Read the Beforeitsnews.com story here. Advertise at Before It's News here.

By Of Two Minds (Reporter)
Contributor profile | More stories

Story Views
Now:
Last hour:
Last 24 hours:
Total:

China's Insurmountable Global Weakness: Its Currency

Wednesday, May 22, 2019 23:35

% of readers think this story is Fact. Add your two cents.

Oftwominds.com‘s eclectic range of timely topics include finance, economy, stocks, housing, Asia, energy, long-term trends, social issues, urban planning, work/tradecraft, health/diet/fitness, sustainability, Les Paul guitars and The Great Transformation ahead: www.oftwominds.com/blog.html.

If China wants superpower status, it will have to issue its currency in size and let the global FX market discover its price.

Quick history quiz: in all of recorded history, how many superpowers pegged their currency to the currency of a rival superpower? Put another way: how many superpowers have made their own currency dependent on another superpower’s currency?

Only one: China. China pegs its currency, the yuan (RMB) to the U.S. dollar. It adjusts the peg a bit here and there, but the yuan’s value is set by the Chinese state, not by the market of buyers and sellers.

(Yes, various nations have used gold coins minted by rival powers (Spanish pieces of eight were money everywhere, for example) but we’re talking about fiat currencies, backed by nothing but supply and demand, not intrinsically valuable gold coins.)

Second question: is pegging your currency to a rival power’s currency a sign of strength? The obvious answer is no. It’s a sign of weakness. A real financial power issues its own currency and let’s the global FX (foreign exchange) market discover the relative price / value of the currency. The financial power trusts the market to discover the value / price of its currency, and it responds by raising or lowering the yields on its government bonds and other pricing inputs.

If the issuing nation won’t allow users and owners of its currency price discovery, few will want the currency because they can’t trust the state’s arbitrary, non-market price. This reality is reflected in the chart below of global currencies’ relative share in global payments, loans and reserves. China’s currency, the yuan (RMB) is basically signal noise: its global role in payments, loans and reserves is near-zero.

Why does China cling to state control of its currency’s valuation? The obvious answer is that China’s economy and global role are too fragile to absorb a major revaluation of its currency up or down: a major loss in purchasing power would raise the cost of energy and other imports, while a major strengthening of the yuan would crush the global competitiveness of China’s goods and services.

As for the idea that China will unpeg its currency when it backs it with gold, recall that “backed by gold” means “convertible to gold.” If the yuan weakens and other nation-state owners of the currency decide gold is the safer bet, China will have to exchange yuan for gold if it wants to make good on its claim to be backing its currency with gold.

If the currency isn’t convertible to gold, it isn’t backed by gold at all; it’s just another fiat currency backed by nothing.

If China wants superpower status, it will have to issue its currency in size and let the global FX market discover its price. Anything less leaves China dependent on the U.S. and its currency, the dollar.

If China is so powerful, why doesn’t it let its currency float on the FX market like other trading nations? Until its currency floats freely like other currencies and the yuan’s price is discovered by supply and demand, China’s global role in currency payments, loans and reserves will remain near-zero. That is a weakness that appears to be insurmountable.

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($6.95 ebook, $12 print, $13.08 audiobook): Read the first section for free in PDF format.

My new mystery The Adventures of the Consulting Philosopher: The Disappearance of Drake is a ridiculously affordable $1.29 (Kindle) or $8.95 (print); read the first chapters for free (PDF)

My book Money and Work Unchained is now $6.95 for the Kindle ebook and $15 for the print edition. Read the first section for free in PDF format.

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com. New benefit for subscribers/patrons: a monthly Q&A where I respond to your questions/topics.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Andrew H. ($5/month), for your splendidly generous pledge to this site– I am greatly honored by your support and readership.

Go to my main site at www.oftwominds.com/blog.html for the full posts and archives.

Source: http://charleshughsmith.blogspot.com/2019/05/chinas-insurmountable-global-weakness.html

Before It’s News® is a community of individuals who report on what’s going on around them, from all around the world.

Anyone can join.
Anyone can contribute.
Anyone can become informed about their world.

"United We Stand" Click Here To Create Your Personal Citizen Journalist Account Today, Be Sure To Invite Your Friends.

Before It’s News® is a community of individuals who report on what’s going on around them, from all around the world. Anyone can join. Anyone can contribute. Anyone can become informed about their world. "United We Stand" Click Here To Create Your Personal Citizen Journalist Account Today, Be Sure To Invite Your Friends.

LION'S MANE PRODUCT

Try Our Lion’s Mane WHOLE MIND Nootropic Blend 60 Capsules

Mushrooms are having a moment. One fabulous fungus in particular, lion’s mane, may help improve memory, depression and anxiety symptoms. They are also an excellent source of nutrients that show promise as a therapy for dementia, and other neurodegenerative diseases. If you’re living with anxiety or depression, you may be curious about all the therapy options out there — including the natural ones.Our Lion’s Mane WHOLE MIND Nootropic Blend has been formulated to utilize the potency of Lion’s mane but also include the benefits of four other Highly Beneficial Mushrooms. Synergistically, they work together to Build your health through improving cognitive function and immunity regardless of your age. Our Nootropic not only improves your Cognitive Function and Activates your Immune System, but it benefits growth of Essential Gut Flora, further enhancing your Vitality.

Our Formula includes: Lion’s Mane Mushrooms which Increase Brain Power through nerve growth, lessen anxiety, reduce depression, and improve concentration. Its an excellent adaptogen, promotes sleep and improves immunity. Shiitake Mushrooms which Fight cancer cells and infectious disease, boost the immune system, promotes brain function, and serves as a source of B vitamins. Maitake Mushrooms which regulate blood sugar levels of diabetics, reduce hypertension and boosts the immune system. Reishi Mushrooms which Fight inflammation, liver disease, fatigue, tumor growth and cancer. They Improve skin disorders and soothes digestive problems, stomach ulcers and leaky gut syndrome. Chaga Mushrooms which have anti-aging effects, boost immune function, improve stamina and athletic performance, even act as a natural aphrodisiac, fighting diabetes and improving liver function. Try Our Lion’s Mane WHOLE MIND Nootropic Blend 60 Capsules Today. Be 100% Satisfied or Receive a Full Money Back Guarantee. Order Yours Today by Following This Link.

Comments

Online:
Visits:	1,656,037,695
Stories:	8,292,184