Tuesday, January 06, 2009

Chinese yuan set to replace dollar

Beijing has launched the experiment of using the yuan as a reserve currency in relations with 8 countries. Chinese exporters are asking to charge in yuan instead of dollars, because the U.S. currency is losing value. But China needs to revise its model of development, too much inspired by eighteenth century mercantilism.

While the comments of economic observers have focused on what is happening to U.S. public debt and to financial markets overseas, the news media rarely mention what is happening in Asia, almost as if there were not a strong correlation between the two phenomena. But it is logical that a substantial accumulation of foreign exchange reserves in China, Japan and throughout Asia corresponds to an unprecedented supply of dollars, the global reserve currency.

But Asia now understands that the increase of money supply decreases the intrinsic value of a currency. That is why China is seeking a possible and rational attempt to decouple Asian currencies from the dollar, as recent news stories report [1].


Continued: Chinese yuan set to replace dollar

Hat tip Jerry for link!

1 Comments:

At 1/06/2009 12:21 PM, Anonymous jerry said...

Listen to this radio program with an interview with James Fallows regarding China and how it builds its wealth and how it manages its foreign currency wealth.

http://www.npr.org/templates/rundowns/rundown.php?prgId=13

 

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