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Since the end of WWII, the world has been treated to a fiction that there is a wealthy Central Bank of the world whose currency is as good as gold, and therefore, it can issue its currency as a reserve, or collateral, for redemption of other lesser currencies, in order that these lesser currencies will be trusted by their users to be dependable and durable stores of value, rather than just mere tokens of value. Indeed, once in a while, it would show off its gold bars in its bank vaults as proof that indeed, its currency is as good as gold. Until . . . Gen. De Gaulle of France demanded an exchange of the currency issued by this Central Bank for actual gold.|
The rest is history.
Since then, central banks have agreed to value each other's worthless currencies on the basis of their own worthless currency, based on the interest rate of the issuing central bank, and the inflation rate of the country to which that central bank belonged. They called it the "Floating Exchange Rate".
Worthless as the currencies they issued are, their value derives from the gullibility of the public to exchange their work, their produce, and their land for payment in these currencies, in the belief that the money they receive will purchase for them other things that in aggregate would provide them with the same or greater satisfaction as what they gave up in return.
China has therefore, logically, maintained a higher interest rate, and managed a lower inflation rate, than its currency competitors, in order to prove that its currency is indeed a dependable store of value, which in fact, not only preserves its purchasing power, but has been appreciating against the strongest currencies in the world, for at least 3 years in a row.
Because of this, the Renminbi has become an alternate means of settlement of trade between countries, a reserve based on which a foreign central bank can credibly issue more of its own currency, since receivers of such currency are confident that they can exchange them for Renminbi, which is has steadily been appreciating against all the older currencies, and therefore, has proven it can function like a reserve currency.
However, high interest rates, necessary to maintain a high exchange rate for the Renminbi, results in loss of international and domestic markets for manufactured goods, which if sustained and severe, could lead to deflation, recession and another great depression. Toughing it out, with losses of future exports, month after month, year after year, China paid a stiff price for the right to be an international reserve currency. Making its job even tougher is that the dollar has sharply appreciated against all other currencies, such that if the Yuan is to maintain its appreciation against the dollar, it would have to use up even more of its dollar reserves to buy up its own currency.
But China persevered.
It has won its first trophy for this feat of daring - it was able to form the AIIB - as a venue for future economic growth, using Yuan-denominated loans for a change.
However, the dollar will never give up without a fight, so it has appreciated further, leading to calls from within for a stop to the revaluation of the dollar, as it also crimps the export of its manufactured goods, as well as makes them relatively more expensive than imported goods of similar function.
In this epic and pivotal struggle between the dollar and the yuan, only one will emerge victorious, but either or both countries would not be any richer for it, but rather, less so, as more of their factories will have to close, their workers laid off, and social conflicts will necessarly become more acute.
Bankers believe they are creating wealth by printing or lending more fiat monies of their own. The bottom line is, this is not true. They have exposed their workers to the risk of unemployment and defaults on their loans. Indeed, how can the "rich" bankers clothe those who are naked, when they themselves have no clothes?