Trade is FX. Protecting USD status as the worlds reserve

globalintelhub's picture

One of the most important points in the new "Trump System" of doing business, is that of the US Dollar, which currently is used by world's central banks as their reserve.  Also, it's used by peasants in many parts of the world including Russia - as an alternative to their domestic currency.  Practically, there isn't a clear alternative to the USD for the time being, with China's economy mostly built on ponzi frauds - but it should be noted by all that it is only a recent phenomenon that the USD is the world's reserve currency, and it can change with the blink of an eye.  The Trump Administration should consider the political element of FX - namely, that 'trade' is actually 'FX' - let's provide an example.  

In an extreme scenario, let's imagine that in one day, the value of the USD went up by 100%.  This is impossible but let's just imagine this for a small thought experiment.  Let's take a common European import - Mercedes.  Let's say that the high end model Mercedes is $100,000 USD, before this big jump.  EUR/USD moves from 1.00 - 2.00 in our one day hypothetical.  So, the result would be - Mercedes cost now $50,000.  In reality, the market is not so efficient, because of tarrifs, transport costs, and local pricing rules (companies will sell their products in a region for a certain price, regardless of FX). BUT - what would happen, and it always does - if there's a big difference between the dealer price and FX, there'd be entrepreneurs loading boats with Mercedes and selling them for the discounted 50% off, minus their fee, and other various costs involved.  It's legal, it happens every day.  Let's not call it arbitrage, because of all the moving parts.  Let's call it Currency Rate Exploitation.

What has allowed the United States to be a net importer, and to buy cheap products - has been a combination of a strong USD and the fact that manufacturer nations like Japan and China, manipulate their currency.  The circumstances with China are particularly hairy if one doesn't understand FX.  It's true, they are a currency manipulator.  Every central bank with a fiat currency is a manipulator!  The Fed manipulates the USD via interest rate policy, Quantitative Easing, and market operations (yes, the Fed does engage in direct market operations, in many markets, and in FX.)  So do other central banks.  So what?  

So if China's currency increased by a huge value, companies like Wal-Mart wouldn't have a source of cheap products.  The point is, the reason everything in China is cheap, is mostly due to the currency discrepancy.  FX is the real driver of global trade, not taxes, not rules.  If the Yuan was 1.2 to the USD you can bet this massive US-China trade would decrease by 90%.  It would still exist, like anything - but it would be completely different.  What enables the US to live with such high debt loads, and to be a net importer, is the status as a world reserve currency.  Without this, managing trade would be no different than in countries like Italy.  

For a detailed explanation of how FX is trade, checkout Splitting Pennies.  Global Intel Hub offers free analysis, breaking news, and research tools on our site - check it out!  Get Alpha in your portfolio

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_cyber's picture

So..........Is it just me or am I the only one to notice that this article is wrong in their pricing? If USD went up 100%, EURUSD would go from $1.00 to $0.50, NOT $1.00 to $2.00............

Farqued Up's picture

Whoa, what's going on here? Every vassalage that the US corraled after the wars has been attacked and its leaders killed for trying to break from the slavery of the almighty King Reserve Dollar. So if any monarch (dictator) even hinted to use any other mode of exchange for oil other than the dollar, including the use of an ancient relic, he was sent to an early dirt nap. Saddam, Moammar, etc. learned that the banksters could not permit a break away to dinars, gold, anything, it would set fire to the nest, make that napalm.

Now, along comes Trump and the realities of the evil Fed have jumped up and smote him in the face, so now it seems that the Fed owners know the shit has already hit the fan, most likely it's already in irreversible default so all are running to their underground cities and enclaves to escape the worst collapse in world history. They are scattering trying to cut deals with any one-eyed man in this land of the penniless blind world. The one-eyes can't save the pricks unless they want to take a dirt nap too.

The big problem for us peons is that before we all catch on, they will have stolen the remaining real goodies (Maslow's lower levels) and have them stashed. I have a strong feeling that they are reading this all wrong, their exalted positions, hordes of manipulating lawyers, their armed guards, their stashes, everything they now control will do zilch to protect them. When the shit hits and the peons are hungry, pissed, smoke coming from their ears, and locked and loaded, paper will not save them, only bullets from their own weapons, their guards have families, too , no help there.

