Wednesday, May 21, 2014

Chinese Central Banker: "Renminbi will become reserve currency"

By Simon Black

Busy day today... one of those days that reminds me how fast things are moving, and how quickly this version of our monetary system is being reset.

Out of Beijing, 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.

Simon Black is Senior Editor  at Follow Sovereign Man on Facebook, Twitter, Google+


  1. And the arguments for all the idiotic big government programs will be moot.

  2. If there is a paradigm shift, let's hope it will be bloodless.

  3. In order for the (fiat currency) renminbi to become a global reserve currency, China would (quickly) have to transition from a net producer nation (positive balance of payments) to a net consumer nation (negative balance of payments) in order to export sufficient renminbi for global trade settlement. This is what the US has done since ~1971. Triffin's Dilemma always points to an eventual failure.

    1. Good point.

      I predict multiple reserve currencies myself.

    2. It seems there have been different messages coming out of China in regard to currency direction, take for example this:

      I wonder at what point there's an inflection between the ongoing loss in the dollar's value and the US's ability to consume....that point being the time at which gold convertibility could be the fatal stab at dollar hegemony.

      So if China was successful in establishing convertibility to gold by using stockpiled dollars, what would stop it from issuing an arbitrary amount of Renminbi globally and snowballing demand? (assuming that US consumption drop & dollar devaluation made their short term pain bearable)

      Sure, we might be talking about 2 more decades...but what is China to do with stockpiled dollars? Real estate in China is blowing up, their overseas customers are losing their ability to consume, where do you put the piles of dollars you've accumulated to at least maintain if not increase value if even your businesses can't find margin?

    3. " convertibility could be the fatal stab at dollar hegemony." Bingo! But there simply is not enough gold to support global trade settlement AT CURRENT GOLD CURRENCY VALUATIONS! However, at 40X-50X current purchasing power valuation there would be plenty of gold to do the job. Don't be surprised if this turns out to be the end game. Let the marketplace determine relative gold convertibility valuations of each currency and we will have an objective standard to evaluate the true purchasing power of each fiat currency.

    4. Thanks for the clarification!

      Anyone wanna take a stab at a timeline?

    5. Stab: Sometime in the 2015-2018 time-frame.