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The Dollar & China's "Financial War"
Submitted by Alasdair Macleod via GoldMoney.com,
With the benefit of hindsight, the two-day devaluation of the yuan in mid-August might have been a masterstroke of strategy.
China executed a financial move that appeared to undermine its own position but instead created trouble for the US; how much is still to be played out. So was the devaluation a well-executed move against the dollar, or are the Chinese authorities as clueless as any other government?
For a clue about how the Chinese might approach these matters, I am indebted to Simon Hunt of Simon Hunt Strategic Services for drawing my attention to a speech by General Qiao Liang, the Peoples Liberation Army's military strategist, delivered about six months ago. The General makes it clear that China's external relationships are pursued through financial, not military means. China pits subtle tai chi against America's brash pugilism. It is therefore quite possible that China's August devaluation was planned and timed to undermine America's financial position.
This possibility is disregarded by nearly all financial commentators, who have been fixated on the bursting of China's credit bubble. This would be a major crisis for a western economy, but it allows China to reallocate economic resources from legacy industries towards the monumental task of developing Asia's infrastructure with the promise of its future markets.
Regarding the August devaluation as designed to enhance the competitiveness of the Chinese currency is too simplistic. The way to look at it is China actually triggered a wide-spread revaluation of the dollar. By undermining US export markets, China has effectively taken control of America's interest rate policy from the Fed. She has shown that China, not America, now sets the pace in the global economy. General Qiao made an interesting point in his speech: China's Alipay alone settled more purchases by value in just one day over China's "Valentine" holiday last November, than all US online and retail outlets over the three-day Thanksgiving holiday.
Exercising control over someone else's currency is not an end in itself. By doing so, China has weakened the negotiating position of her suppliers of raw materials, exposing countries as diverse as Brazil and Saudi Arabia to financial chaos, because of their commitment to the US currency. By whipsawing the dollar, China has exploited the currency disparities between global trade and its financing, and has pressured her suppliers into offering favourable supply agreements. For confirming evidence, see how super-tanker day rates have soared as Saudi Arabia has cut its oil price to China, and how the copper price has held up since mid-August, suggesting there has been accumulation of this vital metal even while emerging markets slump.
This, as the cliché goes, was a win-win for China. Her small devaluation in mid-August triggered a series of events that has allowed her to cash in some of her dollar stockpile at favourable rates to acquire the raw materials she needs for the future. Either she was very lucky, or she had thoroughly analysed global dollar flows before acting. It so happens that dollar flows featured in a large section of General Qiao's speech, which suggests luck was the lesser factor.
The timing, in geostrategic terms, also helps confirm the General's financial war theory. The IMF had decided the week before the devaluation to not include the yuan in the SDR basket before September 2016, when there was every indication it had already qualified (the decision was written up on 4th August and subsequently announced in a press release on 25th August). This removed the immediate prospect of the yuan gaining international marketability through conventional, post-Bretton Woods means, and could have decided China's course of action.
No doubt, the IMF hoped that by delaying the yuan's inclusion by a year, their American masters would be appeased and China would be kept on the SDR hook a little longer. Instead, it appears that China took the view that the existing international order of the IMF and the World Bank set up under American control at Bretton Woods, was just stringing them along.
The realities are stark. China and Russia between them dominate Asia where the majority of the world's population resides. Both super-states are also securing their spheres of interest: Russia in Eastern Europe and the Middle East, and China in South East Asia. After Syria, Russia can be expected to encourage the rest of the Arab world's economic interests to be aligned with Asian markets, while China can rely on her influence to cement economic interests throughout South-East Asia.
China and Russia are the moving forces in the Shanghai Cooperation Agreement. This well-established relationship contrasts with the Trans-Pacific Partnership Agreement, formally signed only this week, which is America's response to China's increasing economic power. President Obama said it himself: "....we can't let countries like China write the rules of the global economy." However, it won't come into effect for some time, and the only mainland Asian nation to sign is Vietnam. All the others, unsurprisingly, have stayed away.
