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TheStreet Open House

Renminbi Relentlessly Replacing Dollar as Reserve Currency

VANCOUVER ( Bullions Bull Canada) -- It is no secret that China is replacing the U.S. dollar with its own currency in more and more of its bilateral trading. It's apparent to all that the renminbi will soon have (at least) a co-equal status with the dollar as the global "reserve currency."

Yet, what is rarely, if ever, discussed in the mainstream media are the enormous economic repercussions of a world suddenly awash in a massive glut of surplus dollars.

In most respects economics mirrors one of the basic principles of physics: For every action there is an equal-and-opposite reaction. If farmers produce a bumper crop of wheat and supply soars, then the price falls. Similarly, if the demand for wheat suddenly collapsed, the price would also fall. Both a jump in supply and/or a plunge in demand result in the same state: abundant/excessive supply. The consequence of excessive supply is always a fall in price.

This economic "physics" applies in an identical manner to the world of currencies...eventually. In a global economy ever more corrupted by serial market-rigging, nowhere is this manipulation more blatant than in the world's forex markets.

Indeed, the world's nations have openly declared they are all competitively engaged in currency manipulation as denoted by the euphemistic term "competitive devaluation."

Through destroying the value of one's own currency, the wages of workers in real dollars are driven steadily toward zero, and so (supposedly) this will allow a nation to undercut its trade partners and export more goods.

The sick joke here is that with all nations destroying the value of their currencies (and the wages of their workers) simultaneously, no nation gains any "advantage" and the wages of workers are being destroyed for no reason whatsoever. This does, however, produce the paradigm of all currencies simultaneously falling in value. Only the rate of decline of this paper-destruction varies.

This is why anytime we see some talking head refer to a currency as "rising in value" it is an implicit admission that the person has no understanding of the global economy. If two people jump off the roof of a 100-story building at the same time, and while on the way down one individual climbs on top of the shoulders of the other, that person hasn't "risen." He will merely go "splat" on the pavement a millisecond later.

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