The path for a Renminbi reserve currency

[inflationhawk]

So if China wants to make the Renminbi currency a world reserve currency to displace the dollar, exactly how would it get there? One path I see is for the Chinese to stop buying US Treasuries and start buying gold. They then could have a gold standard based currency if they would allow exchanges of their currency for gold.

This currency would be widely accepted if it were based on gold. There are still some concerns the Chinese government could unilaterally change the gold ratio to renminbi or revoke it's gold backing...they are communist after all and the power rests with a corrupt few. The Chinese government would also have to open their currency to allow foreign ownership. However, a gold backed renminbi could then be used as currency for international purchases and sales. Chinese businesses at some point could in fact require that they only pay invoices in renminbi or accept renminbi as payment. As soon as international oil starts getting priced in renminbi, the US businessman and consumer will be hurting. The dollar, as a fiat currency, would surely not fare well in the currency market against a gold based currency from a growing superpower nation.

[Know Common Cents]

Well, a couple more downgrades of the US economy and the Yuan keeps getting vaulted forward in this regard. This could happen if Standard and Poors initiates another drop or (more likely) Fitch or Moody's piles on with their own downgrade.

For quite awhile, the Chinese pegged their currency to the US buck. I believe the rate was something like 8.26 to the dollar. Now it's about 18-20% stronger and in the 6s. Heard on CNBC Asia last night the Yuan appreciated 0.7% against the US buck during the month of July alone. This is bound to affect the Wal-Mart crowd as the Chinese imports are ticking upward in price.

Just about zero chance that the US will even consider backing its currency by gold or even silver. China has been making huge gold purchases. They're smart and calculating people. I think that partial gold backing of their currency is a distinct possibility.

[inflationhawk]

I find it far easier to believe that the Chinese could/would create a gold backed currency too. It's a great means to an end of creating a world reserve currency. The US government seems to have little incentive to go to a gold backed currency. They have consistently proven how difficult, if not impossible, it is to balance a budget. With a gold standard, they wouldn't have a choice. Why would they put themselves in that situation when they already have a world reserve currency? They'll keep the fiat dollar until it's status as world reserve currency is lost, only then when the repercussions are felt will the US even consider a gold standard.

[Hawkeye]

That definitely looks like the direction in which we are heading. And, with the idiots we have in Washington running the show, we seem to running as fast as we can in that direction. My question is this- how long do you think we have? I know that the pieces are already starting to come into place, but how long until it actually happens?

[John_doe]

So if China wants to make the Renminbi currency a world reserve currency to displace the dollar, exactly how would it get there? One path I see is for the Chinese to stop buying US Treasuries and start buying gold. They then could have a gold standard based currency if they would allow exchanges of their currency for gold.

This currency would be widely accepted if it were based on gold. There are still some concerns the Chinese government could unilaterally change the gold ratio to renminbi or revoke it's gold backing...they are communist after all and the power rests with a corrupt few. The Chinese government would also have to open their currency to allow foreign ownership. However, a gold backed renminbi could then be used as currency for international purchases and sales. Chinese businesses at some point could in fact require that they only pay invoices in renminbi or accept renminbi as payment. As soon as international oil starts getting priced in renminbi, the US businessman and consumer will be hurting. The dollar, as a fiat currency, would surely not fare well in the currency market against a gold based currency from a growing superpower nation.

This is exactly what they are doing. They are dumping treasuries and buying gold/silver/copper.