This page has been archived and commenting is disabled.
Thanks, World Reserve Currency, But No Thanks: Australia And China To Enable Direct Currency Convertibility
A month ago we pointed out that as a result of Australia's unprecedented reliance on China as a target export market, accounting for nearly 30% of all Australian exports (with the flipside being just as true, as Australia now is the fifth-biggest source of Chinese imports), the two countries may as well be joined at the hip.
Over the weekend, Australia appears to have come to the same conclusion, with the Australian reporting that the land down under is set to say goodbye to the world's "reserve currency" in its trade dealings with the world's biggest marginal economic power, China, and will enable the direct convertibility of the Australian dollar into Chinese yuan, without US Dollar intermediation, in the process "slashing costs for thousands of business" and also confirming speculation that China is fully intent on, little by little, chipping away at the dollar's reserve currency status until one day it no longer is.
That said, this latest development in global currency relations should come as no surprise to those who have followed our series on China's slow but certain internationalization of its currency over the past two years. To wit: "World's Second (China) And Third Largest (Japan) Economies To Bypass Dollar, Engage In Direct Currency Trade", "China, Russia Drop Dollar In Bilateral Trade", "China And Iran To Bypass Dollar, Plan Oil Barter System", "India and Japan sign new $15bn currency swap agreement", "Iran, Russia Replace Dollar With Rial, Ruble in Trade, Fars Says", "India Joins Asian Dollar Exclusion Zone, Will Transact With Iran In Rupees", and "The USD Trap Is Closing: Dollar Exclusion Zone Crosses The Pacific As Brazil Signs China Currency Swap."
And while previously the focus was on Chinese currency swap arrangements, the uniqueness of this weekend's news is that it promotes outright convertibility of the Yuan: something China has long said would happen but many were skeptical it ever would. That is no longer the case, and with Australia setting the precedent, expect many more Asian countries (at first) to follow in Australia's footsteps, because while the developed world is far more engaged in diluting its currency as a means to spur "growth", Asian and developing world nations are still engage in real, actual trade, where China is rapidly and aggressively becoming the world's hub.
More from The Australian:
Former ambassador to China Geoff Raby, now a Beijing-based business figure, told The Weekend Australian: "The value of such a deal would be substantial for exporters to China, especially those that import a lot from China like mining companies, as it would remove business constraints including exchange-rate risks and transaction costs."
Businesses, like individuals when travelling, have to pay extra to convert currency since there are different rates for buying and selling.
So removing one step also cuts out the cost of paying for such a "spread".
Australia has undertaken significant lobbying for the deal and the direct conversion of the yuan, also referred to as the renminbi (RMB), is identified as a priority in the government's Asian century white paper.
"We have held preliminary discussions with the Chinese government to explore how soon direct convertibility can be practicably achieved," the white paper says.
"We are continuing these discussions, and also exploring other opportunities to work with China to support the internationalisation of the RMB."
Australia's banks increasingly arrange trade finance through Hong Kong, which has developed a special role as China's chief international finance centre.
Needless to say, China is eagerly looking forward to taking yet another bite out of the USD's reserve status.
New President Xi Jinping, a former Communist Party secretary of Shanghai, is a champion of that city's development as China's finance hub, and it is believed that the Prime Minister may fly there to sign the currency conversion deal.
Ms Gillard is expected to go on from Shanghai to Beijing, where she will open the third Australia China Economic and Trade Forum organised primarily by the Australia China Business Council, which will be bringing about 100 people from Australia for the event. Participants are likely to include Andrew Harding, Rio Tinto's new chief executive for iron ore; Warwick Smith, ANZ Bank's chairman for NSW and the ACT; Australian Trade Minister Craig Emerson and Financial Services Minister Bill Shorten; Gao Hucheng, China's Commerce Minister; and Gao Xiqing, the acting head of China Investment Corporation, the country's vast sovereign wealth fund.
The ANZ Bank has been a strong advocate of direct convertibility between the dollar and the yuan. Gilles Plante, the bank's chief executive in Asia, said in a recent report that in the last financial year, China accounted for 29 per cent of all exports and 18 per cent of imports, but the value of that trade denominated in yuan was less than 0.3 per cent.