Therefore, despite the TPP Agreement it appears that China already has East Asian trade sewn up. The Chinese alliance has also helped give Putin the power to leave America and her NATO allies flat-footed and strategically outmanoeuvred at the other end of the continent. Putin this week visited Merkel and Hollande in Paris to brief them on Syria and Ukraine, and presumably remind them where their future economic interest lies. Even Britain, one half of the Anglo-American special relationship, was the first outsider to join the new Asian Infrastructure Investment Bank. So at the same time as the US-dominated IMF deferred the yuan's inclusion in the SDR, America's military and financial hegemony was visibly failing.
China's next move could well follow after this weekend, when the IMF and World Bank hold their annual meetings in Lima. It will be the IMF's last chance to take a more constructive approach to China. If the IMF fails to do so, we should expect China to step up her "tai chi" against America and her currency even more, in either of two ways. She could temporarily withdraw entirely from key commodity markets, destroying the US shale-oil industry and inflicting enormous commodity-related losses on the western banking system. That might be too aggressive. Alternatively, China could continue to dispose of the bulk of her remaining dollar reserves, cashing them in for commodities, and giving her embattled suppliers some breathing space. The latter restrained course would be more in keeping with securing her strategic objectives. The sting will be the insistence that, in future, trade deals for raw materials will be conducted more often in yuan, once China's dollar reserves have reduced to more modest levels.
Whether or not China has actually succeeded in controlling external events so much to her advantage must be a debatable topic: a financial war leaves no bodies, only a series of events for historians to unpick. The post-Lima manoeuvres have yet to play out; but with respect to the demise of America's military and currency hegemony, whatever course China decides to follow from hereon, she does appear to be pushing on an open door.
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China invested USD 1.1 trillion overseas in real assets, over the last 10 years, hence have some outflows from their reserves & more loans on their bank's balance sheets.
These are 'productive' loans unlike other nations who have created 'unproductive' loans but for China these loans will earn returns now & in future.
Most other countries generate no returns when they spend on war, bail out private sector, spend on QE & do other useless spending.
Some 10% of this money has also become slow but not entirely lost.
If you don't make decisions, how will you progress?
And, some of those decisions may not come out right, but we all learn and move positively into the future.
There are lessons of life, investing and future growth here for all of us to learn and be able to see what China is doing and how it is progressing.
Don't let the Western media corrupt your mind. The facts speak for themselves.
China is actually taking over the world with it's sheer size, economic growth and money power. This power will continue to grow and over the next 5-10 years will be everywhere for us to see.
Here is some evidence:
‘The Chinese are taking over’: Bahamas resistance mounts to massive resort
China has been making very strong strides in the world of international finance for more than 5 years.
Some of the major steps that I can recollect are:
1. Somewhere in 2009 : Allow USD bonds by large Chinese companies to be issued for foreigners to create a USD bond yield curve.
2. Somewhere in 2010: Allow foreigners to own CNH , offshore yuan currency.
3. Since 2008: Over 32 agreements have been signed with various Govts to allow them to hold Chinese Yuan for payment purposes by their local companies to China. Russia is already accepting Yuan as payment currency for oil and is the now the largest supplier of oil to the largest oil importing country in the world (China)!
WEAPONIZATION OF FINANCE: Russia is turning to the Chinese yuan
http://www.businessinsider.com/russia-slaps-down-the-dollar-2015-6
Russia overtakes Saudi Arabia as largest supplier of oil to China
http://www.theguardian.com/business/datablog/2015/jun/24/russia-overtakes-saudi-arabia-largest-supplier-oil-china
4. Since 2009, when zero percent of global trade was settled in yuan. Today over 30-35% of global trade is settled and paid for in yuan.
Half of China's total trade to be settled in yuan by 2020 - HSBC CEO
http://uk.reuters.com/article/2015/03/26/uk-china-yuan-offshore-idUKKBN0MM0EL20150326
Chinese Yuan Is Now Fourth Most Common Global Payment Currency, Behind US Dollar, Euro, British Pound
http://www.ibtimes.com/chinese-yuan-now-fourth-most-common-global-payment-currency-behind-us-dollar-euro-2128912
5. Since 2013: Shanghai Free Zone was established and 3 more added in 2015. No rules for inward/outward payments apply here, i.e. no capital controls or any restrictions whatsoever.
China's Pilot Free Trade Zones
Dawn of a new era
http://www2.deloitte.com/cn/en/pages/tax/solutions/china-shanghai-pilot-free-trade-zone.html
6. Since 2014: Over 60 Central Banks from various countries have been authorised by China to hold Yuan in their Reserves.