I'm an old fart trying to prepare for a real holocaust, not an exaggerated one, and if the gilded ones really want to survive, ask the peons for forgiveness and then work to make this a better world where all peons are respected and are not kicked in the teeth by evil governments that they control. They then may have a chance, but if they don't come clean soon and purge their Deep State goons before it's widely discovered, they are doomed. Hey Worshipful Masters, the peons aren't packing torches and pitchforks any longer but possess some serious firepower, not counting the police and military that will overwhelmingly side with their fellow peons. Draw yourselves a mental picture of the Gates, Zuckerberg, Musk types each whipping out a court decree and waving it in front of a mean mofo with a AR-15 with a 40 round clip, backed up with thousands of equally pissed, coming for some gilded ass. Better yet, mentally project the 9th Circuit Judges, 2 peter puffers and a slit licker, issuing decrees for the peons to "cease and desist, y'all". HA HA HA!! 

What will be hilarious is when the Snowflakes enter the fray.

Get stock in Orville's popcorn company.

brianshell's picture

You sir, are a true wordsmith.

After seeing the chaos in Venezuala, I think the folks in blue cities will become like a real world version of the walking zombies. They will go as far as their ubers, zipcars and trolly trains can take them.

The question is, will BP stop delivering. If farmers can't get fuel and Buffets diesels can't get fuel, well, its a whole new ball game.

The Amish might make it.

Dragon HAwk's picture

Peons Cease and Desist..  Love it,   click click sorry what did you say.

brianshell's picture

Our debt based currency is being drained by the  Federal reserve company. What we need is money that will have the same value in twenty years as it has  now. We need to return to sovereign money.

The Fed and her member banks are even buying real companies with printing press funny money. If this doesn't stop they will own most of production. We will all be under their thumb.

Kayman's picture

"What has allowed the United States to be a net importer, and to buy cheap products - has been a combination of a strong USD and the fact that manufacturer nations like Japan and China, manipulate their currency." 

Without the corruption of American politicians as they sold their souls to dirty money there would be no "manufacturer" nation like China.  China was 100 years behind the time when American corporations, Walmart etc, sent capital and technology to build up this belligerent enemy of the US.

gdpetti's picture
Cutting out the middleman: Japanese banks replacing SWIFT with China's CIPS payment system for inter-bank settlements The Daily Economist
Fri, 10 Feb 2017 12:27 UTC
"We takes the money, Amerika."

Ever since China began duplicating Western financial institutions in 2013, more and more nations have been matriculating towards the East, and away from dollar hegemony. And one of the most important of these new infrastructures is the Chinese CIPS platforms which functions for the RMB, the same way SWIFT does for the dollar.

Yet unlike the way SWIFT charges for swaps when nations have to use the dollar as a middleman since it still reigns as the world's singular reserve currency, CIPS allows for much lower transaction fees and the convenience of bypassing the U.S. currency through direct bi-lateral currency settlement.

Last week we learned that 'Japanese regional banks to join yuan payment network':

Hiroshima Bank and 13 other Japanese regional banks will connect to an interbank payment network that enables direct yuan wiring to mainland China -- a move that will lower transaction fees and boost convenience for customers.

Joining the China International Payments System will reduce fees and processing days. Juroku Bank and Joyo Bank are also among the Japanese banks taking advantage of the system introduced by the People's Bank of China. They will be connected one by one after the end of the Chinese New Year holidays via the Bank of Tokyo Mitsubishi UFJ, which connected to the system last year.

Previously, payments to mainland China had to be processed by clearing banks such as those in Hong Kong. CIPS can cut costs by several dollars (10 yuan equals $1.45) per transaction. Payments can be completed on the same day if certain conditions are met. - Asia.Nikkei

As the world continues to reject the dollar and the old financial model of a singular reserve currency, more countries are seeing the benefits of transacting in a bi-lateral environment. And once enough of these nations decides to follow this new economic model being laid out from Beijing, and create the critical mass needed to bypass the dollar completely, then the reserve currency will simply fade away via de facto consent, and force change onto the Western institutions that have run the global financial system for decades.
LawsofPhysics's picture

LOL!!!  What part of ALL fiat currencies will die do people fail to understand?

"Full faith and credit"

Wake the fuck up, China invented fiat currency for fuck's sake.