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Yes, It's Possible For A Gold-Backed Renminbi To Dethrone The US Dollar

OWoN: The world will look quite different when this occurs. It's coming.

Yes, It's Possible For A Gold-Backed Renminbi To Dethrone The US Dollar

Zero Hedge
By Tyler Durden
15 December 2014

Submitted by Tim Price via Sovereign Man blog,

“[W]e want to use our reserves more constructively by investing in development projects around the world rather than just reflexively buying US Treasuries. In any case, we usually lose money on Treasuries, so we need to find ways to improve our return on investment.”

– Unnamed senior Chinese official, cited in an FT article, ‘Turning away from the dollar’, 10th December 2014.

“Mutually assured destruction” was a doctrine that rose to prominence during the Cold War, when the US and the USSR faced each other with nuclear arsenals so populous that they ensured that any nuclear exchange between the two great military powers would quickly lead to mutual overkill in the most literal sense.

Notwithstanding the newly dismal relations between the US and Russia, “mutually assured destruction” now best describes the uneasy stand-off between an increasingly indebted US government and an increasingly monetarily frustrated China, with several trillion dollars’ worth of foreign exchange reserves looking, it would now appear, for a more productive home than US Treasury bonds of questionable inherent value.

Until now, the Chinese have had little choice where to park their trillions, because only markets like the US Treasury market (and to a certain extent, gold) have been deep and liquid enough to accommodate their reserves.

The above FT article points to three related policy developments on the part of the Chinese authorities:

1. China’s appetite for US Treasury bonds is on the wane;

2. China is ramping up its overseas development programme for both financial and geopolitical reasons;

3. The promotion of the renminbi as a global currency “is gradually liberating Beijing from the dollar zone”.

The US has long enjoyed what Giscard d’Estaing called the “exorbitant privilege” of issuing a currency that happens to be the global reserve currency.

The FT article would seem to suggest that the days of exorbitant privilege may be coming to an end – to be replaced, in time, with a bi-polar reserve currency world incorporating both the US dollar and the renminbi.

(The euro might be involved, if that demonstrably dysfunctional currency bloc lasts long enough.)

Here’s a quiz we often wheel out for prospective clients:

  • Which country is the world’s largest sovereign miner of gold?
  • Which country doesn’t allow an ounce of that gold to be exported?
  • Which country has advised its citizenry to purchase gold?

Three questions. One answer. In each case: China.

Is it plausible that, at some point yet to be determined, a (largely gold-backed) renminbi will either dethrone the US dollar or co-exist alongside it in a new global currency regime?

We think the answer is yes, on both counts.

Meanwhile the US appears to be doing everything in its power to hasten the relative decline of its own currency.

There is a new ‘big figure’ to account for the size of the US national debt, which now stands at $18 trillion.

That only accounts for the on-balance sheet stuff. Factor in the off-balance sheet liabilities of the US administration and pretty soon you get to a figure (un)comfortably north of $100 trillion.

It will never be paid back, of course. It never can be. The only question is which poison extinguishes it: formal repudiation, or informal inflation.

Perhaps both.

So the direction of travel of two colossal ‘macro’ themes is clear (the insolvency of the US administration, and its replacement on the geopolitical / currency stage by that of the Chinese).

The one question neither we, nor anybody else, can answer precisely is: when?

There are other statements that beg the response: “when?”

Government bond yields have already entered a ‘twilight zone’ of practical irrelevance to rational and unconstrained investors.

But when do they go into reverse? When will the world’s most frustrating trade (‘the widow-maker’, i.e. shorting the Japanese government bond market) start finally to work?

When will investors be able to enter or re-enter stock markets without having to worry about the malign impact of central bank price support mechanisms?

Here’s another statement that begs the response: “when?”

The US stock market is already heavily overvalued by any objective historical measure.

When is Jack Bogle, the founder of the world’s largest index-tracking business, Vanguard, going to acknowledge that advocating 100% market exposure to one of the world’s most expensive markets, at its all-time high, might amount to something akin to “overly concentrated investment risk”?

