Why China Wants To Dump the Dollar

W.G.Ewald

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Articles: Why China Wants To Dump the Dollar
China's Dagong credit rating agency on October 17th downgraded its United States sovereign credit rating to A- and maintained its negative outlook on America's solvency. Dagong warned that despite Washington's last-minute resolution of the debt ceiling deadlock: "The fundamental situation that the debt growth rate significantly outpaces that of fiscal income and gross domestic product remains unchanged." China's official state-run news agency, Xinhua, reiterated its earlier statements that because of the contnuing risk of a United States debt default, it is "a good time for the befuddled world to start considering building a de-Americanized world." This language is code for Chinese want to abandon the U.S. dollar as the world's "reserve currency" and move international financial transactions to the renminbi, the currency of the People's Republic of China. Having benefited for twenty years from an undervalued currency that imported manufacturing jobs and exported lower priced products, China's economic advantage is being destroyed by America's oil and natural gas fracking boom. The Chinese communist authorities are terrified their loss of competitiveness will cause unemployment and the social consequences that flow from it. But with the terms of trade now substantially against China, convincing the world to dump the U.S. dollar as reserve currency and switch to the Chinese "renminbi" is their best hope to try to save tens of millions of manufacturing jobs.
 

amoy

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If Euro or JP Yen alike have failed to challenge USD as a "reserve currency" how will RMB succeed?
The Grendel Report: Developing World - Euro Loses Attraction as Reserve Currency

The US won't let go of USD dominance easily.

Paying Foreign Debt
The major advantage of a reserve currency is that it provides the stability for countries holding it to pay back foreign creditors. The U.S. dollar is often used by other countries to pay their debts, even if they do not owe those debts to the United States. This is because the global market generally accepts the U.S. dollar in international transactions, so it can prove useful to the countries that receive it as payment of debts. If a foreign government were to accept debt payments in their debtor's national currency, it would have to first exchange it on the market for another currency before it can use the money to pay for goods or services.

Global Commodities Pricing
Another advantage of a global reserve currency is that it allows for a degree of transparency and predictability in the global commodities markets. Because the commodities market is mostly international, commodities traders who accept payments in the reserve currency can find the largest market of buyers who will be able to pay. In addition, buyers of commodities use the reserve currency when pricing commodities to ensure that most sellers will be able to accept their payment. In this way, the U.S. dollar serves as a mutually useful medium for both sides of an international commodities trade.
Advantages for the Issuer
While the benefits of a reserve currency to its issuer --- as of 2011, the United States --- is a matter of some debate, most economists agree that the nation providing a reserve currency enjoys some key advantages. The United States is able to borrow money from foreign governments more cheaply because it can both accept a loan and pay it back in U.S. dollars. The U.S. dollar also enjoys an inflated value due to global demand for the currency --- as more nations need U.S. dollars to hold in reserve and facilitate transactions, this demand requires them to pay more for it, increasing its value.
http://www.ehow.com/info_10041317_advantages-reserve-currency.html
 
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Ray

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Why is China is NOT putting its money where its mouth is?

Why all this empty talk?

Who is bothered what China says?

But they sure love talking big now and then to show that they too exist!

They must now change tack - ACT and Not Gas!
 
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ice berg

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Why is China is NOT putting its money where its mouth is?

Why all this empty talk?

Who is bothered what China says?

But they sure love talking big now and then to show that they too exist!

They must now change tack - ACT and Not Gas!
Now now you are showing your ignorance again on basic economics.
Clifford Chance | New developments accelerate Renminbi internationalisation



Some basic courses for you:
https://www.coursera.org/course/renminbi
This course will discuss various aspects of the Renminbi internationalization, including the reform of the international monetary system, the opportunities and challenges to internationalize the Renminbi, the evolution of China's monetary and exchange rate policies, and the implications of the Renminbi internationalization for Hong Kong.
 

W.G.Ewald

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Some basic courses for you:
https://www.coursera.org/course/renminbi
This course will discuss various aspects of the Renminbi internationalization, including the reform of the international monetary system, the opportunities and challenges to internationalize the Renminbi, the evolution of China's monetary and exchange rate policies, and the implications of the Renminbi internationalization for Hong Kong.
Does one discover the fee for the course after hitting the Sign Up button?
 

