I
hope I can
change my
US Dollars into Brazilian Reals!
May 19 (Bloomberg) -- China and Brazil are researching how the two nations can conduct trade in yuan and real, the latest signal that developing nations are seeking to reduce their reliance on a weakening U.S. dollar.
“The discussions have focused on how to improve the financial service system,” Celso Amorim, Brazil’s foreign minister, said today at a briefing in Beijing. “In terms of what currency to use, we are still discussing.”
China is seeking to promote the yuan as an international currency after signing 650 billion yuan ($95 billion) in swap agreements with Argentina, Indonesia, South Korea, Hong Kong, Malaysia and Belarus in recent months. The Chinese yuan has gained 21 percent against the U.S. currency since a dollar peg was abolished in 2005, eroding the value of exporters’ dollar- denominated profits.
... or maybe into Chinese Yuan.
“The process of moving away from the dollar will be faster than expected,” said Dariusz Kowalczyk, chief investment strategist at SJS Markets Ltd. in Hong Kong. “A few years from now we will see the dollar having a reduced importance in international trade.”
My prescription for this: more US government spending!
There is one thing that I keep thinking: there is a strong temptation to assume that, because they have been successful to date, the Chinese are financial geniuses who are going to financially destroy us. This is possible. But, I think it is more likely that, just like our leaders, the Chinese leaders are mostly buffoons who have dug themselves into a hole while chasing short-term gains, and are now panicking because the sides of the hole are about to cave in on them. The only real question is whether their hole (about to lose a huge wad of money, while simultaneously finding themselves economically uncompetitive in world trade markets because of a rapidly-strenghening yuan) is deeper than our hole (massive debt).
ReplyDeleteTim, China's biggest problem is its demographics. It's an aging country due to its one child policies. For that reason, I like Brazil a lot more than China.
ReplyDeleteAs for their economics, I would argue that they are finding a new equilibrium point as a semi-dictatorship. By embracing capitalism and shedding much of their socialism, their equilibrium point in per capita income is much higher than it used to be, hence the rapid growth.
As for them being buffoons and making mistakes, I'd have to disagree. They had tons and tons of cash to invest and they had to put it somewhere. They've bought everything they could think of. Some of it has done well, some of it hasn't. The non-academic issue for Americans is that events like this, where China is making the Yuan convertible with the Real makes the Yuan a more attractive currency. Our drunken spending binge makes the Dollar less attractive.
Dollar devaluation and the resulting interest rate increases would be very, very painful.
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