The Rise of Yuan
The U.S. dollar hit a 15-year low against a basket of currencies in August 2007. It is only a matter of time before the yuan will overtake the U.S. dollar as the most accepted currency among the world’s central banks. The People’s Bank of China has accumulated over $1 trillion of reserves. Since it has no domestic use for them, it turns around and lends them back to the U.S. and they find their way back into the housing loan market. This means that both Treasury borrowing costs and mortgage interest rates are lower than they otherwise would be. American homeowners and taxpayers are the beneficiaries. If China did comply with U.S. pressure to revalue its currency, American consumers would face a fiscal apocalypse.
China let its currency rise very quickly and quietly ─ it even broke through 7.9 to the dollar for the first time in September 2006. It appreciated at a daily rate of 0.8 percent, which works out to an annualized rate of 10 percent. That was quite a contrast to the annual pace of 2 percent to 2.5 percent during most months after China’s 2.1 percent revaluation on July 21, 2005. The acceleration came at a time when the Chinese economy settled down to sustained but controlled growth, which made Chinese officials more willing to experiment with the value of the yuan. Some China watchers gave the credit to the quieter U.S. policy advocated by Treasury Secretary Henry Paulson Jr., who with decades of China experience, pursued a much more low-key approach to the currency issue.
The fact is that at the dawn of the 21st century, the Chinese yuan is now an internationally recognized currency that is giving the dollar a run for its value. The dollar slid to a 12-year low against a basket of currencies, and a 26-year low against the British pound in July 2007. The yuan is quietly becoming a universal currency at the expense of the dollar. It delivers everyday economic values without devaluation. There is enough of the currency to finance capital anywhere and anytime – and it does.
There is even talk that the yuan may be the next reserve currency. The U.S. dollar has had a relatively short run so far as the global reserve currency. It assumed the position after World War II and the establishment of the Bretton Woods system of global monetary stability. Back then, the dollar was pegged to gold ─ at $435 an ounce ─ and was established as the fallback monetary unit that underpinned the postwar era of economic growth around the world until the Iraq war fiasco.
China, the world’s third-largest gold producer, is likely to surpass the U.S. to become the second-largest producer of the precious metal. It will produce 260 tons in 2007.
All China has to do today is pass laws that all its exports be purchased in yuan instead of dollars. The currency would then begin a serious push for reserve status. China can bring down the U.S. greenback With $1.33 trillion currency reserves it holds the ultimate bargaining chip.
China let its currency rise very quickly and quietly ─ it even broke through 7.9 to the dollar for the first time in September 2006. It appreciated at a daily rate of 0.8 percent, which works out to an annualized rate of 10 percent. That was quite a contrast to the annual pace of 2 percent to 2.5 percent during most months after China’s 2.1 percent revaluation on July 21, 2005. The acceleration came at a time when the Chinese economy settled down to sustained but controlled growth, which made Chinese officials more willing to experiment with the value of the yuan. Some China watchers gave the credit to the quieter U.S. policy advocated by Treasury Secretary Henry Paulson Jr., who with decades of China experience, pursued a much more low-key approach to the currency issue.
The fact is that at the dawn of the 21st century, the Chinese yuan is now an internationally recognized currency that is giving the dollar a run for its value. The dollar slid to a 12-year low against a basket of currencies, and a 26-year low against the British pound in July 2007. The yuan is quietly becoming a universal currency at the expense of the dollar. It delivers everyday economic values without devaluation. There is enough of the currency to finance capital anywhere and anytime – and it does.
There is even talk that the yuan may be the next reserve currency. The U.S. dollar has had a relatively short run so far as the global reserve currency. It assumed the position after World War II and the establishment of the Bretton Woods system of global monetary stability. Back then, the dollar was pegged to gold ─ at $435 an ounce ─ and was established as the fallback monetary unit that underpinned the postwar era of economic growth around the world until the Iraq war fiasco.
China, the world’s third-largest gold producer, is likely to surpass the U.S. to become the second-largest producer of the precious metal. It will produce 260 tons in 2007.
All China has to do today is pass laws that all its exports be purchased in yuan instead of dollars. The currency would then begin a serious push for reserve status. China can bring down the U.S. greenback With $1.33 trillion currency reserves it holds the ultimate bargaining chip.
posted by Peter de Krassel's Custom Maid Politics at 9:43 PM
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