Written by Chris Marcus for the Miles Franklin blog
While the past year has included stunning developments by China and other nations around the globe to reduce their dependence on dollar financing, perhaps the latest blow is the most shocking one yet. As a recent report mentions how “central bankers and officials from 14 African nations will discuss the viability of using China’s Yuan as a reserve currency for the region.”
While one could argue that the signs of the dollar’s decline have been building for years or even decades, I wonder if this is one of those seminal moments that will be looked back upon as a turning point years from now when the world has changed drastically.
Because it’s one thing to accumulate massive amounts of precious metals. And it’s worth taking note when arrangements to replace the petrodollar are put in place (and now there’s also talk of a potential yuan-denominated precious metals contract which could remove the influence of the COMEX). But to actually see 14 nations discussing using the Yuan as their reserve currency strikes me as an official challenge to the reign of the dollar as we know it.
That China would consider such an action actually makes a lot of economic sense. Because similar to how the dollar became the reserve currency following World War II when the U.S. economy was stronger and more productive, now China is the one that’s building most of the goods.
“Most countries in the MEFMI region have loans or grants from China and it would only make economic sense to repay in renminbi [Chinese yuan],” said Gladys Siwela-Jadagu, a spokeswoman for the institute.
When you think about it, if you just looked at the profiles of the two nations, it makes a lot more sense for China’s economy to be the one holding the mantra of the reserve currency. And to be clear, this isn’t a matter of me not liking the U.S. or the dollar, but rather just an unbiased analysis of the two financial profiles. And apparently nations around the globe are increasingly agreeing.
Several central banks in Europe also revealed plans earlier this year to hold yuan as part of their foreign currency reserves, highlighting the Chinese currency’s rise as a unit in the world’s major foreign exchange reserve.
With China as the largest trading partner of over 130 countries, the main challenge for African countries is how to benefit from the new pattern of international commerce.”
A lot of what’s happening now is the result of what’s been building gradually over time. Which makes it on one hand expected, yet on the other hand still shocking when you’ve been waiting so long and the event finally manifests.
Yet here we are in 2018 now seeing other countries hold meetings to discuss abandoning the dollar as the reserve currency. Keep in mind that the country being considered as the replacement has also been a massive buyer of gold, and if you think China is in position to be the one calling the economic shots going forward, this could be a great time to follow their lead by trading dollar assets for physical metal.
–Chris Marcus
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