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This post was edited by abramicus at 2014-8-25 04:04|
tradervic Post time: 2014-8-25 00:49
Ah yes... this old discussion - which was something that the Chairman would rant on about... for goo ...
INTERNATIONAL RESERVE CURRENCY STATUS IS THE NEW OPIATE OF THE ECONOMIC CZARS OF CHINA
China might have been misled by some Economic Hit Men to aim for international reserve currency status through revaluation of the Yuan to the extent that other countries will prefer the Yuan to the Dollar. This scheme is hare-brained, because the only buyer of the Yuan to make it rise in value against the Dollar is actually China's own Central Bank, that uses its hard-earned Dollars to buy up Yuans that it could easily have printed on its own at the cost of the paper used. Ergo, once China's dollar reserves have been used up in buying back Chinese yuans, China would have no dollar reserves to pay for its own necessities, such as energy and food, from the international market. This would make the Yuan devalue dramatically, erasing all the "gains" China made in revaluing the Yuan in the years past.
Net result: China's dollar reserves are depleted, not to buy oil, grains, or other commodities, but rather, to buy back China's own printed fiat currency, the Yuan, which is worth no more to China than the paper it is printed on. And, China's Yuan would have to devalue to the level commensurate with its dollar reserves, which would be nil. Thus, the Yuan would have no takers, and cannot be an international reserve currency, using this approach.
Such a clear REDUCTIO AD ABSURDUM proof of futility is nevertheless ignored by China's supposedly smarter than average Central Bankers, who are sold, or perhaps are selling, to China's top leaderships a pipe dream with a fairly high price tag of about 3.5 Trillion dollars equivalent of foreign currency reserves.
Only this Opiate of the Bankers, can explain the exorbitant price that the Chinese economy is being made to pay, through falling trade balances, falling GDP growth rates, and falling factory productivity, all of which would have told a less biased observer that the revaluation of the Yuan, not only is not producing what it promises, but is producing the very opposite effects that will force the Yuan to devalue in the end.
The Canary in the Mine as far as setting of the Yuan/Dollar exchange rate is the PMI. When the PMI drops below 50, the economy begins to regress, and since productivity decreases, there would be even less reason for foreigners to want to hold the Yuan as a reserve currency, once China's trillions of foreign reserves are used up to buy back the paper on which the Yuan is printed. The current data on the PMI is sounding a shrill alarm that if the PBOC again revalues the Yuan to 6.15 Yuan/Dollar, that the PMI will head south, the economy will shrink, and the Yuan will not only not be wanted as an international reserve currency, it will be rejected for any currency swap with another country. But the revaluation regime is back again. It is quite possible that China's mainframe computers were bugged to project a stable and sustainable Yuan/Dollar exchange rate of about 3.5 Yuan/Dollar, and the decision makers were too proud to believe that their own computations could be wrong or that their desktop programs could have been tampered with. There is too much methodological orthodoxy bordering on blind faith with total disregard for common sense or contrary indicators, in the current approach of the PBOC that makes one suspect a serious flaw in its computations has survived human analysis, and is wreaking havoc on the Chinese economy, similar to the way the virus shut down Iran's nuclear program.