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China Takes Aim At Dollar Reserve Status: Promotes Yuan In Investment Bank
As regular readers know, we’ve variously described the China-led Asian Infrastructure Investment Bank as representing both an attempt by China to cement its regional dominance by implicitly adopting a sino-Monroe Doctrine, as indicative of Beijing’s desire to supplant to US-dominated multinational institutions that have been a fixture of the post WWII economic world order, and, perhaps most importantly, as a not-so-subtle indication that dollar hegemony may be on the way out and yuan hegemony may be around the corner.
Essentially the AIIB will (either intentionally or unintentionally depending on who you believe) serve as an instrument of Chinese foreign policy and any hope of keeping this between the people who are privy to the country’s various hidden agendas (because all countries have agendas), went out the window early last month when the UK staged a coup by breaking with Washington and joining the development bank triggering a flood of applications from Western countries and culminating in membership bids from US “allies” Australia, Israel, and even Canada. Adding insult to injury, the AIIB is now looking to hire officials away from the World Bank and rival ADB.
Amid the March membership frenzy, Beijing sought to play down the degree to which the venture would serve to help establish a new world economic order with China at the helm. An article which appeared in The Global Times (a paper run by the state-controlled People’s Daily) very specifically denied any notion that China has designed on establishing a yuan-based global economic system. Here’s an excerpt:
The establishment of the Asian Infrastructure Investment Bank (AIIB) has been depicted by a few overseas media outlets as if China is building its own version of the Bretton Woods system...
Some foreign observers claim that the AIIB is the beginning of the Chinese yuan's hegemony. What they are actually trying to imply is that "China is another US."
This kind of statement is nonsensical, which uses historical experience to fool readers. It is divorced from the truth and shows no common sense and doesn't stand up to any scrutiny.
Through the Bretton Woods system, the US was able to wield supreme influence over its allies which had been severely battered during the war. China today is in a totally different position.
The AIIB will not confront the WB or IMF, nor will it turn the current international monetary order upside down. The spirit of the AIIB is diversity and justice.
Perhaps, but as we noted at the time, it was on the very same day that the following came across the wires: “China plans to push for yuan to take prominence in loans under the Asian Infrastructure Investment Bank and the Silk Road Fund, people familiar with the matter said. China may encourage $100b AIIB and $40b Silk Road Fund to issue loans directly in yuan or set up yuan-denominated funds under the two institutions, according to the people, who ask not to be identified because deliberations are private.” This prompted us to suggest that “actions speak louder than words.”
Today, The South China Morning Post reports that the bank will establish an AIIB currency basket with China set to push for the yuan to take a prominent role and for “special currency funds” to be established in order to issue yuan-denominated loans through the fund. Here’s more:
Beijing will push for the yuan to be included in a basket of currencies used to denominate and settle loans from the Chinese-led Asian Infrastructure Investment Bank (AIIB), according to think tank sources.
Beijing will also encourage the AIIB and the Silk Road Fund to set up special currency funds and issue yuan-denominated loans through both institutions, the sources said.
If the US dollar is used, it weakens China’s bid for the yuan to be a global currency.
The efforts are part of a drive to internationalise the Chinese currency and come as the International Monetary Fund prepares to discuss the possible inclusion of the yuan as its fifth reserve currency and as part of the basket that forms the IMF's Special Drawing Rights.
The sources' claims appeared to be confirmed by a state media report, which said that a basket of currencies called the "AIIB currency" would most likely be adopted as the bank's currency of settlement…
Hao Hong, chief economist and managing director of research at Bocom
International, said the AIIB's grand vision for infrastructure investment came with challenges but China should do its best to establish the yuan as a currency for settlement and denomination.
"If the US dollar is used instead, it weakens China's bid for the yuan to become a truly global currency and to challenge the hegemony of the US dollar," Hong said.
Yifan Hu, chief economist with Haitong Securities International, said it would be too hard to reach a consensus on an AIIB currency basket...
"In my view, the US dollar will be used in the early stages of the AIIB, and then [the bank] will gradually move to a mix of the yuan and US dollar," Hu said.
