The Annotated History Of The World's Next Reserve Currency

Tyler Durden's picture

With de-dollarization escalating and Chinese officials now openly calling for "a new and more efficient system," specifically on which is not dominated by the US and the dollar, it appears the day of a rebalancing is approaching more rapidly than most would like to believe. On the heels of the vice president of China's central bank commenting that "renminbi will become the reserve currency" we thought it time to look at the long-run history of the Chinese currency and its rapidly rising internalization efforts.


As Simon Black of Sovereign Man noted recently, Chinese financial magazine Caijing has reported that the vice president of China’s central bank Pan Gongsheng made some rather candid remarks about the dollar and renminbi at a recent monetary seminar.

Over the past several years, the dollar has lost significant ground to other currencies, in its share of international trade transactions and national reserves settlement.

This means that, more and more, people around the world are dealing in currencies other than US dollars when they trade with one another.

Not to mention, central banks and national governments are starting to hold larger proportions of non-dollar currencies.

Mr. Pan pointed out that China has signed bilateral currency swap agreements with central banks and governments from nearly two dozen countries, in an amount exceeding 2.5 trillion renminbi ($416 billion).

Granted, this is just the tip of the iceberg. But Pan’s view is that the market is pushing for even greater internationalization of the renminbi.

Not to mention, two banks in China and Russia signed deals yesterday to bypass the US dollar and pay each other in local currency.

Again, while a drop in the bucket, it’s a major symbolic step towards undercutting the US. There will be more to follow.

Pan told his audience, as well as any foreign investor that cares to listen, that China would continue to promote “a new and more efficient system”, i.e. specifically one which is not dominated by the United States and the US dollar.

The entire world is screaming for this to happen.

Think about it– most of the world’s population, its productive capacity, its savings, and much of its natural resources, are in developing markets, especially in Asia.

The West has just a small percentage of global population… and nearly all of its DEBT.

How much longer can the West expect to continue to finance its debt-based standard of living on the backs of laborers earning $10/day in developing countries?

There will be a rebalancing. To believe otherwise is absolutely foolish.

And as China is set to overtake the United States as the world’s largest economy this year, they’re the obvious candidates to lead the charge.

Like a boxer telegraphing his punches, China is practically banging its shoe on the podium telling the rest of the world what’s going to happen... and soon.

Charts: Goldman Sachs

Remember, nothing lasts forever...

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DYS's picture

Uh, how about just use GOLD?

gh0atrider's picture

Yes gold.... not to be confused with "gold standard" (or government fraud).

wintermute's picture

Bitcoin is far more likely to be the world's next reserve currency than the renmimbi yuan. 

Might take a couple of decades, but the dollar will last out until then.

Mercuryquicksilver's picture

Because gold would undermine both US and PRC government's theft of its people's wealth. 2nd,3rd 4th place ponzi currency is still better than no ponzi.

Crawdaddy's picture

Unfortunately gold/silver can be gamed too. The unit of account is not as important as the quantity. In the end, a box of 22 shells is way more valuable than an once of gold. Unless you have a good arm that can knock a rabbit down at fifty paces using a stack of maple leafs.

SilverRhino's picture

A well practiced slingshot and pebbles / steel shot bullets can also do that as well.   

And the ammo is sometimes reusable

allgoodmen's picture

The quality of current .22 ammo is abysmal. The stuff is absolute garbage. It's almost as if the mfg's believe people are storing and not shooting it. I shoot it. If you hope to use it in an autoloader, think again. You might get away with using it in bolt action rifles or revolvers though.

spinone's picture

Promises, promises

Bangin7GramRocks's picture

Wouldn't using gold mean the end of the fake money system? 90% of the worlds "wealth" would disappear. The bankers would launch nukes before they ever let that happen.

oddjob's picture

Jim Stone says they already did.

rubiconsolutions's picture

"The bankers would launch nukes before they ever let that happen."

See: under reported, ongoing and increasingly dangerous ELE in Fukushima, Japan.

Okienomics's picture

Headline from Reuters: URGENT - China halts dollar transactions with most Afghan banks....  Happening today... why is this getting no coverage?

