China talking their book on USD
After years of collaborating with other countries to bash the international monetary system for using largely U.S. dollar reserves, in the face of dollar weakness, China has suddenly realized how vulnerable they are to a decreasing value of USD. With upwards of $2.8 trillion of U.S. treasuries on their books, a dollar that could get cut in half (or worse) by flagging international demand for the reserve currency would devastate their investment. So they’ve done the predictable thing and have started attempting to prop up the dollar.
The dollar will remain the world’s dominant currency for a long time, and the yuan will only gradually emerge as an alternative, Chinese Commerce Minister Chen Deming said on Wednesday.
China has surprised observers in recent months with a rapid succession of policies to promote the yuan’s use overseas, but Chen cautioned against heightened expectations, saying that these moves had been limited and regional in focus.
“In terms of currency internationalization, we lack experience and human capital, so we will push this forward prudently,” he told reporters on the sidelines of an investment forum in the southeastern coastal city of Xiamen.
China was realistic about the present shape of the international monetary system, recognizing that the dollar was at its center, Chen said.
“There is no stronger currency than the dollar for supporting world economic activities,” he said.
Just remember that they are talking their book. By no means is the USD out of the woods, given all that’s stacked up against it:
- Breathtaking deficit spending
- Massively growing government sector
- War on the private sector
- Keynesian group-think in Washington D.C.
- Fed engaging in QE with few other options on the table
- Real potential for hyperinflation (see Weimar Republic)