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China and the Dollar’s Global Reserve Currency Status
In 1993, U.S. News & World Report invited politicians, business leaders, academics, and others from around the world to submit questions that they believed would be vital at the end of the next 60 years for inclusion in their 60th anniversary edition. Presidents of major universities were asked to encourage their faculty to participate and many of them did including the president at the University of Virginia where I taught.
As a strategy and leadership professor, I decided to submit a question that I knew would be important, but I really didn’t know when it would become important. It had to do with China. This was my question: “How can the United States ensure that it is granted most-favored-nation trading status with China which will be the world’s lone superpower?”
I realized that China was on a trajectory that would enable it to surpass the United States economically and that there is a close connection between economic and military prowess. It wasn’t that China’s economy was setting records at the time, but China’s leaders were committed to economic development and U.S. leaders were more concerned about eating the seed corn. It due course, it was obvious to me that our lackluster performance by comparison would catapult China to the prized status that they were seeking.
It didn’t take 60 years for my prediction to come true. It’s happening now, and only 20 years have passed. The editors at U.S. News & World Report must have realized that I was on the right track because they published my question. It appears on the same page with questions submitted by Ronald Reagan, Hillary Clinton, Mikhail Gorbachev, Helmut Schmidt, and Oliver Stone to name just a few.
China’s rise is of utmost importance and at this very moment China’s leaders are positioning their country to usurp U.S. global hegemony. According to yesterday’s Catholic Online,
The Chinese and Australian move to oust the U.S. dollar as the world’s reserve currency gained full steam over the weekend with Australian officials agreeing to start making direct currency exchanges with China.
This will ultimately harm the U.S. economy, although only slightly in the short term. In the long run, as other countries join Australia, it could unseat the U.S. dollar as the world’s reserve currency.
The U.S. dollar has been the world’s reserve currency since the end of World War II, when it was made such by deliberate international agreement. As reserve currency, most international exchanges are made with the U.S. dollar. This requires foreign traders to convert their money to U.S. dollars to enter the market. When cashing in their profits to spend at home, traders must usually exchange their dollars back into their native currency.
Australia isn’t the only country joining hands with China. A few days ago, Brazil and China agreed to a $30 billion currency swap that is aimed at achieving the same objective, and a few months ago, China made a move to begin buying oil from Iran with yuans:
Iran’s yuan-for-oil payments won’t catch on, yet. Tough sanctions from the United States have pushed the Islamic Republic to accept the Chinese currency as part-payment for crude exports to the People’s Republic. But while the yuan should play a bigger role in the world’s energy settlements by the end of the decade, Iran’s shift won’t be the catalyst.
It makes sense for China to use its own currency to pay for oil imports. The move transfers foreign exchange risk away from the world’s second largest oil consumer and supports the government’s long-term drive to establish the yuan as an alternative global reserve currency to the dollar.
For Iran, the yuan trade is more a matter of necessity than desire. Sanctions have made it hard to deal in freely convertible dollars or euros – the currency of Chinese oil payment to Iran since 2006 – so it has been forced to let its largest customer pay in its own non-convertible currency, just as it let India pay in non-convertible rupees.
I wrote about the importance of this issue in a blog for American Thinker in February:
As the dollar loses the protection provided by its global reserve currency status and countries are no longer required to stockpile dollars for oil trades, the dollar will rise or fall in value based on the strength of the U.S. economy. So will interests rates and inflation. Unfortunately, with deficit spending looming for as far as the eye can see and our debt burden growing more ominous every day, that doesn’t bode well for the dollar’s ability to compete on an even playing field.
Our government officials in Washington should have dealt with our debt and deficit problems before our economic situation deteriorated to a crisis point, but they didn’t and calamity is just around the corner. For example, our penchant for routinely spending more than we collect in tax revenue, subsidizing able bodied men and women who contribute virtually nothing to our economy, paying the bills of illegal aliens who should not even be in our country, and ignoring our burgeoning debt problem because interest rates are at historically low levels have the effect of weakening our economy at a time when we should be doing everything that is humanly possible to shore it up.
I’m not the only one ringing the alarm bell. According to David Stockman, former Director of the Office of Management and Budget (OMB) under President Reagan,
So the Main Street economy is failing while Washington is piling a soaring debt burden on our descendants, unable to rein in either the warfare state or the welfare state or raise the taxes needed to pay the nation’s bills. By default, the Fed has resorted to a radical, uncharted spree of money printing. But the flood of liquidity, instead of spurring banks to lend and corporations to spend, has stayed trapped in the canyons of Wall Street, where it is inflating yet another unsustainable bubble.
