The Chinese central bank, People’s Bank of China, issued a press release announcing the authorization of direct trading between the renminbi and the euro on the inter-bank foreign exchange market.
This is huge. The euro is the second most traded currency in the world, after the US dollar. The European Union is already China’s biggest trading partner and this is a major step in further increasing trade and investment ties with the EU as there is now a direct exchange rate between the two currencies, without the need to use the US dollar as the conduit.
The renminbi is quickly marching down the path of internationalization as the Chinese currency is now directly exchangeable with the US dollar, euro, Australian dollar, New Zealand dollar, Japanese yen, British pound, Russian ruble, and Malaysian ringgit.
The use of renminbi in international trade settlement nearly tripled in value worldwide over the past two years according the The Society for Worldwide International Financial Telecommunications (SWIFT), and over one third of financial institutions around the world already use renminbi for payments to China and Hong Kong.
This is another sign of how the system is changing. And it’s a major one. As the following chart from Deutsche Bank clearly shows, the last two centuries or so of Western domination in the global economy is nothing but an anomaly on a long timeline of history.
China and the Indian subcontinent have always been the two major population centers of the world, as well as global economic powerhouses. Spectacular Chinese decline over the course of the 19th century was a result of an archaic state of the Chinese society, as well as its unwillingness to open up and adjust to the world that has clearly changed with the advent of the industrial revolution and the first major wave of globalization.
This resulted in the British Empire being propelled to the top spot as the world’s superpower. World Wars changed that and the United States became the undisputed top dog in the 20th century.
Now, this historical anomaly is being rectified and China is again reclaiming its spot in the world, with the Chinese currency following suit.
For anyone following this trend closely, this is a very exciting time to be alive. Major changes like this happen rarely; perhaps every hundred years or so. And these changes offer incredible opportunities for those attuned to them, and a tremendous amount of turmoil for those ignoring the trend.
Javier on Fri, 10th Oct 2014 8:31 am
This is really interesting, but frightening too. Today the power of USD as an international currency is undisputed, and its value is tightly linked to this fact. The day that USD will have less importance as a currency, there might be a huge collapse of the international economy, something much alike 2008.
Makati1 on Fri, 10th Oct 2014 8:49 am
We are fast approaching the hockey stick moment on the graph of countries bailing from the USD.
JuanP on Fri, 10th Oct 2014 9:07 am
History buffs know that China was the world’s largest economy for 19 of the last 20 centuries, and for thousands of years before that.
It was only in 1876 that the British became first, to be replaced by the USA about a hundred years ago. That was the American Century, but now that is over and we are back to normal with China officially the largest economy again according to the latest statistics.
Of course, we all know that both the Chinese and American economies are a house of cards and it is impossible to determine which of the two is more malinvested.
The world is preparing for the continuing inevitable occurring dollar decline, and so should you.
Davy on Fri, 10th Oct 2014 9:46 am
China is a hollow dragon. I could bore you with a long list of reasons China’s economy is a farce and a dagger in BAU’s heart. China is a cancer of growth when what we need now is degrowth. They are destroying the climate and their ecosystem. If that was not enough both consumption and population is growing in China and Asia. No need to balance that China tirade with what is wrong with the US because the anti-Americans here will fill up this board with what is wrong with America. Much of that is true. Yet, there is significant unbalance and unfairness being ideologue and propagandist. I will continue to expose the problems with China and the others to bring balance to this board. Call me a flag waver if you like. I was never popular except with family and friends. I am not quite right mentally but I am able to smell cat piss.
penury on Fri, 10th Oct 2014 1:10 pm
Davy, I agree that China is not all powerful. But, I prefer to look at it from the otherside. How many nations have entered agreements to trade in local currencies rather than use the American fiat in just the last four months? With the shrinkage in the use of the dollar in global trade, calculate the cost to the U.S. from that loss. Everyone currently is cheering the strong dollar. However, check what that will do to dis-inflation on imports. Economics is also a form of warfare, always follow the money.
Davy on Fri, 10th Oct 2014 1:36 pm
Pen, there is the otherside of the reserve currency issue that shows a net negative for a signifcant portion of the economic participants in the US economy i.e Main Street. Mind you there are allot of positives but overall the dollar as a reserve currency has benefited the wealthy. I see a net benefit of a dimminshment of the dollars significance as a reserve currency for main street by hindering the wealthy in their wealth transfer activities. It is such a polarizing idealogue issue here and in the media. This is the case because few understand the deeper significance of having a reserve currency on both sides of the equation. I welcome dimminshment of the dollar and throw cold water on the hacks cheering the dollar either way. The dollar will remain relatively important in the world financial system until a collapse of the current system. The same is true for the US economy that is tied for top spot with China. Being top dog is deceptive. Both China and the US have deep financial issues that need to be weighted into both economies level of importance.
Makati1 on Fri, 10th Oct 2014 8:43 pm
Davy, all of your fancy words don’t change the fact that the world is dumping the dollar as fast as it can. There is NO positive side to the demise of the USD for Americans. None. There IS a great benefit for the rest of the world. Freedom from financial terrorism by the USSA being the main one.
The dollar can shrink to a small percentage of trade without crashing the system. That alone would reveal the USSA for the 3rd world country it already is.
The true elite have their wealth in real things, not paper. The ‘wannabee wealthy’ will be the losers as they have their ‘wealth’ in paper, like the Market Casino and most Westerners with 401ks, mortgages, etc.
I hope the change is fast and furious. It will be interesting to watch. Maybe even turn hot and nuclear. We shall see.