Best of the Week
Most Popular
1.SNP Offers Labour Deadly Death Embrace Alliance, Holding England to Ransom, Destroy UK From Within - Nadeem_Walayat
2.Gold And Silver – Most Widely Used Currency In Western World? Stupidity - Michael_Noonan
3.Election Forecast 2015 - Coalition Economic Recovery vs Labour Collapse - Nadeem_Walayat
4.Election Forecast 2015 - Debates Boost Labour Into Opinion Polls Seats Lead - Nadeem_Walayat
5.Why are Interest Rates So Low? Ben Bernanke, Confused as Ever, Starts His Own Blog to Prove It - Mike_Shedlock
6.Leaders Debate Election 2015 - Natalie Bennett Green Party Convincing Anti-Austerity More Debt Argument - Nadeem_Walayat
7.Labour Economic Collapse vs Coalition Recovery - UK Election Forecast 2015 - Video - Nadeem_Walayat
8.China’s Stock Market Mania; How High can Red-chips Fly? - Gary_Dorsch
9.Gold and Misery, Strange Bedfellows - 31st Mar 15 - Dan_Norcini
10.Ed Miliband Debate Election 2015 Analysis - Labour Spending, Debt and Economic Collapse - Nadeem_Walayat
Last 5 days
Inflation, Central Banks, and Business Cycles - 18th Apr 15
Stock Market Correction May be Nearing End - 18th Apr 15
UK Housing Crisis, Immigration, Population Growth, Election Forecast 2015 - Video - 18th Apr 15
Q1 Corporate Earnings Risky for Stocks - 17th Apr 15
US Stock Market Getting Scarier by the Day - 17th Apr 15
Stock Market Watershed Day - 17th Apr 15
Gold Price Has “Hallmarks Of Market That Is Bottoming” - 17th Apr 15
Chinese Stock Market - Men Go Mad in Herds - 17th Apr 15
Two Stocks Offering Investors High Yields and Profits - 17th Apr 15
Gold Price Has “Hallmarks Of Market That Is Bottoming” - 17th Apr 15
Chinese Stock Market - Men Go Mad in Herds - 17th Apr 15
Two Stocks Offering Investors High Yields and Profits - 17th Apr 15
King Dollar Hurting Stock Market Corporate Earnings! - 17th Apr 15
Production Declines Hide Bigger Crude Oil Storage Issues - 17th Apr 15
Top Three Takeaways From Today’s OPEC Crude Oil Report… and How You Can Profit - 17th Apr 15
How to Profit from Australia's Healthiest Biotech Stocks - 17th Apr 15
What Is Really Driving Gold Price? - 17th Apr 15
Will Ever More Boomers Selling Retirement Assets Change Investment Prices For Decades? - 16th Apr 15
Won't Be Contagion with 'Grexit' Greece Euro-zone Exit - 16th Apr 15
Sharp Decline in USD/CAD and Its Consequences - 16th Apr 15
Blackstone is like Apple, Google, Hermes, Boeing - 16th Apr 15
The Most Dangerous Financial Headline I've Seen Since the 2008 Crisis - 16th Apr 15
Is Legal Tax Avoidance Extinct in the UK? - 16th Apr 15
Why Russia Will Send More Troops to Central Asia - 16th Apr 15
More Thoughts on the Current Crude Oil Market - 16th Apr 15
U.S. Treasury Secretary Warns Greek Exit Will Cause Enormous Disruption and Hardship - 16th Apr 15
The Hottest New Place to Find Stock Dividend Income in Q2/2015 - 15th Apr 15
