2011-03-02zerohedge.com

The Chinese central bank surprised with a spectacular announcement: The would-be superpower wants to handle their entire future foreign trade in yuan, not in dollars. Beijing shakes America's claim to represent the key currency - with serious consequences for the U.S..

This is pretty important. When you think about it, it makes little sense that everyone (especially the Chinese) should by default hold dollars, when China and not the US is the "company store" the world goes to for most goods. Basically, the US has (till now) had the influence to demand its own worthless IOUs be accepted by the store. But now the vendor realizes if he decides not to accept them, the customer will not have anywhere else to go, so it is the vendor (i.e. the one providing the real stuff) that can demand the terms.

China is beginning to prepare for this future by setting up an infrastructure so you can settle trade in Yuan, if you want to. Customers (especially BRIC members) that don't want to be exposed to the dollar will choose this, but few others.

However, a second phase will follow where everyone buying from China will be forced to use Yuan.

I can't imagine the onset of that phase will be any good for the dollar.


Lijit Search

Comments: Be the first to add a comment

add a comment | go to forum thread