The sources said China would push for broader use of the yuan at the AIIB and the Silk Road Fund, as part of efforts to promote the yuan as an international currency…
The sources said that there was still a long way to go in the internationalisation of the yuan and the greenback would continue to dominate the global financial system for the next few years.
Yes, “for the next few years,” which really isn’t that long, especially when compared with how long the dollar has dominated the global economic order. Perhaps even more interesting — and more alarming for Washington — is that the move by China to expand the yuan’s influence via a fund that is now backed by nearly every major country on the planet save the US and Japan, comes just as petrodollar mecantilism, which has been perhaps the driving force behind dollar dominance for decades, crumbles in the face of slumping oil prices. As we’ve reported on several occasions, 2014 marked the first year in nearly two decades that oil producers' petrodollar exports (i.e. the recycling of oil proceeds into USD assets) turned negative. In other words, falling oil prices mean producing nations are now removing liquidity from the system rather than adding it, a process Goldman estimates will will sum to nearly $900 billion by 2018.
The combination of these two forces could serve to cause a dramatic shakeup in a world that heretofore functioned on a unilateral system, both politically and economically.
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Someday, at the most opportune time, China will disclose their true gold holdings.
China is the most blatantly corrupt and dishonest govt existing....
and I believe the world knows this.
"No... there is another." --Yoda
They even moved Craftsman tools to China now, if I want to buy some tools I need yuans to get them.
The treason occuring in this country from corporate boards to halls of congress and the white house via AIPAC is truly a travesty to our Constitution.
LOL... "Diversity" and "Justice" from an international bank... LOL. The more the common man in the world understands his non-central-bank financial options, the sooner this evil is removed from the world.
My psychiatrist just hack my bank account because I refused to buy my meds from him. That $1 will cost him big time.
So why is the dollar soaringly strong if China is any credible threat?
Don't talk facts to the tinfoil hat boys.
And now there are apparently plans for another MDB backed currency basket in addition to the SDR. The Oompa-Loompa of the IMF better "get to work" on those IMF reforms and replacing USD hegemony with a new paradigm, or the job and power will go to someone else, on a slightly longer timeline.
The yuan looks likely to be added to the SDR basket. One whisper I heard is that the ongoing imbalance on silver contracts is China's way of holding a virtual gun to the head of the IMF. Either the yuan is added or the COMEX is obliterated. Not sure I believe it though because I'm not sure what China gains by tanking the system at this point.
If you don't care much for the IMF, why bother with the SDR ? China will make their yuan the real alternative to the USD. The SDR is becoming irrelevant at this point...
Yes. The Western Powers just hide it a lot better.
Agreed, and they're going to create the worlds first reserve currency that's pegged to the dollar? Not any time soon.
edit: Apologies to L.O.P. for same content below.
Except for the US!
Sorry, the most blatantly corrupt and dishonest govt existing is the USA government. For example: does the Chinese government pretend that it is democratic? No. Does the Chinese government have trillions of debt? No.
Does the Chinese government pretend that it is democratic?
Yes. They have "elections".
Does the Chinese government have trillions of debt?
Yes. Just because the Communist Party maintains a "bust fund" of several T in hard currencies does not mean that they are running a surplus.
How exactly can you "maintain a bust fund of several T in hard currencies" if you are not running a surplus, genius ? The FED would gladly pay you big bucks for your revolutionary ideas in the field...
Well, duh ! That's the whole point of the AIIB: to create an alternative lending system using an alternative currency. Anybody trading with China (or Russia) will need yuans, so its only natural to create a source for that currency accessible to all those interested...
And when that opportune day arrives, when China does disclose--via independent audit--it's true gold holdings, the world will demand that the US disclose--via independent audit--it's true gold holdings.
I gots a feeling the US independent audit will take a long time, say, up to ten minutes or more.
"My, what a large empty vault you have here!"
I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.globe-report.com
Nice touch with Stephen Hawking break dancing in the nebulous.
I just stole his wifes pocketbook, but don't tell anyone, there were a lot of folks on that fishing trip.
That kind of looks like the bra I bought for my wife.