How to Escape the Pensions Squeeze - 15th Apr 15
Water Crisis Game Changing Water Revolution - 15th Apr 15
The Drying of California - Corporate Farms Control of Water - 15th Apr 15
OPEC Going Broke, Dumping U.S. Dollars. Is That Good Or Bad? - 15th Apr 15
OPEC Just Confirmed It’s Losing the Oil War - 15th Apr 15
Four Uranium Companies Poised to Profit from the Growth of Nuclear Power - 15th Apr 15
Stock Investing Tread Softly… and Carry a Big Risk-Management Calculator - 15th Apr 15
Crude Oil Price Technical Outlook - 15th Apr 15
Important Bitcoin Price Action - 15th Apr 15
UK House Prices, Immigration, Population Growth and Election Forecast 2015 - 15th Apr 15
Peter Schiff on U.S. Dollars, Drachmas and Debt - Video - 14th Apr 15
The Ultimate Middle East Dilemma: Time For Us To Stop Intervening? - 14th Apr 15
Greece Debt Default and Drachma By End of April? - 14th Apr 15
Coming to Terms With the American Empire - 14th Apr 15
The Ball is in the Stock Market Bulls Court - 14th Apr 15
Tech Stocks Bubble: Different this time? - 14th Apr 15
Stock Market Sixth Sense - 14th Apr 15
Separating Gold and Silver Stocks Saints from the Sinners - 14th Apr 15
Conservatives Bribe Labour Voters by Extending Right to Buy to Housing Association Tenants - 14th Apr 15
Stacking Silver = Simple Solution - 13th Apr 15
Why Markets Ignored Weaker Payrolls - 13th Apr 15
Tory Attack on Ed Milliband Backfires as Labour Takes Opinion Polls Lead - 13th Apr 15
A "Digitalized" Stock Profit Play Mr. Spock Would Love - 13th Apr 15
New Credit Crunch Underway: Can Recession Be Far Behind? - 13th Apr 15
Western Interest in Gold Continues to Decline - 13th Apr 15
Stock Markets Breaking Out Worldwide - Buy the Dips Ride the Trend - 13th Apr 15
Silver Price set up to get Whacked Again - 13th Apr 15
Gold Price Dome Cap, Fall Below $1000 Likely - 13th Apr 15
Stock Market Accumulation or Distribution - 13th Apr 15
BLS Economic Propaganda, Truth – The Cure for Cognitive Dissonance - 12th Apr 15
A Case for Monetary Independence - 12th Apr 15
Drought and the Failure of Big Government in California - 12th Apr 15
Stocks Bull Market Continues - 11th Apr 15
Why the American Consumer Will Never Be Back - 11th Apr 15
End Of Islam, Hinduism And Christianity And Rise Of The Age Of Humanism, Spirituality And The Universal God - Sanadhana Dharma - 11th Apr 15
Gold And Silver Nothing Of Substance Going On. Fiat “Dollar” Controlling? - 11th Apr 15
The Most Dangerous Financial Headline I’ve Seen Since 2008 - 11th Apr 15
Alibaba Pggybank Investment Will Make You a Millionaire - 11th Apr 15
Ghosts In The Machine - Population Growth vs Food Production - 11th Apr 15
Gold-Futures Short Covering Rally - 11th Apr 15
Is Bitcoin Price Going down Some More? - 11th Apr 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

