Wake-Up Call for America: China’s Currency Growing WorldwideCurrencies / China Currency Yuan Feb 01, 2013 - 06:57 AM GMT
Sasha Cekerevac writes: While many people are aware that the Chinese economy is now the second-largest in the world, China’s currency, the yuan or renminbi, is also moving upward in the world rankings in terms of global transactions.
According to the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the world’s global payment system, the yuan has moved up from 20th in the rankings in January 2012 to 14th position in December 2012. The Chinese yuan is now above the Danish kroner in terms of global payments. (Source: “RMB Tracker: January 2013,” Society for Worldwide Interbank Financial Telecommunication web site, January 24, 2013.)
That is a significant move and an indication that the Chinese economy is becoming more integrated worldwide.
Why does this matter to the average American?
For a long time, America’s economy has been the global leader and the U.S. dollar has been the global reserve currency. Every other nation was seen as secondary to America’s dominance. This is now starting to shift.
As the U.S. national debt level continues to grow, the strength of the Chinese economy is enabling considerable efforts to be made at developing globally interconnected markets that can survive and thrive without the U.S. dollar.
While the Chinese economy is certainly not perfect, it doesn’t have to be. With the rising level of U.S. national debt, the Chinese economy just needs to be relatively better than the U.S. economy, though not in absolute terms.
The point is that the rise of the Chinese economy over the past decade and the looser restrictions that the Chinese government is placing on the yuan mean that global businesses and investors have an alternate choice to the U.S. dollar.
With the U.S. national debt level rising to mountainous status, business leaders and investors will begin to raise serious questions about the viability of America’s currency.
No longer is America the only formidable player in town.
Many investors have begun piling into the Shanghai Composite Index recently, believing that the Chinese economy is about to rebound. Chinese government officials have continued loosening restrictions on foreigners investing in that nation, which continues to help internationalize the yuan.
Recently, there are reports that Taiwanese investors might be able to invest directly in Chinese stocks and bonds. The China Securities Regulatory Commission has continued to eliminate any hurdles for foreign investors. (Source: Lim, W., “Shanghai Composite Enters Bull Market on Economic Growth,” Bloomberg, January 29, 2013.)
The fewer the restrictions, the more international investors and businesses will continue to adopt the yuan; this will establish greater legitimacy and potential for the Chinese economy over the long run.
China’s actions and the growing popularity of the yuan should be a wake-up call for America’s politicians. The Chinese economy will continue to expand over the next decade, along with the growing use of the yuan for international business transactions.
The real issue regarding the rising U.S. national debt level is the politicians in Washington who continually believe that somehow the U.S. national debt will magically disappear so long as they keep spending money.
While I’ve heard talk about reducing government expenditures, I see little evidence of any real change or action.
As American politicians bicker and fight with each other, the U.S. national debt level continues to grow, the Chinese economy continues to expand, and the Chinese yuan continues to increase its global use.
Einstein once stated that insanity is doing the same thing over and over again while expecting a different result. Politicians talk a good game; but talk is cheap, and action counts.
The U.S. national debt continues to rise, and more businesses globally are using the yuan to conduct transactions. These are not ideas or theories, but hard facts.
Unless we decide as a nation to get our fiscal house in order, do not be surprised to see the Chinese yuan continue rising in status globally.
By Sasha Cekerevac, BA
About Author: Sasha Cekerevac, BA Economics with Finance specialization, is a Senior Editor at Lombardi Financial. He worked for CIBC World Markets for several years before moving to a top hedge fund, with assets under management of over $1.0 billion. He has comprehensive knowledge of institutional money flow; how the big funds analyze and execute their trades in the market. With a thorough understanding of both fundamental and technical subjects, Sasha offers a roadmap into how the markets really function and what to look for as an investor. His newsletters provide an experienced perspective on what the big funds are planning and how you can profit from it. He is the editor of several of Lombardi’s popular financial newsletters, including Payload Stocks and Pump & Dump Alert. See Sasha Cekerevac Article Archives
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