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...