Compersion

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Country flag
Not sure if the PRC will go fast. Let me rephrase not sure if PRC will do much. In global financial context the demand for full liberalisation of yuan currency is from the west. The recent events in USA have provided more reasons for delaying and keeping the status quo of the yuan and not making it fully convertible (subject to unknowns and prior agreements). It really allows the PRC to blow some steam off from its over heated engine. "Why risk the economic fabric of the country and Chinese region and why don't you focus on your internal problems first" - the new response from PRC leaders. Having a fully convertible yuan currency and play by the rules is not on the menu and top issues for the west as well as international community now, Another quote from the report mentioned above:

"Although internationalising RMB may seem desirable, the process is laden with risk. Therefore, ever since 1996 when RMB became convertible under current accounts, the government leadership has been very cautious and prudent in the process of currency reform. It is very likely that the government will adopt certain phase-in procedures in the contemplated plan and may adjust its policies where appropriate going forward."
The current arrangement suits the PRC well enough. Strong currency control and concentrated deliverables to certain regions and financial centres. Don't expect see big changes for the next three to five years at least. Not before 2017. Nobody sees a trade war erupting anytime soon. Nobody sees a financial crisis happening. Nobody sees the US dollar peg in Hong Kong stretching. :scared1: people want to make money and people are making a lot of money in PRC, USA, Taiwan, Hong Kong, Australia, uk, European Union and Singapore. Peaceful (currency) rise of PRC is keeping many happy :thumb:
 

Ray

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Now now you are showing your ignorance again on basic economics.
Clifford Chance | New developments accelerate Renminbi internationalisation



Some basic courses for you:
https://www.coursera.org/course/renminbi
This course will discuss various aspects of the Renminbi internationalization, including the reform of the international monetary system, the opportunities and challenges to internationalize the Renminbi, the evolution of China's monetary and exchange rate policies, and the implications of the Renminbi internationalization for Hong Kong.
I am also waiting to know if one get the details after hitting the Sign Up button.

Hope the course is not a counterfeit since that is what sustains China.
 

amoy

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my personal experience in Starbucks sucks. lots of bubbles but tastes so so.

Why Is Starbucks So Expensive in China? - Matt Schiavenza - The Atlantic

These inflated prices gives you a pretty good idea of the relative cost (adjusted to per capita income) of what a Chinese person pays for the drink. China's per capita income, at about $7,200, is around five and a half times less than the American figure. Yet at a Starbucks in Beijing, a grande latte goes for about $4.80—or a dollar more than what it costs in the United States. A simple beverage of espresso and steamed milk is pretty damned expensive in China.
maybe just another McDonald / KFC fad that's to pass ?! People sooner or later will get bored by such junk foods/drinks and swap back to quality Oolong tea.

One major issue is culture. Since the Chinese economy opened up to import products in the late 1970s, these goods acquired a certain cachet with image-conscious consumers. "Traditionally foreign products were regarded as better-made, higher-status, and simply nicer," Fei Wang, a Washington, DC-based consultant who grew up in Wuhan, told me. "A person's social standing was defined by the objects they own." Far from acting as a deterrent, high prices actually enticed customers who wanted to show off their new affluence; put another way, purchasing a good like a cup of coffee at a premium was a good way to obtain "face" in business or personal relationships. And Starbucks had the good fortune of entering the country at a time when coffee drinking became fashionable among hip, young Chinese consumers.

There are signs, however, that Chinese preferences for high-priced, imported goods may be waning. With the rise of e-commerce—and more frequent foreign travel—Chinese consumers have begun to feel that they're paying too much for simple pleasures like a cup of coffee. "After living in America for awhile I was shocked at how expensive Starbucks was when I went back to China," says Wang. This trend appears to be happening across other industries, too: A disgruntled shopper told the Wall Street Journal's Laurie Burkitt that it simply wasn't "worth shopping in China anymore."
 

W.G.Ewald

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W.G.Ewald

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I am also waiting to know if one get the details after hitting the Sign Up button.

Hope the course is not a counterfeit since that is what sustains China.
ice berg has nothing to tell us about it?
 

ice berg

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He seems to have dumped himself!

Just a feeling.

Or gone for a briefing from the big boys.
I thought grown ups are able to figure that out on their own, Obviously not.

Say please, and I will help you. :p
 

Ray

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With a moniker like Iceberg, one thought the man with that moniker was frozen in all ways! :)
 

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