Since last month, China has even allowed foreign central banks to hold the 'onshore' yuan for the first time as they remove capital controls.
China Opens Onshore Currency Market to Foreign Central Banks
http://www.bloomberg.com/news/articles/2015-09-10/china-to-allow-foreign-central-banks-in-onshore-currency-market
7. In late 2014: Shanghai-HK Stock connect allowed foreigners to invest in China and Chinese to invest overseas in HK.
Now, even London is looking to get stock trading with China.
Britain, China eye stock connect, nuclear and rail deals
http://uk.reuters.com/article/2015/09/21/uk-china-britain-idUKKCN0RL03520150921
8. In 2015: China opened trading of gold inside China and joined the London Association. The pricing of gold in yuan should start any day now.
China emerging as a major gold trade player
http://asia.nikkei.com/Markets/Commodities/China-emerging-as-a-major-gold-trade-player?page=1
Bank of China Joins Auction Setting Gold Prices in London
http://www.bloomberg.com/news/articles/2015-06-16/bank-of-china-to-participate-in-lbma-gold-pricing-lbma-says
9. In Sept 2015: China allowed oil to start trading in yuan.
Like it or not, China's crude oil futures will be a global benchmark
http://www.reuters.com/article/2015/09/10/china-crude-futures-idUSL5N11F04A20150910
Want to Trade China Oil Futures? Here's What You Need to Know
http://www.bloomberg.com/news/articles/2015-09-17/want-to-trade-china-oil-futures-here-s-what-you-need-to-know
Thus, China has become the first country in the world, aside from the western dominated cities of London, NY and Chicago (i.e. US and UK) to EVER start trading of gold and oil in a non USD currency.
All the things that are described above were solely done by the US dollar/ JPY/ GBP / EUR for the last 50 years since the 1965 agreement when US-Egypt-Saudi agreed to sell oil solely in USD.
Now, there is just one more step between the USD collapse and the rise of yuan.
That will be on the date when Saudi Arabia/OPEC will announce that they shall or can accept Yuan as a currency for payment on sale of their oil. Russia is already doing so.
Saudi has lost a major market share by not accepting Yuan as payment and will continue to hurt at a time when it's reserves and income from sale of oil is down.
Saudi Arabia needs to accept yuan as a payment currency else by next year it's share of oil exports will decline further in China. US imports from Saudi Arabia are at 1990 levels in 2015 which is a loss of all growth over the last 25 years! Saudi has lost market share both in China as well as USA, hence does not very many options left at it's disposal to get it's economy in order and under control.
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mttimussa2&f=a
One option is to depeg the currency and another is to accept yuan. Both are very difficult options to choose from. Because both have a variety of difficult and long term implications.
But choose they must! Because their economic survival in the medium and long term is at stake.
Oil decline has been very ruthless and is down for the longest period in history for over 16 months from it's peak at USD 110.53 in June 2014. This sustained decline in the price of oil is compounded by the fact that the market share in the two largest economies in the world has shrunk by over 35% approx in the last 10 years and is hurting the Saudis badly.
In the end of Aug 2015, there was a meeting between top middle Eastern leaders and Moscow/China about 2 things 1) Syria and 2) dealing of oil in yuan.
We have now seen what happened in Syria where Russia has taken charge and is making a success out of it. I expect much more peace in the next few years in Syria, Iran and the wider Middle East but with some short term pain.
As of today, the Crown Price of Abu Dhabi and the Defence Minister of Saudi (second trip to Moscow) are meeting the Russians and they are discussing some very important things!
Saudi defense minister to come to Moscow to compromise on Syria
- See more at: http://english.pravda.ru/news/world/asia/09-10-2015/132283-saudi_defense_minister_russia_syria-0/#sthash.jlKci9Ug.dpuf
However, China keeps moving ahead on its own speed....and the most important part of for this message is below.
Effective, Oct 8, 2015, the alternate system to USD/EUR has arrived!
China launched a clearing system which is an alternative to the SWIFT system which is so familiar to all of us for USD/EUR clearing and money transfer purposes.
