Date: February 21, 2003 11:04 AM Author: Raydance Subject: China and the Dollar
I rarely get this wordy in my writings, especially on a message board. + I can not spell very good and a spell check takes too much time. (:
I am usually just 'get to the point' kind of person, but thought this deserved a good answer as best I can describe it. The subject is very complicated and one can not just take China and the Dollar to explain what is happening and what may happen in the short and long term. Since China CB is in bed with Russia CB, we may see ruples come out of all this as a solid currency.
Right now China's currency is directly tyed to the dollar and China is starting to hurt because of the decline in the last ~year or so of the 26% down turn of the US dollar. China is still selling goods to the US at esentially the same prices as a year ago so they are getting less money for their goods and services.
For some months now China has been toying with tying their currency to gold! If this happens the prices of imports from China will skyrocket, a problem for the US and a problem for China. The Chineese are very astute business people and are not to be underestimated in the power of the world market.
In China, the emphasis is on production, not consumption. In the US the opposite is true, spend, spend, spend then borrow more money and spend more, lets keep this economy going consumers. Remember the speach by Bush about a year ago directed at consumers to go out and spend to keep the economy running? After all it is the patriotic thing to do.
As I am sure you know China has recently opened up gold to the general public making it available to investors and collectors. This in part has caused some of the increase in gold buying for the past ~1 year and partially a reason for the increase in the price of gold. A gold backed currency in China would hurt their economy for a time but would then recover to be one of the curreccys of choice. Watch this closely, as the world markets will be in trouble if China goes ahead with the 'standard'.
I am not sure if this has actually happened yet but... With the signing of an agreement between Russia's Central Bank and the People's Bank of China has become the key breakthrough in the banking sphere. The chief bankers have agreed to settle all inter-bank accounts in rubles and yuans starting next year. Negotiating officials say that this way of settling accounts will be introduced as an experiment to create the necessary mechanisms to settle accounts. What is really very important about this agreement is that Russia and China demonstrated the so-called Eurasian solidarity and decided to give up the dollar and euro in the settlement of their accounts.
Even so Russia and China may have a new pact, china will still have to buy oil with US dollars from the Opec producers. China's oil imports are quickly on the rise and in 2002 the import of crude increased by 15%.
"Experts said that the huge energy demand fueled by China's rapid economic growth has become a major power behind the sustained growth in oil imports. Experts analyzed that China's crude oil consumption exceeded 200mln tons in 2001 and was likely to top 300mln tons by 2010. The imports of oil and natural gas is expected to stand at 316mln-368mln tons by 2020, accounting for 15.85%-18.4% of the countries overall energy consumption. "
On a side note, the US dollar is in big trouble world wide. It will not be long before other currencies will be demanded in lue of the dollar because of the fact we are just printing way too many dollars with esentially nothing to back it up. If the US decided right now to back the dollar with gold, 1oz of gold would be worth > $6000.00!
No matter what the dollar does in the long term, if you own gold as 1/3 of your total assets, you will be on top of the heap when the shi* hits the fan, and it will hit the fan, we can just not predict when. With M&S Citi and others manipulated gold, Greenspan controling the IMF and World Bank, dollars becoming increasingly worth less and almost all other currencies growing stronger world wide, it is just a matter of time for the good old US $.
See this article for some good intel on what is happening with gold on the world market.