TeamDepends's picture

All your Ponzis are belong to us.

Seasmoke's picture

If someone was selling Gold for $5,000 Monopoly money, everyone would buy it....... why is Gold not much higher, just based on the news of the USD this week alone ????

Al Huxley's picture

...because there's no need to own it.  The only ones who want gold are Indians and Chinese and maybe Russians, and all they do with it is stick it in vaults or make jewelry out of it.  It's not like I need gold to buy stuff made in China, as long as my bank says I have a certain number of imaginary currency units (or I can even turn them into paper if I feel like it) I can buy any made-in-China shit I want.  And then they can go and use those same imaginary things to buy oil from Saudi, or Iran or whatever, who can then use them to buy stuff from Europe or whereever.  Who needs gold?  If I buy it, its just that many fewer imaginary $ I can use to buy Chinese toys and garbage.

JuliaS's picture

Because people don't transact in gold and therefore don't set its price. Banks do. That is their currency - that is how they call eachother's bluff. Fiat is what they have for the rest of us to play with while they do real business - selling and buying entire countries worth of assets within a span of a day.

Most of the world's gold belongs to institutions - not individuals. Against other hard assets it preserves stable value, but only they are allowed to actually trade it directly. We have to jump through hoops.

You want gold? Sure! Work for the bank directly or indirectly by earning a fiat denominated fiat-taxed paycheque. Trade it in for gold if you want. By the time you do, you've already enriched the bank. Play your little "I'm ourside of the system" game. When it comes time to pay rent or buy groceries, go and trade your gold in for fiat again. Surrender the margin. Enrich the bank yet again.

Believe gold will make you immune from monopoly money? Then find a place that pays wages in gold, next to a house that accepts rent in gold and a store that sells groceries for gold... and all of which file taxes to the IRS in gold. If you can't do that, then monopoly money is all you're even going to have. You can hold gold for a while, play with it, admire its shine for as long as you keep producing your fair share of goods and services for the benefit of the central bank. Exchange rate? Oh, it'll be 100, it'll be 1000, it'll be 5000. Meanwhile you'll remain the very same slave to the central bank. For every 2 units of energy produced, you'll share one with the master.

For a premium the bank will let you enjoy the illusion of being a home owner, without being able to own land it stands on. You can be a gold owner without the ability to earn or spend it. You can rent any illusion you want from the bank... and it costs almost nothing. All you have to do is surrender just one tiny invisible thing that you seem to have no use for anyway - your soul.

medium giraffe's picture

I hope you don't get blasted by goldbugs for this comment, because it's the most sensible thing that's been said around here on the subject for a while.  Thankyou. +1.

Kaiser Sousa's picture

no reason to blast him...

let 5000 years of history do that...

uh, for the record....there r no "goldbugs"...just people who understand what real money is...the bankers rule because their willing subjects remain so ignorant and so fucking willing to remain debt slaves...


Al Huxley's picture

You attribute way too much foresight, and canny cunning to the banks - most of them are chock full of Charlie Prince 'I'm still dancing' fuckheads who can't see past the profit on the next CDS transaction fee to understand the systemic risk they should be managing against.  If they were as smart as you say they wouldn't have nearly imploded in 2008.  And no, they didn't recover because they were so clever that they were able to game the system, they were able to game the system and cover their asses because they have crony friends in high places.  


Arrogant self-serving cocksuckers?  Absolutely.  Financial geniuses using gold to ensure stability amongst thieves?  No fucking way.  Now the BIS and their uber-rich owners, that's something different....

Crawdaddy's picture

Agreed. If Basel III loving, lying honkies were so smart they wouldn't have to buy off everyone to cover their asses.

JuliaS's picture

Bankers are not geniuses and they don't have to be. Once fiat fractional reserve system is established it goes on autopilot. The fact that for every monetary unit lent out 1+ are owed back will ensure a constant flow of assets back to the lender until the producers of goods and suppliers of service own nothing but paper and banks own everything else (including gold).