US Historic Bubble

China and Japan Abandon U.S. Dollar as a Means of Trade

Currencies / US Dollar Jun 01, 2012 - 01:01 PM GMT

By: Julian_DW_Phillips

Currencies

Best Financial Markets Analysis ArticleIn the next month China and Japan (China's main trading partner) will no longer use the U.S. dollar as the only currency in trade with each other. They will use the Yuan and the Yen directly with each other. This will see the dollar removed from a large chunk of the world's trade -in itself, not a very large percentage, but a significant one. It's the start of a trend that is set to grow. We've no doubt that China is tailoring its trade with all its trading partners to use the dollar only so far as it is required to deal with the U.S. and other dollar-dependent nations. Oil from Russia utilizes the Yuan and Rouble, and Australia has arranged a similar deal.


The purpose of foreign exchange and gold reserves is to provide 'global money' (which includes gold) for potential rainy days. China will therefore build up reserves in all the currencies that it will trade in. All this will take place at the expense of the dollar. Currently the U.S. dollar is used in around 76% of the world's trade. More importantly for the dollar, its use as a reserve currency (it currently comprises 63% of global reserves) will diminish in line with the growth of Yuan/ other currencies.

Currencies in Japanese/Chinese Trade

To explain the process more clearly, when a Chinese company buys goods from Japan, it sells Yuan and buys dollars in its place, for delivery to the Japanese supplier. The Japanese supplier then sells the dollars for Yen. This brings many risks to the transaction because both the Yen and the Yuan are constantly moving against the dollar and the dollar is driven by its own economy and pressures. By going direct, these risks and extra costs are eliminated. Likewise the influence of the U.S. over global trade is diminished, for this trade will no longer require the vast amount of trade to go 'via New York'.

U.S. Power and Influence Changing

Earlier this month, we produced an article that discussed the purchase of Iranian oil in the Yuan and Indian Rupee. U.S. influence and power over world oil supplies has been complete because of the sole use of the U.S. dollar in the oil price. But when Iran dropped the dollar from its oil sales, this power was undermined. The U.S. tried to bring India and China on board in punishing Iran -over its nuclear developments-- but had extremely limited success. The U.S. then used the SWIFT system of banking alongside its own banking system to block Iranian oil sales and their payments. China and India used their own currencies and clearing systems to bypass these blockades. As we pointed out in the earlier article, this was not simply a financial development but a shift in power to the East. The Iran story highlights the importance of the development of the Yuan's growing use.

China's viewpoint is not to challenge or attack the U.S. but to develop systems that will be in its own interests and independent of outside political or financial influences. Unhappily for the U.S. this is leading to the decline in U.S. power, both politically and financially. With China and the emerging world accounting for over half of the world's population, the potential growth here will mean an eventual huge curtailment in U.S. power and influence. The agreement with Japan marks a major step forward in this process.

Fragmentation of the Present Monetary System

Since the Second World War and through the Bretton Woods system to today's monetary system, the dollar and the U.S., with its power and wealth, has ensured its continued success, sometimes against basic fundamental reasoning -such as the ability of the U.S. to just print dollar to cover its Trade Deficits on an ongoing basis, a sort of Tax on the rest of the world. Indeed, the dollar, with its link to oil, is the tree-trunk of world money with all other currencies acting almost as branches growing out of that tree. The steps being taken by China now is another tree (currently a sapling) growing alongside it and eventually no longer dependent on it. The worry is that this new tree is sapping the old tree of its strength. We are certain that China will do all in its power to ensure it minimizes the influence the U.S. has over its financial system.

The dangerous period for the two trees is when the new sapling is not strong enough to stand alone and the old tree is ailing. This is the time when support is needed for both. That support has to be independent of both for it to give effective support. That support must convince all in the monetary world that it will give enough inherent strength to shore up the weaknesses of both. But at the same time this support must be a common denominator throughout the financial world.

If the transition of power and through changes is smooth, then a new shape to the world's money will be easily accepted. But in all of man's history, such transitions have been far from smooth or peaceful; they've been marred by confrontation and breakdown and usually both. We see this future for the monetary world in the face of these developments.

With the debt debacles on both sides of the Atlantic, the developed world's monetary system is vulnerable to such pressures as never before. The monetary system now faces structural pressures that are bound to lead to turmoil and deeper crises, not simply inside nations, but ones that will shake up global foreign exchanges and breed more and more uncertainty. The last few years of financial crises in the developed world will seem tame by comparison. The separate interests of the developed world and the emerging world will emphasize the uncertainty and lack of confidence that will hang like a cloud over the world's changing money systems.

Gold Forecaster regularly covers all fundamental and Technical aspects of the gold price in the weekly newsletter. To subscribe, please visit www.GoldForecaster.com

By Julian D. W. Phillips
Gold-Authentic Money

Copyright 2012 Authentic Money. All Rights Reserved.
Julian Phillips - was receiving his qualifications to join the London Stock Exchange. He was already deeply immersed in the currency turmoil engulfing world in 1970 and the Institutional Gold Markets, and writing for magazines such as "Accountancy" and the "International Currency Review" He still writes for the ICR.

What is Gold-Authentic Money all about ? Our business is GOLD! Whether it be trends, charts, reports or other factors that have bearing on the price of gold, our aim is to enable you to understand and profit from the Gold Market.

Disclaimer - This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold-Authentic Money / Julian D. W. Phillips, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold-Authentic Money / Julian D. W. Phillips make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold-Authentic Money / Julian D. W. Phillips only and are subject to change without notice.

Julian DW Phillips Archive

© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014