Will The Chinese Renminbi Replace The U.S. Dollar As The Primary Reserve Currency Of The World?

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Most Americans have no idea what a tremendous advantage the United States possesses by having the primary reserve currency of the world, and most Americans also have no idea how close the U.S. dollar is to losing that status.  For the past 40 years, the vast majority of all global trade (including the buying and selling of oil) has been done in U.S. dollars.  That is still the case today, but things are starting to shift.  All over the globe international agreements are being made to move away from the U.S. dollar and to use other currencies in global trade.  The second largest economy in the world, China, has been particularly aggressive in seeking to change the existing financial order.  As you will see below, China has been running all over the planet making agreements with other nations to start conducting an increasing amount of trade in currencies other than the U.S. dollar.  And of course the Chinese are heavily promoting their own currency – the renminbi.  So why is this happening?  Well, for one thing, the truth is that the United States is not the only superpower in the world anymore.  The Chinese economy is actually projected to become larger than the U.S. economy by 2016, and by some measurements the Chinese economy is already larger.  So Chinese leaders have been very open about the fact that they believe that it just doesn’t make sense that the vast majority of all global trade should continue to be conducted in U.S. dollars, especially considering the reckless money printing that the Federal Reserve has been doing.  At a time when the status of the U.S. dollar is already slipping, QE3 is deeply undermining confidence in U.S. currency.  And when the U.S. dollar does lose reserve currency status, the consequences for the United States are going to be absolutely catastrophic.

Sadly, most Americans don’t even know what a “reserve currency” is or that the U.S. dollar is under attack.

The Chinese have not only been talking about cutting the legs out from under the U.S. dollar – they have been actively doing it.  The following is an excerpt from a recent story by Alan Wheatley, a global economics correspondent for Reuters….

Fed up with what it sees as Washington’s malign neglect of the dollar, China is busily promoting the cross-border use of its own currency, the yuan, also known as the renminbi, in trade and investment.

The aim is both narrowly commercial – to reduce transaction costs for Chinese exporters and importers – and sweepingly strategic.

Displacing the dollar, Beijing says, will reduce volatility in oil and commodity prices and belatedly erode the ‘exorbitant privilege’ the United States enjoys as the issuer of the reserve currency at the heart of a post-war international financial architecture it now sees as hopelessly outmoded.

The mainstream media in the United States is almost entirely ignoring these developments, but the truth is that all of this is a very, very big deal.

The following are just some of the international currency agreements that China has made in the last couple of years….

-China and Germany (See Here)

-China and Russia (See Here)

-China and Brazil (See Here)

-China and Australia (See Here)

-China and Japan (See Here)

-China and Chile (See Here)

-China and the United Arab Emirates (See Here)

-China, Brazil, Russia, India and South Africa (See Here)

Most U.S. economists dismiss this threat by pointing out that China has stockpiled so many U.S. dollars and so much U.S. debt that if anything happens to the U.S. financial system China would be significantly damaged as well.

That may be true to a certain extent, but what is also true is that most Americans fundamentally misunderstand our relationship with China.

Most Americans believe that we are “friends” with China just because they are conducting massive amounts of trade with us.

Sadly, that is not how the Chinese see us.  They see us as “the competition”, and they very much plan on coming out on top in the end.

Right now, the Chinese are stockpiling mind blowing amounts of gold.  They are preparing for the day when the U.S. dollar crashes and when hard assets will be the place to be.

And some are even speculating that the Chinese may be planning to back their own currency with gold at some point.

The following is an excerpt from a recent article by Christopher K. Potter, the president of Northern Border Capital Management….

For three thousand years China has been at the forefront of monetary innovation.  It was the first to legalize gold money in the tenth century BC and two millennia later it issued the world’s first paper currency.  Fast forward to 2012 and China is at it again, eclipsing Australia as the largest producer of gold and increasing its monetary gold reserves at an alarming rate.  Five years ago China surpassed the US in gold production and five years from now it will own more gold than the US Federal government.