When it bursts, there will be no new round of bailouts like the ones the banks got in 2008. Instead, America will descend into an era of zero-sum austerity and virulent political conflict, extinguishing even today’s feeble remnants of economic growth.
It’s no wonder that Chinese leaders think that now is the right time to make a move on the dollar. President Obama doesn’t have enough economic sense to understand the situation. When he’s not vacationing, he’s telling the American people that the 1% of our fellow citizens who pay roughly 40% of federal income taxes aren’t paying their fair share while the roughly 50% of Americans who pay no federal income tax are being victimized. That’s ludicrous, but it sells well among the chronically ignorant.
Meanwhile, seemingly unbeknownst to President Obama, the U.S. faces imminent economic peril. When our economy nosedives and inflation and interest rates begin to soar, all of us will pay a high price for his incompetence.
This SnyderTalk editorial first appeared in American Thinker.
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Daniel 4: 34-35
“But at the end of that period, I, Nebuchadnezzar, raised my eyes toward heaven and my reason returned to me, and I blessed the Most High and praised and honored Him who lives forever; for His dominion is an everlasting dominion, and His kingdom endures from generation to generation. All the inhabitants of the earth are accounted as nothing, but He does according to His will in the host of heaven and among the inhabitants of earth; and no one can ward off His hand or say to Him, ‘What have You done?’”
- God also said to Moses, “Say to the Israelites, ‘Yahweh, the God of your fathers—the God of Abraham, the God of Isaac and the God of Jacob—has sent me to you.’ This [Yahweh] is my name forever, the name by which I am to be remembered from generation to generation.” (Exodus 3: 15)
- “Therefore behold, I am going to make them know—this time I will make them know My power and My might; and they shall know that My name is Yahweh.” (Jeremiah 16: 21)
- “Behold, the days are coming,” declares Yahweh, “when I will raise up for David a righteous Branch; and He will reign as king and act wisely and do justice and righteousness in the land. In His days Judah will be saved, and Israel will dwell securely; and this is His name by which He will be called, ‘Yahweh our righteousness.’” (Jeremiah 23: 5-6)
- Yeshua said to them, “Truly, truly, I say to you, before Abraham was born, I am.” (John 8: 58)
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Hosea 4: 6
My people are destroyed for lack of knowledge.
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Boaz Bismuth: Speaking the same language— South Korea isn’t taking North Korea’s threats quietly.
Uri Heitner: Learning the North Korean lesson— Obama must lead a strike on Iran’s missile bases and nuclear sites using the U.S.’s full power.
Ze’ev Jabotinsky: Newfound gas, think before we export— The right course of action for the middle and definitely the long term is not to export the gas at all for commercial purposes.
Hezi Sternlicht: Lapid: Be everyone’s finance minister— Yair Lapid has instructed his staff to ignore the national budget and focus solely on the middle class.
Ilan Gattegno: Waiting for the National Cyber Bureau to act— Putting up more firewalls is not the answer and simply gearing for major cyberattacks does little to prevent them.
Janet Tassel: To Hell with Christians—It’s a bad time to be a Christian in the Middle East. Even worse to be a Christian pastor.
Louis Rene Beres: Watching the clock— One wouldn’t think that a poem by T.S. Eliot could shed light on vital issues of nuclear strategy, but some- times we may learn unexpectedly by inference. For Israel, the still- impending nuclear dangers from Iran are rooted in chronology. In the fashion of Eliot’s Prufrock, their core urgency lurks in the inherently fickle judgments of time.
Michael Curtis: Speaking Truth to the Media on Israel: The Masharawi Case—An unlikely defender of Israel blows wide open the latest mainstream-media propaganda campaign.
Max Boot: The Untested Kim Jong-un—The latest crisis emanating from Pyongyang is almost enough to make you nostalgic for Kim Jong-il who died at the end of 2011. Sure, he may have been a murderous tyrant who lived the high life while his people literally starved—but at least he was predictable and conservative in his actions. Not so his callow son and successor Kim Jong-un, who appears bent on escalating tensions with South Korea, the United States, and Japan so as to consolidate his shaky legitimacy to rule the North.
