Is China Really Trying to Create a Global Currency?

The question is, are we just hearing political banter or should we believe the Chinese? On March 13, Premier Wen Jiabao called on the U.S. “to guarantee the safety of China’s assets." The fact is that even just buying and holding US Treasuries, the Chinese are losing money as their currency, the yuan, has appreciated versus the U.S. dollar.

The obvious fact is that the Chinese are nervous holding U.S. dollars. Why shouldn’t they be after last week's $1 Trillion dollar printing party? I think many of us are nervous holding dollars and maybe rightfully so. But, let's be realistic. Maybe the U.S. dollar is the best of the worst. The European economies are in bad shape. They seem slow to react to the current reality.

Again, maybe this is sheer politics or maybe not. Central bank Governor Zhou Xiaochuan this week urged the International Monetary Fund to create a “super-sovereign reserve currency.”

On Tuesday, Obama responded with support of the U.S. dollar: “I don’t believe there is the need for a global currency.” Maybe it should be gold.

What is interesting is that Zhou didn’t call for the yuan to become the new reserve currency (which is not convertible). Its possible that through their central bank, the Chinese are slowly starting something of a process towards this goal. The Chinese signed a currency swap with Indonesia. This is in addition to currency swaps with South Korea, Hong Kong, Malaysia and Belarus. It’s also preparing for trade settlement in the Chinese currency with Hong Kong, Macau and the Association of Southeast Asian Nations.

As much as China is trying to create this new super currency maybe America will truly take a look at the Amero. That's is the name of a proposed North American currency union. This will confirm to all the conspiracy theorists their worst nightmare will be coming true. It was first proposed in 1999 by Canadian economist Herbert G. Grubel, around the same time as the introduction of the Euro in Europe.

Why can’t we just use gold? Seems a heck of alot more sensible.

What do you think?

Comments

[bluesmoke:]

Excellent question. I will return later to read what others think. (I'm no expert).

Mar 25 09:27 AM

[socrateazz:]

The problem with gold is two fold. 1) There is not enough to really tie much money too! And there is a supply in some countries to be mined. If the lack of gold caused gold to go to $50,000 per ounce the gold fever would overtake the world and production would skyrocket with everybody after their share of wealth like drug addicts after their heroin. things would eventually balance out but not quickly. There must be a better way! I think a world currency would be good. but not controled by any one country. I think a computor program set up with preprogramed currency valuations figured based on trade between countries to balance other monies with the world currency. Make changes in programing very difficut so people do not feel their wants need to be addressed and then they change the program. Have the basic program be such as to create an equality between countries where all could benefit by following the rules

Mar 25 10:36 AM

[DiggerUK:]

This story seems to have a long way to run.
Recently Hilary Clinton went to China, the minutes of those meetings are of course unavailable. Who wouldn't have volunteered to be a fly on the wall there !

The timing of this Chinese proposal is interesting, a few days before the G20 meeting.
The US response is even more interesting, no rubbishing of the idea, just a mute "I don't believe there is a need for a global currency" from Obama.

It will be incumbent on all of us to read between the lines of everything that comes from the G20 summit.

Mar 25 11:02 AM

[Alex Filonov:]

Why gold and not silver? Or maybe platinum or rare shells? What about glass beads?

We can't use gold in fast developing world economy. It will create constant deflation and kill most of the credit. Gold standard in the world only worked for a short time (less that 50 years with WWI interruption) and was only possible because huge gold deposits were uncovered in Australia, US and South Africa. Even then deflation was a way of life.

Get over it. National money is whatever government says. National money always was creation of government. International money is what market says. So far market(s) stick with US dollar.

It doesn't matter what China wants. If they continue with export oriented economy, they'll end up as Japan did since 1989. If they want to sell the stuff they make for more, there are enough countries in the world which can work for less. If they don't like US Treasuries, nobody forced them to buy.

Mar 25 02:02 PM

[CheekyOne:]

I agree with this. Once you merge with us in Canada, we will instill the boring values of inexpensive quality Health Care, Education, a small but opulent condo in a bustling safe downtown, a wage that pays your food and sustanence and a little aside to retire in Florida. What more do you need to be happy? At nite you can watch CBC documentaries :) hehe!


On Mar 25 10:36 AM socrateazz wrote:

> The problem with gold is two fold. 1) There is not enough to really
> tie much money too! And there is a supply in some countries to be
> mined. If the lack of gold caused gold to go to $50,000 per ounce
> the gold fever would overtake the world and production would skyrocket
> with everybody after their share of wealth like drug addicts after
> their heroin. things would eventually balance out but not quickly.
> There must be a better way! I think a world currency would be good.
> but not controled by any one country. I think a computor program
> set up with preprogramed currency valuations figured based on trade
> between countries to balance other monies with the world currency.
> Make changes in programing very difficut so people do not feel their
> wants need to be addressed and then they change the program. Have
> the basic program be such as to create an equality between countries
> where all could benefit by following the rules

Mar 25 02:53 PM

[CheekyOne:]

I agree on the principle of "get over it" because it's just money (as long as it can still buy you food). I do what to correct what you say about government and money. Money is what the Fed and Centeral Banks say it is, not the government. They are private corporations. Just a clarification the government gave up that business when the fed was created. It's been that way for years, and most of us have the comforts we need.