This system will have no US sanctions (thus is very helpful for Iran, Russians and anyone else who deserves privacy) and wishes to move away from the US (which is a lot of countries) :)
China's international yuan payment system pursues world finance
cips china
This is a very big change in the world of finance, as we know it....and one of the last steps towards making Chinese currency more important because it facilitates easy transfer of money between any 2 countries or companies or individuals who choose to use yuan as their transfer currency.
The new king currency of the financial world is gradually rising......and replacing the dominating currencies of the era gone by.
Welcome to the new financial world dominated by the Chinese yuan!
Damn you nailed it. Up with you!
Puts the series of Chinese chemical explosions "accidents" starting in Tianjin on the 12th August(!) in an interesting context.
China is making strides and is the big dog when it comes to a challange to the dollar.
But what percentage of world trade involves the dollar and what percentage involves the yuan?
From the comments - Half of China's total trade to be settled in yuan by 2020
Half of their own trade only? Maybe by 2020. Maybe. How much of China's own trade is done today without using the dollar at some point?
What percentage of US trade makes use of the yuan today?
There is an attempt to create an option to the dollar but it has a very, very long way to go.
Calculate the percentages 3 yrs ago, the percentages today and then extrapolate from there with the expectation that the slope will decrease not increase on an exponential curve.
The tipping point is KSA oil sales in yuan.
It will be anything but gadual from that point.Nobody wants to be the bagholder.
Good post. Laying down payments infrastructure(s) that are immune to international sanctions and facilitate non-dollar transactions is basically an act of war for das west. Russia and China will continue to reduce their exposure to the financial weaponry by pursuing these aims, giving friendly states the option to join them, while forcing US colonies like Saudi to play ball, whether they like it or not.
Thaks you for taking the time to post this. I learned a lot.
Let China deal with the Triffin dilemma. Be careful what you wish for.Several other nations have possessed and lost reserve currency status, and they're sill kicking. The transition will be painful, but ultimately,
for the common citizen, this could be a boon. China could have a new class of immigrants, let's call'em Cho Zen, to micro manage their
business for them. I'd be glad to give'em all ours, hell we oughta pay'em to take'em. Then they'll be saddled with parasites and we can
start our renaissance. Wishful thinking on my part, because the Cho Zen want it all.
The crony capitalists fight a war corporate earning quarter to quarter while the Chinese fight a war over several hundred years. They have not forgotten our so called 'gun boat' diplomacy.
Fine, sounds like we can all have a beer and write a note to our great, great grandkids to check on China since nothing is going to happen anytime soon.
Since it takes so long for them to respond it is more likely China would be taken down again or China will suffer another internal revolution and become completely sidetracked.
I do not thnk China has been stewing to act for 200 yrs. I think they are reacting to more recent events since WW2 and are being pushed to move, and will move, for those reasons. Stepping on China by taking their overseas assets is one thing, kicking them at home in their own territory could get a suddenly forceful response. They may be tested in that way soon.
you apologists turds just amazes me. Stop your wishful thinking and wet dreams. Embrace the reality. Why chinese will have internal rebellion ? because they're better off what they were in past few years. Seriosuly, China will take over Siberia , Chinese will have internal revolution blah blah . You morons in west have such obsessions not them , let that sink in blankout
Seems the western media has already done what you warn of.
The dumping of US treasuries by big holders could be the cattle prod that forces the Fed to raise rates or else risk high inflation.
I believe a major reason for the RMB devaluation was to prepare for the forthcoming chinese gold fix. once they price physical PMs in RMB it will inevitably push up the price of this currency. and as they are still primarily an exporting nation they would probably like to control these prices while setting a fair price internationally for gold and silver.
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.wallstreet34.com
My thoughts exactly.
Stop reading my mind.
China and Russia want asset backed currency. Banksters want status quo FRN. China yuan deval nudges carry trades off the cliff and creates more commodity related derivatives implosions. End result is asset backed and eventual abandonment of petro-FRN.
China and Russia want asset backed currency.
Without better evidence, I wouldn't be so sure about that. They might be divesting themselves of treasuries, and accumulating assets like gold to reduce the risk of blackmail.
the yuan just surpassed the yen in percentage of use in all international transactions. it is now the fourth most used currency in the world behind the dollar euro and pound at just under 3% with a bullet.
now you know why the usa has decided that now is the time to cut china off at the knees.
LOL..Living in Asia I can tell you that they are clueless as you can get.