Megan McArdle: Health and Human Services Secretary Doesn’t Understand What Insurance Is—Kathleen Sebelius thinks insurance isn’t really insurance unless it covers routine expenses. This is exactly backwards.
Fjordman: Importing Islamic Nightmares — While Denying Them—The horror caused by mass Third World Muslim immigration will not go away by censorship and self-delusion.
Kevin D. Williamson: Where Will the Money Go?—A few weeks ago, it looked like bank depositors in Cyprus might lose 10 percent of their deposits in excess of 100,000 euros. As of this morning, that is looking more like 60 percent. That the European economic-integration project is an unmitigated disaster is obvious to everybody except those who are professionally obligated to remain immune to the truth.
Richard L. Cravatts: Trying to Give Scholarly Respectability to the Right of Return Fantasy at Boston University—Seeming to give credence to Orwell’s observation that “some ideas are so stupid that only an intellectual could believe them,” on April 6th and 7th, Boston University will be hosting a Students for Justice in Palestine-run “Right of Return Conference,” yet another example of how purported scholarship about the Middle East is frequently biased and […]
Andrew Johnson: Comcast Balks at Gun Ads—But they’ll still run violent films.
Bridget Johnson: 5 Gun-Control Bills You Haven’t Heard of Yet—Sue the NRA for gun violence, get a debit card for your high-crime gun, let Holder shut down gun dealers, and more.
Clayton E. Cramer: Media Violence, Hollywood Narratives, and the Mentally Ill—The violent imagery problem that deserves a national conversation.
Thomas Sowell: Guns Save Lives—We all know that guns can cost lives because the media repeat this message endlessly, as if we could not figure it out for ourselves. But even someone who reads newspapers regularly and watches numerous television newscasts may never learn that guns also save lives– much less see any hard facts comparing how many lives are lost and how many are saved.
Victor Davis Hanson: America in the Age of Myth—In this mythical age, we all know that Barack Obama won the Nobel Prize, but none of us quite know what for.
Max Boot: Inside Obama’s Syria Paralysis—The Wall Street Journal had a long article this weekend on the Obama administration’s decision-making process with regard to Syria. You can read the whole thing here if you have a WSJ.com subscription. My takeaway is that the administration’s deliberations do not inspire much confidence. As Journal reporter Adam Entous notes, the “process has been slowed by internal divisions, miscalculations and bureaucratic inertia.”
Andrew C. McCarthy: The Claim that Awarding Purple Hearts to Hasan’s Victims Would Prejudice His Murder Trial Is Ridiculous—In reality, this shouldn’t affect the trial in the slightest. Unfortunately, the White House’s hacks at the Defense Department don’t seem much interested in reality.
Blessings in the Book of Revelation is a book that you need to read, especially now. There are blessings throughout the Scriptures but Revelation is the only book in the Bible actually containing a specific blessing for reading it. It’s repeated twice, once at the beginning and again at the end. This is the reason that I believe Revelation should be the first step toward studying biblical prophecy. Though not easy to do, Revelation can be broken down and understood by anyone, not just the academic elite. So, Revelation’s blessings are for everyone. Click here to order the eBook. Click here to order the paperback.
Other Books by Neil Snyder
- Stand! is a suspense novel that exposes the lies, corruption, and greed underlying the theory that man-made CO2 emissions are responsible for global warming. Professor Wes Carlyle and Karen Sterling, his research collaborator, carefully scan the audience for their would-be attacker—a member of the enviro-gestapo who has been following them for days. Wes spots his man in the back of the room leaning against the wall. Suddenly, another man in the audience steps forward and moves toward Karen at a menacing pace. With a vicious stroke, he swings a billy club at her head. Click here to order the eBook. Click here to order the paperback.
- What Will You Do with the Rest of Your Life? deals with a question that every Christian has to consider: what should I do with my life? Click here to order the eBook. Click here to order the paperback.
- Falsely Accused is a true story about a young woman who was accused of committing a double homicide. It’s about a travesty of justice, and it reveals Yahweh intervening in the life of a believer to rescue her from danger in the face of seemingly insurmountable odds. Everyone will enjoy the book, but young people in particular need to read it because the mistakes made that led to the problem could have been avoided. They were the kinds of mistakes that young people are prone to make. As they say, forewarned is forearmed. Click here to order the eBook. Click here to order the paperback.