While silver and gold made new highs almost on an hourly basis over the past two weeks, the International Monetary Fund (IMF) quietly released data predicting that China will become the world’s largest economy by 2016, ending America’s 80+ year reign.
If you’re not completely familiar with the IMF, they’re basically an unelected group of bankers, policy makers and retired politicians who make it their business to manage a variety of important functions such as – well, I’ll let them tell it:
The International Monetary Fund (IMF) is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.
Of course, the line about 187 member countries is really just a convenient technicality, because everyone knows that the IMF gets the plurality of its funding and power from the United States.
So it’s very interesting that the IMF would release such damning and surprising predictions about the end of American hegemony and the continued rise of China.
Take a look at the chart below, which tells the whole story:
If you’re scratching your head and wondering how the Chinese economy could so quickly take out the American economy, consider the fact that the Chinese renminbi has been kept artificially suppressed. The Chinese Government does so in order to maintain a trade advantage over other countries. A suppressed renminbi keeps Chinese goods cheaper abroad.
When (not if) the Chinese let the renminbi rise, it will quickly help the Chinese domestic economy gobble up world GDP share against the weakening dollar.
As the United Kingdom newspaper, the Daily Mail puts it, the IMF “found that the Chinese economy would grow from $11.2 trillion in 2011 to $19 trillion in 2016. Over the same period, the U.S. economy will rise from a dominant $15.2 trillion to a trailing $18.8 trillion.”
You can see how even an 8% annual outperformance of the renminbi over the dollar will tilt the scales in the favor of the Chinese economy. With an economy growing at about 10% per year over the past 10+ years, and no signs of slowing, it wouldn’t be out of the question to see the renminbi appreciate at similar rates of growth against the dollar.
The investment implication?
Well, I’m going to keep buying gold and silver, but I’m also interested in buying renminbi with dollars today. I can’t think of a better pure play on dollar weakness/renminbi strength.
The bad news is that it’s still pretty tough to buy renminbi – but the good news is that it’s getting easier.
There are two banks in New York City and one in Los Angeles (that I know of) that let you open up a Chinese renminbi deposit account so you can hold renminbi. I believe the New York banks are FDIC insured, but I’m not sure about the LA branch.
It looks like you have to go into one of these branches to open the deposit account in person – but I can tell you that the next time I’m in New York, I’ll be doing so for sure. If you do go, make sure you have all of the right identification and paperwork to open the deposit account – not a checking account or savings account. Clarify that you want to hold Chinese renminbi.