Reply #9: Yuan moves to a basket of currencies... [View All]

[Petrodollar Warfare]

...well, that is not surprising. In fact, this is something I have been watching for quite some time....Below are a few exerts from my new book, with the third quote being the most important issue...(pegging yuan to the euro and yen - and what that says about the lack of faith in the dollar...thanks in large part to this administration)

China: Emerging Third Pole of Power

Something surprising is happening to China’s currency. Although not fully convertible, the renminbi, the ‘people’s money,’ is growing in use as a hard currency outside China — the first sign of its potential role as ‘Asia’s money.’ In Hong Kong and along China’s borders with Southeast Asia, an emerging renminbi zone can be traced, fuelled by burgeoning Chinese trade and tourism.

- “The Renminbi Zone,” Asia Times, 2003


In the last century, American people were pioneers of system and technology innovation. However, the interests of a few American financial monopolies now lead this country to war. This is such a tragedy for the American people.

- Wang Jian, Chinese bureaucrat, 2003


The US dollar is no longer … in our opinion as a stable currency, and is devaluating all the time, and that's putting troubles all the time. So the real issue is how to change the regime from a US dollar pegging ... to a more manageable reference, say Euros, yen, dollars — those kind of more diversified systems.

- Fan Gang, director of the National Economic Research Institute, China Reform Foundation, quoted at the World Economic Forum in Davos, Switzerland, January 26, 2005


(...here's a few more interesting tidbits...)

The rising geopolitical influence of China will be based upon its economic clout, but its increased demand for sources of hydrocarbons will not transpire without the potential for geopolitical tension with the US. In 2003 a Chinese bureaucrat, Wang Jian, portrayed a very disconcerting picture of impending geopolitical conflict as we enter the 21st century. His white paper advised China to prepare itself for what he foresaw as an inevitable war between the US and the EU — not between the US and China:

"Clouds of war are gathering. Right now, the most important things to do for China are:

1. Remain neutral between two military groups while insisting on an anti-war attitude.
2. Stock up in strategic reserves.
3. Get ready for a short supply of oil.
4. Strengthen armament power.
5. Speed up economic integration with Japan, Hong Kong, Korea and Taiwan.

War is the extension of politics and politics is the extension of economic interests .... America’s wars abroad have always had a clear goal; however, such goals were never made obvious to the public. We need to see through the surface and reach the essence of the matters. In other words, we need to figure out what the fundamental economic interests of America are. Missing this point, we would be misled by American government’s shows and feints."

Wang’s argument suggesting this conflict is largely based on the structural imbalances endemic to the current US economy. He offered the following candid advice to Chinese policy-makers:

"While has been bringing to America economic prosperity and hegemonic power over money, it has its own inborn weakness. In order to sustain such prosperity and hegemonic power, America has to keep unilateral inflow of international capital to the American market .… If America loses its hegemonic power over money, its domestic consumption level will plunge 30-40%. Such an outcome would be devastating for the US economy. It could be more harmful to the economy than the Great Depression of 1929 to 1933."

Assuming that such a major US economic dislocation could occur, every effort should be undertaken to lesson geopolitical tensions that could develop between the US, EU, and China. In any event, the US economy’s structural imbalances justify a re-evaluation of fiscal/tax policies as well as foreign polices. Ultimately we will witness the emergence of a multi-polar world. These trends underline why US policy-makers must quickly begin realigning some longstanding foreign policies in an effort to rebuild its goodwill.