The World Is Already Dumping The US Dollar
Graham SummersThe following quotes signal the beginning of the End Game for the US Dollar:
4 May 2011
"We hope the U.S. government will take responsible policies and measures to safeguard investors' interests," [China's ministry] said in a statement.
"Foreign-exchange reserves have exceeded the reasonable levels that we actually need," [China's central bank governor] said. "The rapid increase in reserves may have led to excessive liquidity and has exerted significant sterilization pressure. If the government doesn't strike the right balance with its policies, the build-up could cause big risks," he said, without elaborating.
These two statements, in plain terms, are China saying it's sick of the US Dollar. Remember, the US Dollar and Dollar-denominated assets (Treasuries etc) are China's single largest holding. So the reference to "foreign-exchange reserves," is synonymous with "US Dollar denominated assets."
On the surface, it will be easy to chalk all of this up to politician speak. After all, China has been issuing warnings to the US regarding the latter's financial condition since 2009.
However, a few key developments have occurred that make it clear this latest round of statements are the real deal.
First and foremost, China and Russia agreed late last year to begin trading with one another in their own currencies, NOT the US Dollar. In that step alone, two of the largest emerging markets (and economies) in the world moved away from the US Dollar. Add to this the fact that China just agreed to expedite trade relations with Brazil and you've got the beginnings of a flight from the US Dollar and the end of the Dollar's reserve currency status.
Indeed, not three months after China signed this deal with Russia, China's president visited Washington and delivered a speech in which he stated that, "the current international currency system is the product of the past" (edits mine).
Consider the "past" comment in relation to China's decision shutting the US Dollar out of its trade with Russia (and other items I'm about to detail). In this sense, the "past" is the US Dollar as the world's reserve currency.
Indeed, China has been actively moving to distance its reliance on the US as a trade partner.
China's Exports By Country/ Trade Partner
As you can see, in just four years, the US has gone from accounting for nearly a third of China's exports to less than a quarter. That is a MASSIVE shift in less than a decade (at this pace the US will be down to just 15% of China's exports by 2015).
China is literally putting its money where its mouth is. And its mouth is now openly telling the world that it's no longer interested in US Dollars or Dollar denominated assets.
The world has taken note. Indeed, we are now seeing various other nations preparing for the end of the US Dollar as reserve currency. Consider that Saudi Arabia becoming so fed up with the US that it is sending trade representatives to China and Russia to strengthen trade ties.
Saudi Arabia is the single largest oil producing country in the world. Saudi Arabia IS oil in some regard. Whatever currency Saudi Arabia chooses to denominate its oil exports in will be the world's reserve currency.
So Saudi Arabia's decision to send trade representatives to China and Russia should be seen as Saudia Arabia seeing the writing on the wall, (death of the US Dollar) and starting the process of moving away from the greenback.
Saudi Arabia is not the only one. Singapore announced today that it will begin trading Yuan. The significance of this is enormous. Singapore is one of the four largest financial hubs in the world (the others are New York, London, and Tokyo). It's also the second largest private banking center behind Switzerland. With its English-speaking population, first-world accounting standards, and close proximity to China, Singapore is literally a "gateway to the east" through which world capital flows into Asia.
In simple terms, the world is beginning to shift away from the US Dollar as a reserve currency. This is not idle conjecture. This is fact. The writing is clearly on the wall for those who can read between the lines of the media's US-centric focus.
Indeed, officials from China, India, Brazil, Russia, and South Africa (the latest addition to the BRIC acronym, now to be called BRICS) recently met in southern China to discuss expanding the use of their own currencies in foreign trade (yet another move away from the US Dollar).
Thus we are beginning the process of the world dumping the US Dollar. Whether it takes months or years, the end result will be the same: an inflationary collapse in the US.
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