Renminbi Relentlessly Replacing Dollar as Reserve Currency

Posted by Wealth Wire – Friday, November 9th, 2012

It is no secret that China is replacing the U.S. dollar with its own currency in more and more of its bilateral trading. It’s apparent to all that the renminbi will soon have (at least) a co-equal status with the dollar as the global “reserve currency”. Yet what is rarely if ever discussed in the mainstream media are the enormous economic repercussions of a world suddenly awash with a massive glut of surplus dollars.

In most respects economics mirrors one of the basic principles of physics: for every action there is an equal-and-opposite reaction. If farmers produce a bumper-crop of wheat and supply soars, then the price falls. Similarly, if (for some reason) the demand for wheat suddenly collapsed, the price would also fall – as both a jump in supply and/or a plunge in demand result in the same state: abundant/excessive supply. And the consequence of excessive supply is always a fall in price.

This economic “physics” applies in an identical manner to the world of currencies…eventually. In a global economy ever more corrupted by serial market-rigging; nowhere is this manipulation more blatant than in the world’s forex markets. Indeed, the world’s nations have openly declared that they are all competitively engaged in currency-manipulation; as denoted by the euphemistic term “competitive devaluation.”

For new readers, let me quickly summarize the (for lack of a better word) “principle” behind competitive devaluation. Through destroying the value of one’s own currency, the wages of workers (in real dollars) are driven steadily toward zero, and so (supposedly) this will allow a nation to under-cut its trade partners and export more goods.

The sick joke here is that with all nations destroying the value of their currencies (and the wages of their workers) simultaneously, no nation gains any “advantage” and the wages of workers are being destroyed for no reason whatsoever. This does, however, produce the paradigm of all currencies simultaneously falling in value, only the rate of decline of this paper-destruction varies.

This is why any time we see some talking-head refer to a currency as “rising in value”, it is an implicit admission that the person has no understanding of the global economy. If two people jump off the roof of a 100-storey building at the same time, and (while on the way down) one individual climbs on top of the shoulders of the other; that person hasn’t “risen”, he will merely go “splat” on the pavement a millisecond later.

The collapse in value of our paper currencies is accomplished through our morally/intellectually bankrupt central banks flooding the world with this (un-backed) paper. In other words, the entire global economy is already drowning in an ocean of these paper currencies. It is thus little surprise that these same central banks are now swapping their own paper for gold at the fastest rate on record.

It is in this context that we see a shift taking place where the U.S. dollar as (current) reserve currency is being steadily replaced by the renminbi. Some numbers here are in order. A recent article in China Daily noted that for much of Asia the renminbi is already the reserve currency.

A “renminbi bloc” has been formed in East Asia, as nations in the region abandon the U.S. dollar and peg their currency to the Chinese yuan…

And now seven out of 10 economies in the region – including South Korea, Indonesia, Malaysia, Singapore and Thailand – track the renminbi more closely than they do the U.S. dollar…

According to the latest report by the Society for Worldwide Interbank Financial Telecommunication, or SWIFT, renminbi-denominated trade accounted for 10 percent of China’s total foreign trade in July. The figure was zero just two years ago.

From July 1 to August 31, global payments in the renminbi rose 15.6 percent, according to Swift as payment in other currencies fell 0.9 percent on the average… [emphasis mine] 

We see three obvious points in the quote above:

1) The move from the dollar to the renminbi is now occurring rapidly.

2) Demand for the U.S. dollar is falling as a direct result of this shift.

3) Even Chinese media are attempting to cover-up the collapse of the dollar.

More here:  http://www.wealthwire.com/news/global/4136?r=1