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The march of the renminbi
Posted by robin in Financial Articles Tuesday March 31, 2009 12:08 pm
“China and Argentina in currency swap”, reads the FT headline.
Tucked away at the bottom of an inside page it doesn’t exactly leap out at you.
But a few lines into the peice it starts to get interesting. China has agreed a deal with Argentina to receive renminbi rather than dollars for its exports.
China’s calling time on the world’s global reserve currency. It’s had its fill of US Treasuries. What has it got? $740bn worth reports Bloomberg. A gigantic pile of government debt from recycled manufacturing export profits. Their buying of US IOUs kept interest rates low, pumped up asset prices and kept consumers buying. Such was the merry-go-round that led to ’imbalances’ in econospeak.
Well, now the world has turned. China has had its fill of dollars and now looks on anxiously as the US government ramps up spending and the printing press - aka ‘quantative easing’. Their gigantic pile of hard-earned dollars is at the mercy of policymakers eyeing inflation as the rainmaker to wash away vast debts. Bloomberg called its investment in the US a “Faustian bargain” and “a sucker’s bet”.
Little wonder China wants a new global reserve currency: “A super-sovereign reserve currency” replacement based on special drawing rights (SDR) first established by the IMF in 1969. Little wonder too, the US is opposing the idea. What debter, given the choice, wants to add potentially ruinous currency risk?
So China will trim its dollars this year, says Deutsche Bank and here we see one way of doing it. The dollar has long been the currency of worth for Argentines who have been tormented by chronic economic disaster and money reduced to dust. But now the Chinese are calling the shots with this trading partner. Dollars no, renminbi yes. And it’s not only Argentina, since December it has signed $95bn of such deals with others too - Malaysia, South Korea, Hong Kong, Belarus and Indonesia.
These deals are “pieces in the jigsaw designed to promote wider international use of the renminbi”, reports the FT, with the aim of making it the reserve currency for Asia.
The days of dollar are numbered.
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