Do not dismiss this as just another example of China’s insatiable appetite for natural resources.  It is not.  China is preparing for a world beyond the inconvertible paper dollar, a world in which the renminbi, buttressed by gold, becomes the dominant reserve currency.

Lest anyone doubt China’s resolve, just consider the following:  The Chinese government has recently removed all restrictions on personal ownership of gold; legalized domestic gold exchange traded funds; is currently purchasing 100% of domestic gold mine production; has imported over 750 tons of gold (27% of global output) in the last 12 months; stated publically its intention to add 1,000 tons per year to its central bank gold reserves; and is buying major stakes in foreign gold mining companies.  The scale of this initiative is extraordinary.

When the U.S. financial system crashes, what do you think the rest of the world is going to want – paper U.S. currency that is rapidly becoming worthless or renminbi backed by gold?

China is very serious about this effort to hoard gold.  Reportedly, the amount of gold that China has imported in 2012 alone is greater than the total amount of gold that the European Central Bank is officially holding.

And China is gobbling up gold mining operations all over the planet at a staggering rate.  I discussed this extensively in a previous article that you can find here.

Okay, so what happens if the rest of the world starts rejecting the U.S. dollar as a reserve currency and starts moving to other currencies such as the Chinese renminbi?

The change would potentially be dramatic.

Up until now, there has been a constantly growing demand for more dollars from the rest of the globe.  They have needed dollars to buy oil and to trade with one another.

All of this demand has kept the value of the U.S. dollar up.  But if the rest of the globe started rejecting the dollar, it would drop like a rock.

When the value of the dollar declines, imports become more expensive.

So the price of oil would go higher and you would pay more for gasoline at the gas pump.

And since just about everything is made outside the country these days, just about everything you buy at Wal-Mart would become significantly more expensive.

The era of endless super cheap imports would be over and our standard of living would experience a massive adjustment.

So just how bad could things get?

Well, how would your life change if you went to the store a couple of years from now and the cost of everything was double or triple what it is today?

Yes, I know that sounds dramatic, but a major currency crisis coupled with reckless money printing by the Federal Reserve could actually produce such an outcome.

So enjoy those cheap imports while you still can.  The days of the U.S. dollar being the sole primary reserve currency of the world are numbered, and when the dollar dies it is probably going to happen very rapidly.

The Beginning Of The End - The New Novel About The Future Of America By Michael T. Snyder
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  • mark

    Things are bad for our dollars future. At the same time I have seen China print huge amounts of renminbi. I don’t trust our governments figures, but at the same time I trust China’s figures even less. I don’t pretend to know how this currency war will end as these events could end up in war. Rich people do not take kindly to losing their wealth. They will fight tooth and nail to stay in the game and we the little people always come out on the short end of the stick.

    • Mike

      Just as long as you don’t believe the crap about whoever Uncle Sam new worst enemy is i order to foment yet another war. If you’ve got kids don’t let them go to the army as cannon fodder for the rich as has happened so many times before. Good luck and buy precious metals.

    • LOL

      The Chinese governement have interests in pretending that the Chinese GPD is lower than it is, otherwise they´ll be nagged for more gravie.
      The US governement have interest in pretending that the US GPD is higher than it is.

  • Lol

    The real Chinese growth have been underestimated for many years. The US needs China but China doesn´t need the US, it needs Africa and its natural ressources and want direct control over it, so the Chinese nation isn´t hostage of foreign navies. As it is, natzo would oppose such a move with military force.

    I laugh when I read that the medias, Obama and Romney blames the failures of their system on China.
    The federale reserve is the real currency manipulator.

    • Mal R

      “The real Chinese growth have been underestimated for many years. ”

      Lol. Real Chinese growth has been a scam for years. You know the drill. Go look at the ghost cities. s.c.a.m. China may not need the US but it seems to me that we did just fine up until we started doing free trade with Chinese slaves.

      What exactly is Romney’s system? He has never been in the federal Govt, unless you just mean a liberal centrally controlled economy? Read China…

      Agree, the Fed should go buh bye.