That's not Kosher.
Neither is the hidden Kosher Tax in tons of American consumer products. Tax that's collected from the unsuspecting Goyim, and used to finance a myriad of Kosher activities.
If the (Catholic/Protestant) Church did the same thing, all hell would break loose in the MSM and H/Wood.
http://www.subvertednation.net/kosher-tax/
China will have to disclose gold reserves, how are they going to promote the inclusion of yuan in SDR, which is going to be reviewed next month? They can't wait another 5 years for SDR. They will disclose gold holdings and it will spike gold.
They don't care about SDR anymore...
You can trust anything offered by the Chinese Commies just a wee bit less than a 5 year old condom.
Well I am all for competing systems, preferably one which does not give bankers power by basing the system on debt creation, but please, China?
pods
And the Yuan is pegged to what again?
Accountability motherfuckers!
What part of all fiat will die don't people understand?
It's backed by the full faith and credit of a BRICS shithouse which appears to be more than the USD has backing it these days.
Yep - that's what the world needs - Chinese communists/dictatorship at the helm of a global currency. Great idea. Solves everything.
Beam me up Scotty and get me off this planet!!
well Marx did predict Communism WILL eventually beat Capitalism. and it appears he was right, yet again.
with the businesses, farmland & RE they've bought, not to mention banking, they'll be over here shittin in the streets before you can say Hoo Flung Poo is your uncle.
Hmmm... currency competition...
Think that might have something to do with the current US$ bull market ;)
Think that might have something to do with interest rate hike talk??? :)
Does fit rather nicely don't you think???
Mandrian or Cantonese?
They want the world (ex Taiwan) to buy into a pegged currency that has a fair chance of being devalued on that peg by around 25%. I'd like to hear that sale.
.
The yuan is no threat to the dollar and will not be -- ever. Because 1) the Chinese military is a joke by comparison to the U.S., and 2) nobody wants to live in China.
#1 will probably be true for another 100 years at least. And #2 will be true as long as China remains communist and poor, which means probably for at least another half millennium.
The successor to Pax Americana will be world government. There will never be another superpower, let alone another unipolar geopolitical scene. This is it. America in charge for another 200-300 years, and then world government.
What a load of stupid crap...
"China remains communist and poor, which means probably for at least another half millennium."
Right, and USA using QE is Capitalism, yes?
Western countries and culminating in membership bids from US “allies” Australia, Israel, and even Canada.
Not So.
Canada is looking at it, nothing decided yet. (Remember the softwood) The manipulated oil sales that headed south that kept the Emergency Reserves full at the lowest price they could?
Isn't this an opportunity for competition of free enterprise? Democratic Voting will decide.......
We will have pipelines that take our OIL to World Markets. (Pissed at paid actors to tell the world our oil is dirty) Google maps of the flaring of Natural Gas from the refracted wells that lose oil production Oh so Soon.
America said.....We have No freinds , only opportunities...............Well........There you have it.....An Opportunity LOST.
The mainstreet Media does not tell truths, but however they want the general population of the USA, (and Canada since 2011) that the reported NEWS is not necessarily the TRUTH>
Well the only true reason why chinese Yuan will never be a dominating currency lies within the greedy nature of the chinese.
If they ever get in a position for becoming a world currency they will fuck it up with their greed and self esteem very fast!
Surely the Yuan can be an addition to american and european currencies as long as there is a free open monetary market. But it will never be anything like the USD or other world currencies before the dollar used to be..
The US dollar will never rival the British Pound in world trade.
bulllish
Did he just say that Liquidity is drying up due to low recycle on petrodollars due to low prices? Did we do this to ourselves so we can say we have a strong dollar and also to get back at the oil producing nations that don't like us (Russia, Iran, etc)?
What's next, more Liquidity, aka stimulus (its the flow stupid), due to the rising dollar and poor economy?
Only one thing stands in the way of the Yuan becoming a reserve currency-- the CCP permitting unfettered convertibility.
Ergo-- no reserve currency status for them. At least not among non-crazy people.
A year here, a year there and pretty soon you're talking about the loss of reserve currency status.