He forecast that cross-border flows of funds would be liberalised "to support Shanghai's plan to build itself as a global financial centre. At the time the whole world is digging out opportunities from the rise of the yuan, Australia should not lag behind."
It was significant the liberalising governor of the People's Bank, Zhou Xiaochuan, kept his job during the reshuffle of China's leadership. He said last year at a conference: "The next movement related to the yuan is going to be reform of convertibility. We are moving in this direction; we need to go further, we will have some deregulation."
Most importantly, to China, Australia will serve as the Guniea Pig - should this experiment in FX liberalization work out to China's satisfaction, expect Beijing to engage many more trade partners in direct currency conversion.
Beijing appears to have chosen Canberra as its partner in this next movement for straightforward economic reasons, as Australia has become China's fifth-biggest source of imports and thus, the appropriate partner for the march of its currency.
Ms Gillard and President Xi Jinping may also during the visit establish a "strategic partnership" between the countries. This will enable Australia to catch up in status with a large range of nations.
Why is this so very critical? For the simple reason that the free lunch the US has enjoyed ever since the advent of the US dollar as world reserve currency, may be coming to an end as other, more aggressive alternatives - both fiat, and hard-asset based - to the USD appear. And since there is no such thing as a free lunch, all the deferred pain the US Treasury Department has been able to offset thanks to its global currency monopoly status will come crashing down the second the world starts getting doubts about the true nature of just who the real reserve currency will be in the future.
»
- 166472 reads
- Printer-friendly version
- Send to friend
- advertisements -
Really.
May I suggest Hufpo in that case.This is fight club.Being here you should
be capable of critical thinking, and sorting chaff from wheat..
This is the changing of the guard ,from dollar to something else.
The question is what to,not the change over. itself.Australia is just another step on that
road, and the pace is accelerating quickly.. The end of 2014 is looking more ,and more
probable for the end of Pax Americana.Hedge accordingly.
Many of us were born at the shallow end of the gene pool and hindered by public education.
Dismount your unusually tall horse and share some knowledge with us Bhangis.
You mean to tell me that Barakadoc(distant cousin to Papa and Baby Doc) doesn't have the handle on this....why I do tell....shazammmmm
+ 1 - for referencing Duvalier and Pyle in the same comment.
That fancy new US marine base for the Asia pivot to be voted off the island next?
Because China really does NOT want the yuan to be a fully floating currency, the US dollar will likely retain its reserve status. There has been no problem with changing the dollar price of oil (higher). You will see things like direct Aussie-Yuan settlements (it is the electronic age after all), and you will see things like a movement Away from longer term US bonds. All this talk of a BRIC currency has as much chance of success as that other polyglot currency - you know it - the Euro!
will you be one of the last to be singing the star spangled banner in worship of empire?
the writing on the wall has evolved into bold psychodelic graffiti now from a faint outline 15 years ago. the west is done. long live the west.
There already is direct convertibility - its the world's largest market and its called foreign exchange! China cannot peg their currency to two other currencies at the same time. If they peg the yuan to the Aussie the US dollar drops while Aussie raw materials stay the same. That will hurt Chinese exports to the US and most other countries.
With the Orientals not bowing to the Oxidentals, things could start happening to put a new spin on things sooner than later...The Quickening could start picking up the pace....
Obama to Kerry: Go find nukes, Al Qaeda, and chemical weapons in the outback. We need to invade, now!
Let the O'man talk to Buzz Aldrin to get some perspective, damn it's just us on this here blue marble...
I detect too much glee at the prospect of Jim Willie's scenario from those who are U.S. citizens. When we fully become a Third World nation all pretenses will be dropped. It will be Argentine repression at best for our citizenry. At worst they will aspire to outdo North Korea and the Third Reich. The fence along the Mexican Border will finally be built, but to keep us in. And squadrons of automated predator drones will roam the border with Canada, vaporizing anything near it that walks on two legs, no human okay needed.
The Statist assholes who now predominate will go into a frenzy once they are unleashed by financial collapse.
