Many are expecting the collapse of the USD. It is something that gold supporters and, more recently, Bitcoin advocates, have espoused. They rail against fiat currency and believe in its demise.
The challenge is that not all fiat currency is the same.
To start, as long as governments are around, they will do all they can to keep control over their currency. The United States is not about to give up the mantle easily. While cryptocurrency holds great promise, we are not likely to see fiat eradicated any time soon.
If we want to see what is about to take place, it is best to look back to the last time the world's reserve currency changed.
About 100 years ago, the USD was not the king of currency. Instead, it was the British Pound. Great Britain, for decades, the dominate player on the world stage. For this reason, their currency was the most desired.
The problem was that, by 1920, the United States economy was the largest in the world. Thus, it was the global economic powerhouse.
This, of course, is a situation that bodes well for China which will become the largest economy in the world, surpassing the United States by as soon as 2030.
Which brings up the second part of the equation from the 1920s. Not only did the United States economy surpass Britain but the banking system was more advanced by that point. This is a huge variable. Even today, if you are doing a mega money transaction, you will opt for a US bank before most others.
Here we see a major problem for China stepping up on an international stage. The activities over the weekend show how it is not quite ready for prime time.
The government nationalized financial institutions with 1 trillion in Yuan. This is showing how the Chinese banking system is in real trouble.
Whatever the case, the takeovers of four insurers, two trust firms and three securities companies that managed a combined 1 trillion yuan ($143 billion) in assets represent Beijing’s first major regulatory move this year and follows the extensively documented bailouts of several regional lenders last year. Among the companies taken over the China's Banking and Insurance Regulatory Commission are Huaxia Life Insurance Co., Tianan Life Insurance Co., Tian An Property Insurance Co. and Yian Property Insurance Co, the regulator said on its website.
Meanwhile, China’s securities regulator said it would take over three other entities—New Times Securities, Guosheng Securities and Guosheng Futures—and two trust firms, New China Trust Co. and New Times Trust Co.
Source
There is no doubt that China was the world success story over the last few decades. The challenge is that it is a country which is heavily indebted and many do not feel the numbers coming from the government are trustworthy. This is likely the country's biggest hurdle going forward.
Without confidence from the international financial community, any moves forward by China will be cooked. There is a reason why the United States remains firmly entrenched as the reserve currency and global leader. It goes far beyond the government or the economy.
Presently, China and the Eurozone face the same dilemma. Both have banking systems that are a total mess and fail to capture the belief of the international community. What this equates to is most of the debt in the world ends up being written in USD.
This only further secures the USD as the reserve currency. One of the benefits of an over-financialized economy, is the fact that one's currency remains in demand since debt holders want to be paid. At this point in time, it is not plausible that the international community wants Yuan.
Over the last 5 years, there were some holes appearing in the Chinese armor. The debt load is starting to weigh on the economy as the growth rate slows. When the economy was going at 10%+, a lot was hidden. Now that we are seeing low single digit growth, some of the warts are showing.
Unfortunately, this becomes a self perpetuating cycle. As the economy experiences headwinds, it puts more pressure on the banking system. This will likely cause more government bailouts, a turn that hurts their position in the eyes of the international community.
Another challenge is that wealth is being sent abroad by rich Chinese citizens. The government started battling this about 5 years ago, something that is a difficult proposition. When confidence does not exist at home, wealthy investors move capital abroad.
With so much investment leaving the country, we see another layer added to the mess that is being created. All of this puts more pressure on the already struggling banking system.
When all this is totaled up, it is difficult to see the Yuan being taken seriously on a global scale.
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A lot of fiat currency are not as strong as the USD. USD are also used as a reserve in many countries outside USA... Similar to Gold.
well i believe the chinese economy still have so many flaws that needs to be worked on...
Posted Using LeoFinance
A think that could be said about a great deal of what pertains to the Chinese economy and financial situation.
Posted Using LeoFinance
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