The Thai's hate them as well as most Asians. I was there a moth ago and I can tell you they are one big PONZI just like the USA.
They are really fucked up maybe worse than us.
In short we are all fucked!
Only clueless over here is you mojo turd
Na. China inc is just throwing its people under the fiat bus just like all the rest.
Well.... then there's this...
https://www.youtube.com/watch?t=308&v=WK3OsxyuMYk
Foster Gamble of Procter rand Gamble
If we are to talk about currency devaluation then we need turn to a real expert. Someone that bought SUR (Soviet Union Ruble) at 18 to 28 cents on the USD, and sold them back at 1.08. His chief investment partner being a Chinese intelligence agent, his father a well known and respected warlord. The same partner assassinated by POTUS #41. The same POTUS not an American citizen, nor born of American parents, not born on American soil. Wearing the uniform of a foreign naval organization before donning USN officer and pilot attire. None of this conspiracy theory in any way shape or form.
https://app.box.com/s/hfgvcqg7gqh7i27at6sv53ywu87lwarp
And more, why the living at present "good guy" in the aforementioned, might just know how to repatriate and/or reacquire said stinger missiles given/sold to Jabat al Nusra (aka al Qaeda, ISIS, ISIL, et al) ..
http://www.veteranstoday.com/2015/10/11/where-will-the-stinger-missiles-...
At the same, cure this economic mess once and for all ..
I know of no evidence that any country has thought its way to financial stability.
https://thinkpatriot.wordpress.com/2015/10/11/lebowski-enlightenment-6/
"China pits subtle tai chi against America's brash pugilism."
You're underestimating classical pugilism and overestimating Tai-chi.
Before all the rules came into being in the 18th century, classical pugilism (as opposed to modern) used many grappling methods like throws, arm locks, wrist locks, kicks were also allowed but generally frowned upon. It wasn't by any means purely a fist fighting art. Tai-chi might well have been effective in the past, but today most practitioners have no idea what they're doing or what their forms contain.
"That will be on the date when Saudi Arabia/OPEC will announce that they shall or can accept Yuan as a currency for payment on sale of their oil."
This date marks the end date of the American Empire.
Buckle up. It's going to get hairy.
If we go off the dollar reserve currency status, Bonds will take a huge hit as many nations will continue to dump bonds and the Fed will have to raise rates to provide the incentive to purchase bonds. Raising rates will make the dollar soar. Given that the dollar soared with zero interest short rates, imagine what will happen as the rates rise. There is a shortage of physical dollars and an abundance of debt in the system. Either the debt has to implode or the dollar value rises.
"If we go off the dollar reserve currency status, Bonds will take a huge hit as many nations will continue to dump bonds and the Fed will have to raise rates to provide the incentive to purchase bonds."
I don't think so.....they will just QE to pay off the bonds.
The Feds cannot afford 1 trillion in interest payments....not to mention the states and municipalities.
Squid
Just to clarify Saudis are already a member of China (Shanghai) Oil Spot market exchange to be opened later this year. What Chinese are waiting is to create appropriate financing institutions allowing investors to take position in oil derivative securities. Obviously all in Yuan designed benchmark. The Petroyuan will be born soon.
But authors seems to miss it since it is a process developing since 2008 when China got fed up with the Western thieves.
For more of independent view on China and commodity/currency war go to:
https://contrarianopinion.wordpress.com/economy-update/
REVERSE CHINA SYNDROME: A VIEW FROM ABOVE.
Outstanding link. Thanks.
All China and Russia have to do is take down the exchanges like the COMEX where the PMs are over subscribed 200:1.
Cause the derivatives to collapse and everything else will fall like dominoes.
China and Russia are hell on earth for most of their people. Open up Detroit and it could be filled with the best China and Russia have to offer. Everything is about to go-to-hell. The Mexicans, Central, and South Americans are about to go home because the weather is better there. EBT cards will have nothing to buy cause nobody will have interest in stocking stores in LA, Chicago, Detroit. New Your City will be spotty. Pearl Harbor, 911, Lusitania all rolled into one could happen at any time. Remember the Maine.
ignorant cunt
Whew, finally the first article since mid-August on ZH that offers another possibility than just "the Chinese are clueless" (including Tylers)!
Cha Ching Bang Pow !!!