They will have a laboratory to implement all of their crackpot ideas in an unhindered fashion while skimming our commodity wealth to make themselves fabulously wealthy.
They will be deliriously happy eliminating their enemies, the old ones and all of those newly created.
No doubt sir, that is their end game. Stay armed my friends.
gnomon -- I heartily REJECT your dismal view. The demise of the U.S. Govt. does not automatically lead to the demise of the American people. The USG will of course devolve to a rabid creature that will do all it can within its power to retain its power. This is certain, because this is true today.
I refuse to believe that the best of America -- some scant percentage of all its "citizens" -- will permit the rape and pillage of their children and homes without a fight. And those Americans who identify themselves by their willingness to fight: They are neither weak nor dumb, but I would argue represent the true and unalienable wealth of this country.
Sir, I -- with you -- cannot help but sell short USG's modus operandi; it is doomed by its own devices. But unlike you, sir, I am not of such a defeatist mind to sell short the American spirit as it burns in the hearts and minds of the unnumbered, vital few.
They are worth backing. You and your fatalistic outlook are a drag, and are not worth backing.
You may be right in your dystopian predictions, but I refuse to believe it. I *must* refuse to believe it. On behalf of others who may share this view, to you and to your view:
Fuck off. Get the fuck behind me, asshole.
.
Capt. Bernanke: "What was did you call me about helmsman?"
Helmsman: "We hit something sir. I believe an Australian-Chinese reserve currency iceberg, sir."
Capt. Bernanke: "We're unsinkable. Don't bother me with such nonsense. Full speed ahead."
Helmsman: "But sir?!"
Capt. Bernanke: "I said 'full speed ahead' helmsman! Now goodnight."
Helmsman: "Goodnight sir."
hujel
Wrong movie, Australia! Just one more target to nuke at the onset of the Third Thermonulear War.
KING DORRAR!
whacking wombats
down under...
long silver
"The reserve currency crisis is well-contained."
- Ben Bernanke, September, 2013
Uhh... Good Luck with that. Wishful thinking. Mercantile economies around the world are colapsing. If anything, the US is holding them together. The problem is systemic.
In the future there will not be reserves currency, nor socialist state. The system is imploding, taking the world with it.
In the future the world will go back to free trade and hard money, which is not the same as todays capitalism. And this will means that nations will no longer afford themselves. The future is going to be a libertarian one beacuse of economics and demographoics, not politics. No, this aritical does not see the forest through the trees, nor the fire that comsumes all.
Sure, let's make the communists' currency the world reserve currency. That makes sense. Communists have a well regarded track record of economic success.
It matters not. All part of the bigger plan.
This is leading toward the yuan replacing the dollar as the reserve currency. When that happens, the Kommunists will have us by the nutz. Inflation anyone? A significantly lower standard of living grab ya? Thanks Benny and all you dizzy socialists for saving us in 2008 and greasing the rails for our downfall back to the stone age. What a bunch of potlickers. It would have been better to let the system crash five years ago and by now we would be on the way to rebuilding without all the law breaking, untrusting, arse-wipes running the government/banking/financial system.
After Australia then who will be next? India? ZeroHedge has warned us for a long time this was going to happen.
Japan is no longer needed by China cause her designs and products have all been stolen. Australia is still of interest because China is now only looking for resources.
Nothing new here. Going according to plan.
Isn't China still pegged to the dollar?
Didn't Aussieland already prevent China from purchasing their mining companines?
Whenever China decides to float their currency is when everybody will begin to freakout.
China is buying Aussie uranium dirt to process, has to.
america's, 'mission accomplished', and the death of a 'seal team'-- this is what 9/11 was all about and a socialist/democracy nixon's deep-throat kissinger dreamt of via a fascist cabal ???
watch as explained by eye winesses that perhaps have already met the untimely fate of 'Seal Team / Osama Bin [manchurian candidate?] Laden'! twelve short years... and who's counting.
9/11 Experiments: The Great Thermate Debate *{marvin bush & wirt walker III were the eminent wtc security contractor[*Strat`e`sec*] bosses}
http://www.youtube.com/watch?v=5d5iIoCiI8g
thankyou tyler