Saturday, February 1, 2014

Will China Replace the US as the Reserve Currency of the World?

I’ve said the big push would be from west to east. I did talk about the gold backed Yuan, and I did that very early. I was one of the earliest writers to write about that. I don’t believe, this is again my opinion, that actually China wants the responsibility of the reserve currency of the world. That’s my opinion. I think that they’re very happy to accumulate a great deal of gold, maybe tie the Yuan to gold. But, I’m not certain that they, again, want the responsibility. This is again my take.

They see the problem with being the reserve currency the United States is currently under. So, I think they are more apt to say look, we want to use our currency as a sovereign nation to trade with other nations and circumvent the dollar. Of course, they’ve done that very eloquently over the last few years and continue to do so.

They keep distancing themselves from the US dollar. So, I think that it could be where currencies are as they are now, floating against each other. The Yuan continues to gain strength because they’ve cut the tie to the dollar. There isn’t really a reserve.

The other part of the question is do I think possibly that we’d be in another system like a hard back – gold or silver backed, currency or some tie to it. The answer to that is yes. I doubt silver will be tied to the monetary system, although it really would be very, very good if it were. Because the best system, at least historically, is a bimetallic system where you have gold and silver without a fixed ratio. But, that’s topic for another time.

I think you’ll see some kind of gold cover clause with the new currency. There’s probably still a push by the Anglo-American axis to have a one world currency, but the contra to that is basically the BRICS countries. Again, as I said, I think the Yuan could be a stand alone currency as an alternative but not necessarily a reserve currency.

Really, the reserve currency of the world that’s worked the best is gold as the reserve. It’s basically similar to the Bretton Woods system. The reason the dollar was as good as gold and sound as a dollar, those archaic sayings, was that you could exchange US dollars for gold at one time up until August 15, 1971.

But, the US did what it’s still doing which is printing more pieces of paper versus the amount of gold they held. Of course, now it’s exempt because of closing the gold window. Nonetheless, too much of anything decreases its value, and certainly there are enough US dollars in the system to decrease the value.

We’re not seeing that take place because the amount that’s been printed under the QE one, two, and three is sitting on banks’ balance sheets. It’s not going out into the general populace to cause any price inflation.

- Source, David Morgan via Sprott Money: