Close X Cookies are necessary for the proper functioning of 24hGold.com. By continuing your navigation on our website, you are accepting the use of cookies.
To learn more about cookies ...
EnglishFrench
Gold & Silver Prices in

Year of the Yuan?

IMG Auteur
Published : May 03rd, 2013
628 words - Reading time : 1 - 2 minutes
( 0 vote, 0/5 )
Print article
  Article Comments Comment this article Rating All Articles  
0
Send
0
comment
Our Newsletter...
Category : Opinions and Analysis

Last month I received a lot of emails from readers regarding articles on a new currency relationship between Australia and China allowing direct convertibility of Australian dollars into Yuan.

In what may mark the beginning of a historic shift, Australia appears ready to bypass the U.S. dollar as the world’s reserve currency and allow for the direct convertibility of the Australian dollar into the Chinese yuan.

“Reserve currency” is the term used to describe a currency that many governments hold significant amounts of in foreign exchange reserves.

By directly converting its currency into Chinese currency, Australia’s businesses will be able to cut costs and the inconvenience of changing foreign-currency earnings into dollars, thereby encouraging and accelerating even more business with China.

Year of the Yuan?

Two days ago RT had a similar story
Year of the yuan: China's explosive currency goes global.

The Reserve Bank of Australia announced in April it will transfer 5 percent of its foreign currency reserves ($2.1 billion) into Chinese bonds, deepening ties with its Pacific neighbor and biggest trade partner, and reflecting a global shift to the yuan.

The move is an “important milestone in deepening our financial and economic linkages with China,” Australia’s Treasurer Wayne Swan said in an emailed statement to Bloomberg.

China and Australia are major trading partners, so an investment in Chinese currency reserves will benefit transactions between the two countries. Now, they can conduct business transactions directly from yuan to Australian dollar, cutting out the middle man, the US dollar or euro.


Significant Move?

Is this a significant announcement? No, not really. For starters, China's forex currency reserves are worth about $3.4 trillion. Are we are supposed to believe another $1-2 billion is significant?

End of US "Free Lunch"?

Is this the end of the US reserve currency free lunch? No, not really. People do not understand the reserve currency is more of a curse than a blessing. The US would love nothing more than China and Japan to stop buying treasuries. If they did, the Yuan and Yen would rise, and that is precisely what the Fed and Congress wants.

Function of Math

Third, and as I have explained on numerous occasions, currency reserves and trade patterns are a function of math.

For example, the US runs a trade deficit and Japan and China accumulate US dollar assets (typically US treasuries) as a result.

Australia Balance of Trade

Consider this balance of trade chart for Australia.

24hGold - Year of the Yuan?




In spite of a commodities slowdown (see
Australia Manufacturing Collapses as Commodity Supercycle Stalls), Australia has an increasing trade surplus with China.

It is only logical for Australia to want to conduct business in Yuan and hold extra reserves in Yuan.

Australia is dumping US dollars. And everyone one else will too. So the story goes.

Really? No not really. These stories are hype from hyperinflationists and US dollar bears who do not understand simple trade math. Yet they get repeated over, and over, and over, and every time I receive a number of emails on it.

Will more trade be conducted in additional currencies? Yes, that is happening. Is this the beginning of end of the US dollar as world's reserve currency? Not a chance.

The Yuan is not convertible, China does not have huge highly liquid bond markets, the US has the largest economy on the planet, and no other country wants the curse that comes with having the world's reserve currency.

For further discussion, please see ...

 


Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com


Data and Statistics for these countries : Australia | China | Japan | All
Gold and Silver Prices for these countries : Australia | China | Japan | All
<< Previous article
Rate : Average :0 (0 vote)
>> Next article
IMG Auteur
Mish 13 abonnés
Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. He writes a global economics blog which has commentary 5-7 times a week. He also writes for the Daily Reckoning, Whiskey & Gunpowder, and has over 80 magazine and book cover credits. Visit http://www.sitkapacific.com
WebsiteSubscribe to his services
Latest comment posted for this article
Be the first to comment
Add your comment
Top articles
World PM Newsflow
ALL
GOLD
SILVER
PGM & DIAMONDS
OIL & GAS
OTHER METALS
Mining Company News
Opta Min.OPM.TO
Schedules First Quarter 2015 Financial Results Release
CA$ 1.31+0.77%Trend Power :
Financials
IthacaIAE.L
Ithaca Energy Inc. Announces Sale of Norwegian Exploration Business
GBX 51.25+3.54%Trend Power :
Corporate news
Forum Energy(Oil)FEP.L
Forum Energy beats 1Q profit forecasts
GBX 17.50+0.00%Trend Power :
Corporate news
First Majestic(Le-Zn-Au)FR.TO
NYSE stocks posting largest percentage decreases
CA$ 5.85-1.68%Trend Power :
Corporate news
Adriana Res.(Au)ADI.V
Adriana announces that it has filed a NI 43-101 Technical Report on the Lac Otelnuk Project on SEDAR
CA$ 0.11+0.00%Trend Power :
Corporate news
Sherritt International(Co-Coal-Ni)S.TO
Ambatovy Plant Strike Action Resolved
CA$ 2.18+4.31%Trend Power :
Corporate news
Claude Resources(Au-Cu-Ngas)CRJ.TO
Provides Date for Q1 Results and Conference Call
CA$ 0.63-3.08%Trend Power :
Corporate news
Claude Resources(Au-Cu-Ngas)CRJ.TO
Provides Date for Q1 Results and Conference Call
CA$ 0.63-3.08%Trend Power :
Corporate news
Stealth Ventures(Ag-Au-Cu)SLV.V
IIROC Trading Halt - SLV
CA$ 0.01+0.00%Trend Power :
Corporate news
Stealth Ventures(Ag-Au-Cu)SLV.V
Stealth Ventures Inc. Appoints Mark Roseborough as interim CEO and CFO Effective Immediately
CA$ 0.01+0.00%Trend Power :
Corporate news
Comments closed