Japan and China will promote direct trading of yen and yuan without using dollars and will encourage the development of a market for companies involved in the exchanges, the Japanese government said over the holiday weekend.
This is a financial war, involving, not lives but livelihoods, and China is winning every step of the way.
The financial world may belittle the present moves as still very small in money terms in a global context, but structurally the move should make the developed financial world jump to attention.
Developed World Losing Power and Heads into Worse Crisis
The reason why the developed world has seen the debt and banking crisis wreak such havoc, so far, is that its growth has diminished to the point where it’s having difficulty employing their young.
With such reduced cash flows, the size of debt burdens becomes overwhelming. When the developed world enjoyed strong growth, the present debt burdens were manageable. But not any more! The central banks of the developed world have had to create new money to fill the holes left by the dropping value of financial assets and try to hold such money printing at those levels or see inflation take off; there will, however, come a time when the developed world will have to pay more interest to raise loans as trust in their currencies diminishes. Should this happen, their debt mountain will be completely unsustainable, not only in Europe but in the United States as well.
Should interest rates rise – and the Fed will not let that happen by choice — because of falling foreign investment in the dollar, then Treasury and other Fixed interest markets in the developed world would be in danger of collapsing.
US Dollar as the Sole, Global Reserve Currency to End!
Of considerably more importance is the impact on global foreign exchanges and the role of the U.S. dollar as the world’s sole global reserve currency. For more than two years now Gold, Silver Forecaster have been predicting that the day would come when Chinese exporters/importers would offer and bid prices for goods in the Chinese Yuan. Well it has arrived, albeit confined to Asian trade at the moment.
As of now, $350 billion in global trade will disappear, replaced by Yuan/Yen trade. Where will these dollars go? Over time they will be sold off and head home through a falling exchange rate. That’s why we’ll see the Yuan appreciate, but only initially, as the Chinese ensure that demand is met by foreign sales of Yuan for non-U.S. currencies.
As time passes the process of the internationalization of the Yuan will primarily be at the expense of the dollar. At some point in this process, the rise of the Yuan and the fall of the dollar from its throne will become visible on foreign exchanges and in the financial picture inside the U.S.A. and Europe. At best, we’ll see the Yuan join the world’s current leading currencies in global trade, but rising in the future to potentially the prime global, reserve currency at worst.
But this process could take more than five years or less if the Chinese government pushes it hard.
The consequential pressures on the global currency system, which presently is dependent on the U.S. dollar for its credibility, will undermine the entire global monetary system. When control of the monetary system was entirely in the hands of the developed world, both sides of the Atlantic, gold could be side-lined. But with this new Chinese empire, the new currency bloc has divergent interests from the developed world.
The developed world is seeing the beginning of its loss of control over gold!
Asia, as well as emerging nations worldwide, have seen the importance of gold in their reserves and continue to press for an increase in their holdings – almost preparing for the day when global cooperation is reduced by trade wars, protectionism and the like. The spectre of a world split into two financial and trading parts is now in front of us. While this is still in the future, it’s a visible probability. In such a financial climate, consistent with its history, gold being independent of national obligations and links must return to the system in one form or another. But how?