Another angle (left field) on the original subject heading, from a contributer to Le Met Cafe
Bill, Re: the China-Argentina currency swap: isn’t it curious that the Chinese would be eager to replace trade in U.S. Dollars with trade in Argentine Pesos? Do they really want to accumulate Pesos? Have they gone daft? The Argentine Peso has been depreciating against the U.S. Dollar for years — no doubt due to the country’s fragile economy — and is off by 24% since last July. So why would the clever Chinese prefer the Peso? This deal is a loser on its face for them.
Perhaps, though, there is more to it than meets the eye. The Chinese recently floated the idea of a new SDR-backed international currency as an alternative to the current US Dollar-based standard. The concept hasn’t exactly caught fire. For instance, the Wall Street Journal ran an analysis on how impractical it is. The proposed system would rest on a currency that has no natural base, or home, and would probably take decades to win public acceptance — if it ever does. The article smugly concludes that the dollar’s position as a reserve currency is secure for the foreseeable future. So why would China push the SDR concept when they must know it can’t work? It seems as Quixotic as stuffing Pesos in your mattress.
I suspect the SDR proposal is a feint, to raise the idea of change without provoking an explosive reaction from other central banks and governments. If you substitute the word gold for SDR, than everything falls into place and, at the propitious time, you could create a new system with global acceptance in no time flat. However, the Chinese know it is too soon to go public with anything gold-related, so instead they float a trial balloon that can be gently shot down, but serves to open the discussion.
Now, back to Argentina. Remember that the Argentines have had a tough time of it in their dealings with the dollar-based international banks. They, like the Chinese, are not big fans of American economic dominance. Recall, too, that Argentina’s central bank was the first CB to openly break ranks and start accumulating, instead of selling, gold. The latest figure I found on how much gold Argentina has is 55 tons in 2005, but they have been buyers of gold since then and probably have significantly more. Could this hoard be tied in any way to the Chinese currency deal?
What if China just made an end run around the dollar system in a corner of the world that doesn’t attract too much scrutiny? Are the pesos China is receiving secretly backed in any way by Argentina’s gold? What else does Argentina have that the Chinese would want as collateral? This deal could be quietly setting in place a new form of the gold standard right under the noses of the G20, while everyone focuses on stimulus packages and other stuff. Maybe, just maybe, we should remember March 31, 2009 as Day One of the world’s new gold standard. Best wishes, Peter R.