Lots of questions, and not many definitive answers. Some suggestions, though:

  • At the asset class level, diversification—by geography, and underlying asset type—makes more sense than ever. Unless you strongly believe you can anticipate the actions and intentions of central banking bureaucrats throughout the world.
  • Warren Buffett once said that wide diversification was only required when investors do not understand what they are doing.
  • We would revise that statement to take into account the unusual risks at play in the global macro-economic arena today: wide diversification is precisely required when central bankers do not understand what they are doing.
  • Expanding on the diversification theme, explicit value (“cheapness”) today only exists meaningfully in the analytically less charted territories of the world. Stock markets in Russia and China, for example, are trading at book value or less, while North American markets 3x more.
  • Some form of renminbi exposure makes total sense as part of a diversified currency portfolio.
  • US equities should be selected, if at all, with extreme care; ditto the shares of global mega-cap consumer brands, where valuations point strongly to the triumph of the herd.
  • And whatever their direction of travel in the short to medium term, US Treasuries at current levels make no sense whatsoever to the discerning investor. The same holds for Gilts, Bunds, JGBs, OATs.
  • Arguments about Treasury yields reverting to a much lower longer term mean completely ignore a) the overwhelming current and future oversupply, and b) the utter lack of endorsement from one of their largest foreign holders.

Foreign holders of US Treasuries, you have been warned. The irony is that many of you are completely price-insensitive so you will not care.

There are other reasons to be fearful of stock market valuations, notably in pricey Western markets, over and above concerns over the debt burden.

As Russell Napier points out in his latest ‘The Solid Ground’ piece,

“In 1919-1921, 1929-1932, 2000-2003, 2007-2009 it was not a resurgence in wages, Fed-controlled interest rates or corporate taxes which produced a collapse in corporate profits and a bear market in equities.

“On those four occasions equity investors suffered losses of 32%, 85%, 41% and 51% respectively despite the continued dormancy of labour, creditors and the state. It was deflation, or the fear of deflation, which cost equity investors so much. There is a simple reason why deflation has always been so damaging to corporate profits and equity valuations: it brings a credit crisis.

“Investors forget at their peril what can happen to the credit system in a highly leveraged world when cash-flows, whether of the corporate, the household or the state variety, decline. In a deflationary world credit is much more difficult to access, economic activity slows and often one very large institution or country fails and creates a systemic risk to the whole system.

“The collapse in commodity prices and Emerging Market currencies in conjunction with the general rise of the US$ suggests another credit crisis cannot be far away. With nominal interest rates already so low, monetary remedies to a credit seizure today would be much less effective. Such a shock, after five and a half years of QE, might suggest that the patient does not respond to this type of medicine.”

And since Christmas fast approaches, we can’t speak to the merits of frankincense and myrrh, but gold, that famous “6,000 year old bubble”, has always been popular, but rarely more relevant to the investor seeking a true safe haven from forced currency depreciation and an ever vaster mountain of unrepayable debt.



  1. And a gold ruble. Let's see Langley try to crush that!

  2. Replies
    1. This comment has been removed by the author.

    2. Watch next year evolve, that's all I can say right now. But also watch the Rouble and future BG/ MTN markets switching over. That will be the end of the Fed,. Rothschild's and US. All Empires and. Usually rotten inside.

    3. BG/MTN markets???????????? can u explain a lil?... thanks

    4. Bank Guarantees, Medium or Mid Term Notes

  3. Is 2015 the year of Turmoil?

    The absolute and complete destruction of the financial collapse headed our way, is going to manifest in three areas: (1) the theft of retirement accounts, (2) the theft of bank accounts, and (3) false flag(s) distractions to cover the theft of bank accounts and retirement accounts.

    The events listed above will arrive simultaneously and will be visited upon the American people like a thief in the night. There will no real warning, only a declared bank holiday that will be declared on a Friday late in the afternoon in order to minimize the publics volatility by planning the roll out of the event going into a weekend. There will be no announcement that your retirement accounts have been looted by the bankers, retirees will simply not receive their retirement checks. Your ATM cards will not work and grocery stores will begin to feel the strain through the weekend as some people will begin to see these events for what they are and begin panic buying and shortages will appear almost overnight. This is why America embarked on the 1033 plan to militarize the police because the military and the foreign troops training on our soil cannot be everywhere. This is also why we are seeing such an increased rate of police brutality across the country, because the police are being trained that the American people are the enemy and in this scenario, they are correct.

