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Thursday, December 25, 2008

China Yuan

There is so much change going on in the world, its near impossible to track the 20 different directions the world economy is being pulled in.

One of my previous posts, I have stated that this downturn will likely end with China emerging as a world financial leader, and America's position diminished.

The USA has enjoyed since the end of WWII that the US dollar has been the defacto currency. This has helped the dollar have a relatively high value compared to other currencies. Up until a couple of years ago, ALL oil trades where done in US Dollars, for example. Now that the US has basically pissed everyone off, politically and financially, the world is questioning the status Quo.

And China, has dreams of taking over as world leader, and as I have previously blogged, has been taking pot-shots at the US at crucial times.

Almost every currency in the world can be bought and sold on the world financial markets. For example, If I wanted, I could put all my savings into Euros. However China has has a closed financial market. You can't buy Chinese stocks, you can't buy Chinese Yuans, but the Chinese can buy the free worlds financial if they want.

If China is to take over as world Financial leader, they MUST allow the world to buy their financial stuff, and the first step is their currency.

Today, China took a small, but HUGE step to opening up their currency. China will allow certain close countries to trade currencies with the Yuan.

China has huge issues, political, corruption, social, but they have three things on their side. ZERO debt, huge production capacity, and a huge market, 1.3 Billion people.
With those three things, many countries over time may become more desperate to move away from USD and onto Yuan.

Chinese representative in this move stated "the likelihood of the United States issuing more money in the near future adds to the depreciation risk in US-dollar-denominated assets and trade settlements."

Clearly China is positioning to take out the US, as the US becomes more bankrupt. Lets hope the world doesn't run from the USD to the YUAN, for the world's sake, and mine.

This is yet another reason why I like bottom-fishing for cheap resources for a long term play. There is no such thing as absolute wealth, and currency is by far not certain to keep its value over time. Gold, oil, and other resources "CHEAP" are a great long term hedge. In a deflation situation however, all resources should continue to get cheaper, unless the dollar collapses, inflation hits the US, or world events change the situation.

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