be necessary to keep gold prices at an acceptable level for a new standard, but that would kill business.

mrobinson's picture
mrobinson
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Posts: 71
Re: Will the Yuan potentially be the new reserve currency?

Thanks both woupiestek and bearing01

But i'm not sure i'm any clearer on the matter, it's a complex subject (for me) and i will have to do more research, as it is appearing more and more on the global agenda.

Surely Governments will eventually would be looking for sound currency, as the fiat system without proper money printing controls seem to be the cause of the problem (ultimately). This maybe a simplistic view. This must also be an opportunity from a country for years in the shadow's of the USA to take control as the reserve.

bearing01 stated - "My guess would be Saudi Arabia, Russia and/or China could get together and develop either a gold backed currency or a commodity based currency."

Seems to be a strategy recommended to the Saudis by Peter Schiff or any country with dollars. Refer You Tube link.

I can just imagine a bunch of Saudi's or Chinese companies coming down here and buying gold mines and other industrial metal based mining companies that have been strapped for cash recently. Actually come to think of it, it's already happening. Rio, Oz Minerals and Fortescue etc.

http://www.theaustralian.news.com.au/business/story/0,,25074120-643,00.html

Thanks again, back to the books.

Mike

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pleaseremoveme
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Posts: 115
Re: Will the Yuan potentially be the new reserve currency?

Here in Europe:

Germany and the scandinavians want price stability, meaning a strong euro. My country, the Netherlands, wants good export opportunities, and preferred a weaker curreny. The roman countries down south seem unable to balance their budgets, and used to prefer devaluating their currencies all the time.

Inflation acts as a hidden tax, but mainly a tax on holders of debt. Inflation therefore hurts commercial banks, while benefiting the central bank. So central banks actually prefer a weak currency too, while commercial banks prefer a strong one. This is a reason to be suspisious of anyone advocating a gold standard.

I think that we need some new standard, but I would prefer either labor or capital to gold. A capital standard, for example, would give the central bank an incentive to counteract speculation, and make capital goods available to everyone in the form of money. But that's all off topic.

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