    1. JV in case you end up in Germany - I hope I will treat you with real Czech beer sometimes .....

    2. V,

      All depends on the currencies and if we get a little help there.

      I'm a belgium beer fan myself. The top fermentation technique gives it that added gusto.

      I have had czechvar, though. Not bad.

  4. Thanks John,

    I like to rumble but am sure that when the big hit comes - I and we all will have 'full underpants' (Czech expression - to be hardly able to cope with new situation ...., there is something within us that just want to keep status quo and no big change...)

    Clouds of unknown and uncertainty might be coming unto us ..... it would be good to have for those times reserves. Pity that Dongs lie barren ...

    May mercy be with you all .....

  5. This is kind of brutal video - but justice sarcasm speaks through it loudly - Ukie soldier is kind of mocking civilians that they should be basically wipe out and treated with no mercy ..... watch what happens to him after he utters his last words ....
    Video Captures Moment Shell Hits Ukrainian Soldier As He Argues for Killing Civilians
    It seems the Gods of War have a strong sense of justice...

  6. UsA and TPTB will see total currency collapse; in addition, there will be natural gravitation towards the more valued currency. Heck, we might be trading in Roubles rather than dollars because of the inherent value and market market collapse, total trade collapse, total banking collapse, and Americans will be automatically dealing in foreign currency just to secure an income/wealth stream.

    This is where hyperinflation in UsA will be met by average Americans trading in gold...then we will be calling our country USAR...can anyone blame us?

  7. FedUp

    There will be for sure also recovery for US - whatever it might be. I would not panic. I experienced 180% U Turn - mega inflations etc .... Russians faced much worse conditions to survive. When I heard stories I believed that I would not make it there.

    I am sure there is a recovery plan - hopefully after clean up of gangsters .... In my judgement British will do all possible to keep Anglo-American stronghold to balance China-Russia new power. Not sure about Europe - I hope EU will disintegrate and we will be able to purge zip-nazi-jesuits ....

    1. I do believe as you do Vlastimil...UsA has hit rock bottom, and they keep on lying and inflating everything. I know that it can't get any worse and the only way now is up.

      Once these creatures are purged and exposed fully then we will see nations working together to turn this ship around.

      Putin, BRICS, MINT and other nations including Saudi's got something for UsA's "arse." They least they expected...

  8. MOSCOW, December 17. /TASS/. Russia has foreign currency resources, Prime Minister Dmitry Medvedev said at a meeting with officials from the economic block of the government, the Central Bank and top managers of largest Russian companies.
    “There are economic instruments needed to satisfy the specific demand,” he noted.

    This is good time sell remaining US Treasury bonds - I guess Russia does not have that many anymore since they cleared them for gold, year by year. Anyhow, I saw somewhere they possess about worth of 100 bil USD - and if China makes another swap of US T bonds then - rodeo might begin.

  9. John

    Did Hitler make it save abroad as it is believed?

  10. Gold Repatriation and The Monetary Crisis: Austria, Belgium and The Netherlands Want Their Gold Back

    To say that events are now taking place at the speed of light is an understatement. It was just last Monday, I wrote a missive entitled “The Mother of all Bank Runs”. In it I wrote about the German and Dutch repatriations of gold which was then followed by the Belgians beginning discussions on the same topic. As a final speculation, I mentioned that “logically the Austrians would be next”. There was no way you could have told me it would be less than one week until the same news would actually come out of Austria! Unlike the Germans, Dutch and Belgians who have gold held in N.Y., Paris, and London, Austria holds 80% of their 280 tons of gold concentrated in London. This is truly big news for several reasons which we will explore and it certainly brings up a few more questions.

    These four countries represent the core of the European Union. (more)


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