Not all banks are made equal. There's a constant transfer of energy and a never-ending process of absorbtion. There is no central mastermind. It's more of a hive mentality that accomplishes the goal set by the early engineer. Fiat is a wealth transfer tool that expands and self-destructs when confiscation riches a critical point - when there's nothing else left worth stealing.

Under a fractional reserve fiat regime there are no side routes, no escape paths. It's a black hole. Booms and busts, expansions and contractions all have the exact same effect. Assets flowing to the bank. Paper flowing out.

I often joke about inflation representing prices rising in excess of wages and deflation portraying wages falling faster than prices.

Heads - they win. Tails - you loose. Have your pick.

If you own gold for protection against extreme uncertainty, then your stash will offer you as much protection from the "elements" as golden dentures helped certain demographic dodge Nazi bullets in WW2.

For the record, I do own gold. I'm simply not bullshitting myself about its function. To me it's just a thing, like many other things - not a miracle cure or a ticket to riches. It may float or it may sink. I may become a life raft or a weight around my neck. Nobody knows what's going to happen tomorrow and tomorrow worries me a lot more than the events 100+ years on either side of the present.

5000 years of gold history is nice and all. If I was made of gold, I'm sure it would mean a lot to me.

Kaiser Sousa's picture

"Believe gold will make you immune from monopoly money? Then find a place that pays wages in gold, next to a house that accepts rent in gold and a store that sells groceries for gold... and all of which file taxes to the IRS in gold. If you can't do that, then monopoly money is all you're even going to have. You can hold gold for a while, play with it, admire its shine for as long as you keep producing your fair share of goods and services for the benefit of the central bank. Exchange rate? Oh, it'll be 100, it'll be 1000, it'll be 5000. Meanwhile you'll remain the very same slave to the central bank. For every 2 units of energy produced, you'll share one with the master."

spoken lie a true slave...

tell u what -let that be the fate of you and yours whomever they unfortunately may be...

but i assure you, it wont be for me and mine...

"For cowards the road of desertion should be left open; they will carry over to the enemy nothing, but their fears."

Zoomorph's picture

At least he makes an argument rather than simply saying "I'm right and you're wrong."

Maybe your emotional backlash is unsupported by deeper thought or retorts....

logicalman's picture

Most of what you say makes sense, but if I'm to try to preserve my hard work for the future, paper and/or bits on hard drives don't look too promising.

The less you need, the more you are free, but until you get to the 'drops to zero' part, you do have to at least try to hedge a little.



JuliaS's picture

Completely agree with you. The problem with the engineered financial system we're in is that through mere existence we're enriching those living at our expense.

The relationship between an individual and the bank resembles that of a human host and a tapeworm. It is possible to exist discomfort-free, not even being aware of infection by eating enough food to keep the worm fed. It is only when human goes hungry then the worm gets agitated and begins burrowing deeper into the digestive tissue. It starts devouring the host.

Until a shortage of nutrition occurs, the human typically interprets the sense of hunger as his own. The person consumes energy, but it doesn't reach the lower digestive tract, so he eats more and more, which is eactly what the worm wants.

What the bank wants is for you to work. Since money is tied directly to the economic activity, the more you do for anyone (including yourself), the more you do for them. The longer you remain complacent, the bigger they'll grow and the more pain they'll enflict when the food runs out. Their leverage over your decisions will increase the longer you play their game.

Gold is a better alternative to fiat, if you ask me, much like food is a better alternative to hunger or poison. What makes a huge difference here is whether your "gut sense" is your own, or one manufactured by the parasite.

I believe that buying gold in a fiat regime does damage. I believe that reduced consumption is a better part of the complex solution to the world we're in; however there's an obstacle that I call the "Maddox principle" based on the infamous counter-vegetarian comeback: "For every animal you don't eat, I'm going to eat three". Reduced consumption only starves the beast if it's a popular trend - if everyone does it. Otherwise for every fiat dollar not earned and spent someone's going to borrow and spend 3. Back to square one.

Fighting the system is hard. No doubt about that. I have my beef with the banks, but I'm even more fearful of the people who treat banks like equal members of the community...

... people who treat tape worms like they're pet chiwawas. Metaphorically speaking, of course.