  • jesup

    Is this fear not overblown? Canada is not a world reserve currency but their standard of living is at par or some would say higher than our’s. Can you explain this Michael?


    • Michael

      Canada has a great deal of oil. Like other oil exporting countries, this gives them a tremendous advantage.

      For example, the difference between Alberta, Canada and Detroit, Michigan is like night and day. If you have oil or other valuable natural resources you are going to do well in this global economic environment.

      Unfortunately, the United States is a huge oil importer, and this continually drains our wealth.

      Once the rest of the world does not want our dollars, we are going to be in big trouble.


  • William

    In short, YES, but it will take a few years. It did not have to be this way.
    Remember when the Smirking Chimp and war criminal Bush inherited a $5.7 trillion debt, and four straight balanced, or in surplus, budgets from Clinton ??? Then, the Chimp started an unfunded and unnecessary war of choice based on LIES and gave America two tax cuts the nation could not afford. Bingo! Disaster, and over $10 trillion in debt when the criminal Chimp left the White House. The failed and phoney Obummer, although given a collapsing economy by the Chimp, did nothing right to fix the mess. Now the Chinese are going to take over. When the USD loses the status of world reserve currency, the standard of living for most Americans will drop a LOT. So, let us give a big cheer for the IDIOTS who believed the Chimp bush!!!

    • Mal R

      “So, let us give a big cheer for the IDIOTS who believed the Chimp bush!!!”

      Nah, lets give a big cheer for the 1st Ammendment when we see leftist idiots that spout demonstrable BS like ‘the chimp started a war’ and talk about ‘Clinton’s balanced or in surplus budgets’.

      Seems like YOU’RE the idiot. Perhaps you should look up the ‘U.S. Congress’. As much as you’d LOOOOVE to have an emperor, we do have separation of powers in the US.

      • Gay Veteran

        oh, so it wasn’t the chimp who demanded his war of aggression against Iraq?

        and Clinton came closer to balancing the budget than anyone in a LONG time (though he also gave us NAFTA, media concentration, and financial deregulation)

    • Louise in MO

      William…..why must people like you call a past President derogatory names? Although your comment may have merit, I’m so turned off by this kind of language that I don’t consider anything else you write to have any value.

      I thought name calling in this country was “ppolitically incorrect.” Oh, but that is only for those you disagree with.

      • Gay Veteran

        “William…..why must people like you call a past President derogatory names?”

        you mean the WAR CRIMINAL George W. Bush (and yes, Obama is a war criminal too)

    • LOL

      You would call Obama a chimp?

  • Washington

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  • Lisa

    Michael, I agree with you that trade finance globally is redenominating from USD to RMB. Currently, about 80% of all international trade with China is in USD and about 2% in RMB. When you look at specific trade corridors you can see a huge increase in RMB for intra-Asia trade finance. The use of RMB has increased dramatically since 2009 due to PBOC policies in opening up the current account. Now large companies like IKEA are adopting RMB in their corporate treasury to pay suppliers in China due to the financial advantage it creates for their company. In countries that must convert from their home currency into another currency the use of the USD is threatened and in my opinion perhaps replaceable. Scary truth for the USA – the Fed needs to take better care of the USA and the US government needs to take a long look at the underlying details of why this is happening and try to take some countermeasures (PBOC policy would be a place to start). Lisa

  • Washington

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  • LOL

    Michgael, you better hidde all that Chinese money before Gary2 taxes it!

  • Russ

    China’s currency will never become the world’s reserve currency. The world’s next reserve currency will be GOLD itself. Count on it.

  • J

    I was watching “Modern Family”, and they had an episode where Phil was quoting a line from the TV series “The Jefferson”. His older daughter, Haley, thought George Jefferson was the former President of the United States. Her sister, Alex, looked shocked and said, “If this is the future of America, then we better start using Chinese money.” LOL

    So funny, yet sadly so true. I guess it’s time for me to start learning Mandarin. Great article, btw.