Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Dethroning of the U.S. Dollar Will Happen Sooner Than You Think

Currencies / US Dollar Nov 04, 2009 - 11:22 AM GMT

By: Money_Morning

Currencies

Best Financial Markets Analysis ArticleKeith Fitz-Gerald writes: By now virtually every investor has heard the argument that the U.S. dollar is slated to lose its status as the global reserve currency. And that’s good – as far as it goes.

What’s bad is that many of these investors have yet to latch onto the fact that this could happen much sooner than many people realize and in a manner that will catch most by surprise.


Let’s take a look at the three key reasons that this shift away from the U.S. dollar happening – and sooner rather than later:

1. The Asian Region Currency Partnership: Japan, once the staunchest of U.S. allies, is leading the charge to form a regional currency partnership based on closer ties between itself, China and South Korea. Ostensibly part of the second trilateral “leader’s meeting,” that happened earlier this year, financial cooperation was front and center on the agenda (at Japan’s invitation) as a means of coping with the ongoing global financial crisis and with the subsequent resumption of worldwide financial growth. It was also key to the Association of Southeast Asian Nations (ASEAN) discussions that took place this past weekend – with the waning influence of the U.S. economy again playing a key role in the discussion amongst potential ASEAN trading block partners.

At a time when U.S. leaders are fooling only themselves by pretending this country remains the key player in the health of the worldwide economy, Japan’s newly elected Prime Minister Yukio Hatoyama didn’t mince words following the trilateral meeting when making such comments as “until now we have been too reliant on the United States” and “I would like to develop policies that focus more on Asia” to press-corps attendees.

Having spent 20 years in the region, I can’t say I’m surprised by this development. And you shouldn’t be, either. Between China, South Korea and Japan, we’re talking about 16% of the world’s gross domestic product (GDP) – a figure that’s growing almost daily, by the way.

There are obviously some significant challenges, given the cultural sensitivities that remain in the region as a result of World War II. But even those are being trumped by today’s serious global financial demands. After the three-nations met, Chinese Prime Minister Wen Jiabao noted that “we have agreed to seek common ground and shelve our differences.”

In a column written from my family home in Japan earlier this year, I noted how important it is to “read between the lines” when investors are attempting to decode English-language statements being made by officials in Japan or China. It’s not what’s actually being said – at least, not as Westerners hear it – that’s important. That’s actually been shifted a bit by the translator. You really have to go back and make an effort to see just what it was the official actually meant.

Granted, that’s not the easiest of exercises. But it does force you to really look at what’s taking place – which will usually give you a much-more accurate picture than if you just trust what’s said by the Western press.

So Wen Jiabao’s statement can be construed as it’s “time to get down to business.”

2. When “Black Gold” is No Longer Quoted in Greenbacks: Middle Eastern nations and members of the Organization of the Petroleum Exporting Countries (OPEC) finally couldn’t contain themselves any longer and leaked information a few weeks back that they’re pursuing a non-U.S. dollar trading basket as a replacement for the current U.S. dollar-traded oil markets.

We’ve been forecasting this for some time. The difference this time around is that the Middle Eastern nations are now all but openly in cahoots with China, Russia, Japan and France – all of whom the United States continues to blithely believe it can outmaneuver.

While the meetings have been held in secret, my sources in Hong Kong and the Persian Gulf region suggest that the move is imminent and that the establishment of an independent trading market is all that’s keeping us from a day in which oil prices are no longer quoted in dollars. Oil will instead trade in the combined basket using currencies from the nations I just mentioned. Led by China and potentially – although this is a big leap – tied in good measure to the yuan.

As a side note, this may at least partially explain the rise in gold prices as enlightened traders begin to hedge the dollar’s ultimate demise. This makes sense for two reasons:

  • First, China uses oil in an incrementally greater proportion than the United States because it remains less energy efficient. That means that China will take in an increasingly larger percentage of world supplies.
  • Second, gold is the only “currency” that is potentially liquid enough to serve as a transitional store of value until the new currency basket arrives. Pun absolutely intended.

Incidentally, you can expect Brazil and India to join the party shortly, leaving the United States even further out in the cold. And while we’re at it, my guess is that the new oil markets will be based in Shanghai, and not in New York or Chicago.

Watch, too, as the United Kingdom is dragged – kicking and screaming – to the euro because it will have no choice but to abandon the U.S. dollar.

3. U.S. Firms Are Already Adopting a China Focus: While ostensibly supporting the recovery here, major U.S. companies are already looking at what it will take to list their shares on China’s stock exchanges. Although I’ve been following this story for at least two years, it’s received almost no attention in the U.S. news media. When it does happen – and it will – this will be one of the biggest wakeup calls yet for those Western investors who refuse to acknowledge Asia’s economic ascendance.

I’m not talking about fringe companies here, either. I’m talking about stalwarts like Wal-Mart Stores Inc. (NYSE: WMT), The Coca-Cola Co. (NYSE: KO), and General Electric Co. (NYSE: GE), to name just a few. In short, companies that U.S. investors view as American as apple pie are pushing to be viewed as Asian as quickly as possible.

I originally thought this wouldn’t happen for five to seven years (which is still faster than most investors believed possible). Instead, I give this shift 12 months to 24 months – at most – before we see the first listings.

The fallout from this will be considerable. The historic financial centers of London and New York will take yet another step to the sideline as new Asian markets emerge.

To some, this will sound like scary stuff. But uncertainty breeds opportunity. And savvy investors will welcome the changes because there will be a fascinating fallout that almost no one is talking about.

The emergence of Asia as a true global financial center will make it so much easier to raise capital in that part of the world. All this new Asian capital will likely lead to a new golden age of investing – certainly in Asia, but also in the United States and Europe to the extent that companies that pursue these listings will have newfound sources of capital to buttress their balance sheets.

Not all companies will be regarded equally, however. For investors, the best choices will be those companies that can immediately use the money they raise through Chinese offerings to enhance their global operations, increase worldwide sales, and cement their relationships with sources of Asian capital.

So if there’s one key take away in all this, it’s this to paraphrase the words of American writer Ruth E. Renkel: “Don’t fear shadows – they simply mean there’s a light shining somewhere nearby.”

Money Morning/The Money Map Report

©2009 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 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

6 Critical Money Making Rules