On Mar 25 02:02 PM Alex Filonov wrote:

> Why gold and not silver? Or maybe platinum or rare shells? What about
> glass beads?
>
> We can't use gold in fast developing world economy. It will create
> constant deflation and kill most of the credit. Gold standard in
> the world only worked for a short time (less that 50 years with WWI
> interruption) and was only possible because huge gold deposits were
> uncovered in Australia, US and South Africa. Even then deflation
> was a way of life.
>
> Get over it. National money is whatever government says. National
> money always was creation of government. International money is what
> market says. So far market(s) stick with US dollar.
>
> It doesn't matter what China wants. If they continue with export
> oriented economy, they'll end up as Japan did since 1989. If they
> want to sell the stuff they make for more, there are enough countries
> in the world which can work for less. If they don't like US Treasuries,
> nobody forced them to buy.

Mar 25 02:59 PM

[Tony Daltorio:]

I do agree with your comments about the gold standard. However, your comments about China show the typical arrogance and ignorance of Americans about the rest of the globe. China is rapidly moving away from being an export economy. And it does matter what they think because of the US need for "suckers" to buy our debt. If China even slows down their purchases a bit, the Fed will have to print billions more dollars to buy Treasuries and that will simply accelerate the dollar's move into the history books. We should do all we can to keep China happy, and not insult the biggest "investor" in the US.


On Mar 25 02:02 PM Alex Filonov wrote:

> Why gold and not silver? Or maybe platinum or rare shells? What about
> glass beads?
>
> We can't use gold in fast developing world economy. It will create
> constant deflation and kill most of the credit. Gold standard in
> the world only worked for a short time (less that 50 years with WWI
> interruption) and was only possible because huge gold deposits were
> uncovered in Australia, US and South Africa. Even then deflation
> was a way of life.
>
> Get over it. National money is whatever government says. National
> money always was creation of government. International money is what
> market says. So far market(s) stick with US dollar.
>
> It doesn't matter what China wants. If they continue with export
> oriented economy, they'll end up as Japan did since 1989. If they
> want to sell the stuff they make for more, there are enough countries
> in the world which can work for less. If they don't like US Treasuries,
> nobody forced them to buy.

Mar 26 10:24 AM

[T.Stamps:]

Good article; Buy gold for insurance purposes

Mar 26 01:58 PM

[Mad Hedge F...:]

In their dreams. The one screaming buy out there now are the emerging markets. The US, Europe, and Japan are now committed to spending trillions of dollars to shock the global economy back to life. This is costing the emerging economies nothing, and gives them a free ride back to prosperity. IT turns out that the smaller economies are financially better off than the big ones, with a decade long export boom blessing them with massive foreign exchange reserves and little debt. China, Russia, India, Brazil, and Turkey will be the big beneficiaries. You can buy the specific ETF’s for these countries, or go with the generic iShares MSCI Emerging Market ETF (EEM), which has already started to outperform US markets in a big way. It’s a once in a century opportunity to buy the highest growth corners of the world’s economy at severely knocked down prices.

Mar 26 03:59 PM

[Andy Abraham:]

China needs to sell to their domestic economy...but before they can do that ...they need to enhance their middle class ...and take steps to eradicate poverty...


On Mar 26 10:24 AM Tony Daltorio wrote:

> I do agree with your comments about the gold standard. However, your
> comments about China show the typical arrogance and ignorance of
> Americans about the rest of the globe. China is rapidly moving away
> from being an export economy. And it does matter what they think
> because of the US need for "suckers" to buy our debt. If China even
> slows down their purchases a bit, the Fed will have to print billions
> more dollars to buy Treasuries and that will simply accelerate the
> dollar's move into the history books. We should do all we can to
> keep China happy, and not insult the biggest "investor" in the US.
>

Mar 26 04:17 PM

[a. palmer jr.:]

I don't believe we should have ever started trading with China and Russia. They have been enemies of the U.S. in every war we have been in, siding with our foes in North Korea, North Viet Nam, Cuba, etc. Of course our liberal government, no matter which party is in, always elects to help out our enemies so that later they will be more able to take us over. It's pretty obvious that China is still not an ally of ours and the sooner we end our dealings with them the better.

Mar 26 08:29 PM

[RMG:]

I am wondering why China is not buying the real estate properties in US, such as office properties, regional malls, amusement parks etc. which are very cheap now, a good source of cash flow, and with a good appreciation potential.

Mar 27 12:06 AM

[Paul Harper:]

more money to be made in securing strategic assets, copper, oil etc.
IMHO

On Mar 27 12:06 AM RMG wrote:

> I am wondering why China is not buying the real estate properties
> in US, such as office properties, regional malls, amusement parks
> etc. which are very cheap now, a good source of cash flow, and with
> a good appreciation potential.

Apr 20 04:33 AM