Helping China Hasten the Dollar's Demise

Earlier, WSJ reported that Brazil had turned to the Chinese for help financing its domestic oil business. In return, the Chinese would get guaranteed oil supplies. That’s not all President Lula was discussing on his trip to Beijing… (FT)

Brazil and China will work towards using their own currencies in trade transactions rather than the US dollar, according to Brazil’s central bank and aides to Luiz Inácio Lula da Silva, Brazil’s president.

The move follows recent Chinese challenges to the status of the dollar as the world’s leading international currency.

Mr Lula da Silva, who is visiting Beijing this week, and Hu Jintao, China’s president, first discussed the idea of replacing the dollar with the renminbi and the real as trade currencies when they met at the G20 summit in London last month.

An official at Brazil’s central bank stressed that talks were at an early stage. He also said that what was under discussion was not a currency swap of the kind China recently agreed with Argentina and which the US had agreed with several countries, including Brazil.

“Currency swaps are not necessarily trade related,” the official said. “The funds can be drawn down for any use. What we are talking about now is Brazil paying for Chinese goods with reals and China paying for Brazilian goods with renminbi.”

The dollar is not going to lose its preeminent position any time soon, not as the world’s reserve currency nor as the primary medium of exchange for international trade. But we are hastening its demise with reckless deficit spending.

The irony is rather thick: We aren’t capable of limiting our own excesses, so the Chinese will limit them for us. Not unlike the IMF regulating the finances of a struggling emerging market.

Of course those IMF policies were largely engendered by none other than Tim Geithner and Larry Summers. And they are good policies. Overextended countries have to learn within their means. Too bad we can’t take our own advice.

Comments

[HaavBline:]

The US Dollar will remain the most important reserve currency and the most widely used currency for international trade, but its 'market share' will gradually reduce.

While shaky credit worthiness makes other countries nervous about keeping too much USD in their FX reserve basket, automated and internet-connected trade transactions makes use of USD as trade currency an unnecessary cost that other country would like to cut now that everbody need to cut cost to the bone.

May 19 03:44 AM

[User 353732:]

The risk one should consider is that markets rarely adjust smoothly nor, in turbulent times, do they behave according to the models and historical relationships that dominate the thinking and advice of experts. Market change( much like a bankruptcy), for years, can be gradual and slow.... lulling people into believing that the past is a complete guide to the future. Experience however, suggests, that after years of accumulating stresses, markets then release stress with volcanic force. When the change or adjustment comes it is both very large and very quick. We have seen this pattern of drift followed by a dramatic punctuation in market after market ranging from oil and natural gas, to credit to currencies to real estate all over the world.
No one i think, can predict when this sudden and fundamental realignment of price and value will occur for the dollar given its special status but one should not ignore the possibility of a big dollar "surprise": Maybe there will be a single, unforecastable, trigger event that causes psychology and behavior to change. Maybe a critical mass of investors worldwide reaches the same conclusion one day and a tipping point occurs.The mechanism cannot be anticipated at present.
What we do know is that reality can be denied and delayed for a long time but it cannot be prevented from eventually manifesting itself. Markets do not change according to the convenience and schedule of investors, consumers and governments . Things too big to fail, sometimes do.

May 19 05:58 AM

[coreopsis:]

Sharp, pithy comments by Mr. Winkler.

Highly abstracted comments about the 'market' are observed from on high and don't resemble the real world.

Markets are 'made' by principals (eg, seller/buyer of rapeseed) and intermediaries (traders). Deals of this kind between China and other countries send a clear signal to intermediaries. China is transitioning to a RMB float. It ain't happening overnight, so don't yak at me if spot doesn't change tomorrow. Traders are way smart and know. China has verbalized its fears and the unpegging from the USD is inevitable. Invoicing of China's trade in at least one alternative currency to the USD (admittedly implausible at present) will have a cataclysmic effect. Spot oil is USD priced, but long-term contracts are subject to negotiation. If spot oil were ever to be alternatively priced in RMB, God Bless America.

May 19 11:14 AM

[dybydx:]

i dont think the issue here is china or brazil trying to de-throne the USD. i think the broader issue here is that the US econ and therefore USD is intrinsic value.

May 19 01:14 PM

[dybydx:]

correction:

i think the broader issue here is that the US econ and therefore USD is loosing intrinsic value.

May 19 01:15 PM

[derryl:]

Check out this link canadafreepress.com/in...
to an article titled, 'The Purpose of the Financial Crisis'. It has a link to Bruce Weisman's previous article, 'The Financial Crisis-A Look behind the Wizard's Curtain'.

The author makes a good case that the financial crisis was engineered to replace the US$ as the world's reserve currency with a new BIS (Bank for International Settlements) currency. The BIS is a stateless, autonomous bank for central bankers that exists outside the laws of any country. The goal is to control the world's currencies and governments. The strategy is to manipulate the world into a situation where a single globalist entity (the Financial Stability Forum) looks like the only solution to our currencies crisis, and ultimately to replace national currencies with a single world currency that is created and distributed by the good bankers from Basel.

If you don't like the Federal Reserve having exclusive license to print US$ and 'lending' them to the United States at interest, you're really not going to like what the BIS has in store for us.

May 19 06:50 PM

[coreopsis:]

ha ha...another really bright conspiratorial theory by the Canucks...they were all central to the brain trust that is Wall Street...


On May 19 06:50 PM derryl wrote:

> Check out this link canadafreepress.com/in...
>

May 20 10:00 AM

[dustbusterz:]

* dybydx:
* Comments (190)

* Follow
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i dont think the issue here is china or brazil trying to de-throne the USD. i think the broader issue here is that the US econ and therefore USD is intrinsic value.


Chine is in fact trying desperately to dethrone the US Dollar. And they are doing it in increments cause its not gonna happen over night and they know this. they can't allow it to happen over night as they have too much money invested right now in the US Dollar.But, if you care to do some research,you'll notice China and a few other nations are limiting how much they invest (further) in the US Dollar, as this will allow them to eventually find a replacement for the Reserve currency(The US Dollar).Those who refuse to see this , will unfortunately have a rude awakening one day......

Jul 07 08:51 PM