Does China’s Currency Have
What It Takes to Replace the US Dollar?
This is another in depth issue from the Elevation Group on our world’s economy.
The fate of the US dollar as reserve currency of the world is up in the air. And if China has their way, it’ll be their currency that takes it’s place – the Yuan.
EVG Research Team here, and we’ve been telling you about the dangers facing the US dollar for ages.
The global financial crisis threatens severe dollar deflation. That’s a crisis in itself.
But it’s the Federal Reserve’s potential response to deflation that really threatens the dollar. So far the fed has been attempting to reinflate by “printing money.” And if they keep it up, we’ll see massive inflation at best – or hyperinflation at worse.
(Click here to find out more about how EVG members are strategically preparing to prosper regardless of deflation or inflation.)
If massive inflation occurs, we’re certain to see another currency surpass the dollar as reserve currency of the world.
And China is a serious contender…
The 21st Century Belongs to China?
Many people think so. Legendary investor, Jim Rogers, recently moved his entire family to Singapore. He wants his kids to grow up near China and speaking their language, because he believes the 21st century is China’s century to dominate economically.
In the 1800’s, it was the British. During the 1900’s, it was the United States. And it doesn’t look impossible that it could change hands again.
China recently overtook Germany as the world’s 2nd largest economy based on gross domestic product (GDP).
They’re the greatest creditor nation in the world – a position the US once held before becoming the world’s greatest debtor nation today.
And the average Chinese citizen’s savings rate hovers between 30-40%! While the US savings rate stays around 4%. And since real wealth comes from investing savings, China seems to be gaining an upper hand.
And They’ve Made Steps
To Challenge The Dollar
China officially depegged the Yuan from the dollar in 2005. This means the Yuan can now rise or fall in value independent of the US dollar’s value – a necessary step if you wish to become the world’s reserve currency.
And it used to be that all China’s transactions, public and private, were done using US dollars. But they’ve started to reverse that trend. Most recently, China and Japan began exchanging the Yuan for Yen directly.
So with the US dollar in trouble, and the world’s next biggest economy, they seem in perfect position to move into first place.
Except for one big thing…
Their Bridges Are Falling Down
Despite all the talk, China has a ways to go before they can become the world’s dominant economy.
For one, they need to build bridges that don’t fall down.
Much has been made of China’s infrastructure investments, but just a few weeks ago another $300 million bridge collapsed. It was the 6th highway-bridge to collapse in the last year.
And even though it is now possible to exchange Chinese and Japanese currency without involving the dollar, it rarely happens. More than 99% of trades still take place in dollars.
Not only that, but the Chinese are at the beginning of a real estate bubble of their own. It’s estimated that 64 million homes remain vacant. And satellite images have captured entire cities empty of any people.
So What is the Truth?
The truth is, China does have incredible potential. They may even go on to economically dominate the 21st century.
But they’re not ready to be #1 yet, and neither is their currency.
That’s why EVG continues to find investment strategies that don’t rely on a stable currency – and can survive and thrive during the dollar’s fight between deflation and inflation.
If you’d like to find out more about how the ultra-rich are taking advantage of “black box” investment strategies to prosper in a recession, go here now:
Did the EVG Research Team make a mistake?
Last week’s email on “the legal lie banks tell” and fractional reserve banking really stirred the pot. And it prompted several “correction” notices from readers.
Here’s just one of many that had the same concern, edited for brevity:
Sorry to disappoint you, but you still don’t yet have a full understanding of the so-called Fractional Reserve Banking. When a person deposits $1,000 into a bank, the bank can legally and immediately lend out $10,000, not just $900.
When they lend out $10,000 based on the deposit of $1,000, they still have 10% deposit held in “reserve.” Please study this more carefully before writing any more material.
Thanks for the email, Brian. You are almost correct, and you would be correct if you left out the word “immediately.”
With a reserve ratio of 10%, $1,000 does indeed turn into $10,000 based on the money multiplier. But it does so after many, many loans are completed – not just one.
Your mistake is thinking 100% of the $1,000 deposit can become the “reserve requirement.” But if you look into it further, you’ll see the language states the reserve requirement is “10% of deposits.” Loans are then made from the other 90% of deposits.
So our analysis of one loan turning $1,000 into $1,900 was correct. For further investigation, look for a breakdown of the “money-multiplier.”
Your Partner in Prosperity,