Zoomorph's picture

For some reason, the majority of people idealize a life (never question what they are taught as kids and generally lack any deeper meaning in their world view) where they store up value for 50 years and then spend their last 20 years using it up while enjoying being lazy or having few responsibilities. For these people, it's fundamentally a problem of trying to store value for a long time to come in a world where entropy causes things to continually deterioriate.

Some people bet on gold being a good store of value. They are essentially betting that gold will remain as valuable as it currently is (or grow more valuable) in the future. There are many plausible scenarios where this might not hold true, but, if things substantially change, it seems likely to have better odds than fiat currency. If things don't substantially change (ie. the demise or hyperinflation of fiat currency), fiat currency might be better. It's a gamble.

It's very difficult to escape fiat in the present because we have limited freedom. We cannot start a nomadic tribe without being killed or arrested. We cannot likely trade in other currencies without being arrested or ostracized.

JuliaS's picture

Agreeing 100%.

Gold is a gamble. Everything's a gamble. The world's nothing but uncertainty, that's why I prefer keeping all options. I have some precious metals of all kinds, some foreign currencies, some food, some tools. A bit of everything, but not enough to be an inhibitor to my mobility which I believe to be important.

Fighting fiat directly one is guaranteed to loose. The "system" is aggressive and protects itself against threats real and perceived.

Fiat self-destructs eventually, and we're so close to the end of the cycle that it's much easier to simply wait till the economy implodes on itself.

Gold has 5000 year history? Well, governments have 5000 year history. Wars have 5000 year history. Human ingenuity has 5000 year history. Lots of things happenned while gold was around, and people with gold weren't always winners. Focusing too much on money means forgetting what it actually represents - what it measures. There are other things in life that can be viewed as investments as well as things that no money can buy.

... and I'm starting to drift off into irrelevant, so I'm going to shut up.

COSMOS's picture

So the best thing it seems is acquiring skill sets that are of value to the community at large and to your survival.  Instead of using fiat and chasing after it, are you putting in the time to learn how to grow your own food, learning first aid and maybe more advanced life saving skills.  And be it fiat or gold are you positioning yourself in an environment of friends and family around you to survive a major catastrophic event.  I guess it all boils down to increasing your odds of SURVIVAL.

Zoomorph's picture

Which boils down further to a question of values. How important is surviving to you? How much are you willing to pay to try to maximize your survival vs. pursue other things you value? Everyone will answer that question differently.

Given the unpredictability of the future, the many possible ways that we could be destroyed, the fact that our survival may not be threatened after all (planning might be wasted), the difficulty of preparing, and the fact that those who prepare are not necessarily going to be any better off than those who don't prepare (ie. if they are selected against), it's not surprising that many people take a fatalistic position on this. While the majority, perhaps, are simply lazy and don't want to put in the effort, others would rather direct their effort to things that have higher value to them.

Even once we've agreed that survival is a high value, there are many strategies towards pursuing it. Some people try to maximize their individual abilities and hope to survive a major catastrophe in the lower ranks. Others try to maximize their power and wealth to place themselves in a privileged position.

The wheels on the bus are going to fall off's picture

Whether the central bankers like it or not, the world may be forced to go back onto a gold standard, which should in theory help the people with physical gold. 

If they dont go back onto sound money, then people will start to diverge into cryptocurrencies or other medium of exchanges that cannot be managed by the central bankers (this would be there worst nightmare) 

it is simple for me, we have a formula in the world which starts with a debt based monetary system backed by a promise and faith that requires exponential growth from an exponential increase in population but using what i beleive to be finite energy at economical cost. The equation is not balanced.

To rebalance this equation, we need to either move away from oil and gas and start really thinking about clean and alternative energy (which i dont think will happen for some time) or we make the money supply finite and the alleged over population will somehow recalibrate or not. This will at least make the equation a little more sustainable than what it is now. 

If energy continues to increase in price the whole thing is going to collapse, it is all about energy.

Peter Pan's picture

I think what we all keep forgetting is that most nations, once upon a time, subscribed to the common reserve currencies of gold and silver.

Unfortunately we are still going round the circle in the hope of returning to the sanity that our ancestors once took for granted but which our recent generations put to one side in the name of greed and control.

If China hopes to replicate the American experience we will be no better off and possibly worse.

bcking's picture

Asians kick ass. We have all the factories, growing economies, and the hottest chicks. You can keep your paper dollars, 'service jobs', and fat, masculine women.

You reap what you sow America. 

Hugs and Kisses,

Kim Jong Un

Al Huxley's picture

Wrong fuckhead - we will give them to you in exchange for all that stuff you make.  You know you need us, who else will consume the output of those factories?  We bear the burden of consumption here, it's the sacrifice we make to keep the world economy moving.  And anyway, you have no choice, everybody uses dollars, that's why the dollar will be reserve currency forever.

bcking's picture

Sorry lady, you're wrong. We don't need you to buy our shit. We have a burgeoning middle class - ala 'Merica in the 1950's. You didn't need us to buy your shit back then and we don't need you now. Your egocentric thinking is exactly why 'Merica is in the shape it is in. Lazy, fat and stupid is no way to go through life, lady.

Al Huxley's picture

No way stumpy, I watch TV, I know the score - all you guys do is ride around on bicycles on your way to the factory to make shit for us.  You're fucking lucky we let you lend us the money to buy that shit from you, otherwise you're docks and warehouse floors would be overflowing with it.

BigJim's picture

LOL, this is good stuff, keep it up!

caShOnlY's picture

oh boy, love that analogy:  Bear the burden of consumption.  Dam that is good!  We also bear the burden of debt.  

The choice will be made by the Chinese when to pull the plug.  If 200 million Chinese have to starve to death for China to achieve its goal, it will be done.  The consumer does not have the advantage when he is also the debtor.   Show me a restaurant in America that loans you their money to eat their food?   Game is almost over, as the world wants a change.  Even our "friends" know it's time.

Al Huxley's picture

I wish I could claim credit for 'Burden of consumption' but its actually a direct quote from some douchebag economist back in around early 2007 I think, giving an 'Irving Fisher redux' explanation of why the everything was just a ok, no housing bubble, no derivatives bubble, just America doing its part to make the world a better place, by borrowing money.

buzzsaw99's picture

there are women in china? don't think so.

Tasty Sandwich's picture

Meh, at least we got to be the empire during the age of cheap oil.

disabledvet's picture

there is only one reserve currency and that is gold.

Wahooo's picture

I don't get it, someone please help me understand. The yuan is pegged to a basket of currencies.  So how is it any less fiat than the dollar? Backed by the full faith and credit of China?  Same Titanic, different name it seems.

Mercuryquicksilver's picture

Its not about becoming hard money, its about becoming petrol currency. China is not liberating its people, china is decoupling from USD inflation so that it can dillute its own inflation. When China buys energy in USD it is also buying US inflation. They don't want to import inflation anymore, they want to export inflation.

lasvegaspersona's picture

As an exporter of finished goods China can't want reserve currency status. As Triffin noted  that kills manufacturing. One MUST have a negitive balance of trade or the world won't be able to get and therefore use your currency as it's reserve.

BigJim's picture

The elites are far more interested in getting something for nothing (ie, being able to issue the reserve currency) than they are about maintaining a healthy trade balance.

If China can issue the world's reserve currency, its citizens can be kept fat and happy with bread and circuses the way America's have been for the last few decades - off the backs of the rest of the world - and they don't have to worry about regime change at home.

To do this, the dictatorships of the oil producing countries have to be persuaded that China will help them maintain power more effectively than the US does. Given that the US' military might dwarfs everyone else's, I don't think this will happen for some time.

So for China the next best thing is to have more and more countries accept its currency in exchange for their goods, so it can sell off its dollar reserves and USTs and exchange those (diminishing) paper promises of value for actual value.

I doubt we'll see the RNB or Yuan supplant the USD outright unless the USA collapses. And if that happens, unless another hegemon arises, the elites of every country will probably want to go back to something resembling the gold standard... hence why physical ownership of gold makes sense if you think the US empire is doomed.