The Bernank said gold\slv are not money...The Chinese disagree, who would you bet your money was telling the truth..????
Greenback Vs. Redback:
http://www.youtube.com/watch?feature=player_embedded&v=v3Oqnbd2aVQ
What if China moved to a gold-backed currency?
With all the news about China buying up precious metal like they were going out of style and the latest news about China also moving toward the Renminbi as a reserve currency instead of the dollar, I had the thought - what would happen if China moved to a PM backed currency?
Would it necessarily kill the dollar? Would it make China the new 'de facto' standard world currency? Could it somehow help them protect their own position being such a large holder of our debt?
The World's Very First RMB Gold Contract
For the first time ever, China is offering convertibility between gold and their own currency, the Renminbi. To understand the symbolic importance of this, let's first give a bit of background and context.
Gold, as with most other commodities, is commonly priced around the world in US dollars since it currently acts as the world reserve currency—a relic of the Bretton Woods System established after World War II to restore order to the global financial system under America's newly recognized economic and financial strength. In order for other nations to agree to this US-centric based system of finance and global trade, however, there was a stipulation made to enforce responsibility on the US to maintain the dollar's value by allowing other nations to freely exchange their dollar holdings for a fixed amount of gold. That is, the US dollar was directly convertible into gold.
For the most part, this would ensure against temptation by the US to corrupt its newly acquired power by simply printing money to pay off its international debts, something a non reserve-currency nation wouldn't be able to do for very long. Unfortunately, as with many other nations before it, the US eventually succumbed to the power of the printing press to finance its large deficits and before a subsequent run on its (gold) bank took place¹, President Nixon broke the international agreement, essentially defaulting on its debt by "closing the gold window", allowing us to continue printing money ad infinitum to pay off our debts.
Today, only forty years later, the consequences of such a decision are a dollar that has lost over 81% of its value, a 460% increase in inflation, and a national debt that has grown from $398 billion (in 1971) to $14.8 trillion—a 36-fold increase!
This massive increase in debt alongside a dollar losing most of its value has accelerated attempts by foreign nations to find a replacement. At first it was thought the euro would be the one to deal the final death blow to the USD's failing reserve status, but financial problems in the Eurozone have cast much doubt upon such a near term contingency plan.
Enter the Renminbi
The direct conversion between gold and China's currency is both a strategic and highly symbolic move. As I said in the beginning, most commodities, including gold, are currently denominated in US dollars; with gold the symbolic measure of a currency's reserve status.
If China can successfully unseat the US dollar from its golden throne by establishing a more attractive gold-RMB link, it will have shown it can succeed in doing so in any other commodity—a major step toward world reserve status. Whether this happens quickly or as a slow transition over time largely depends on the financial, economic, and military strength of our two countries moving forward.
Keep in mind, however, the stakes are very high for the US and such a transition won't be taken lying down. As explained by Barry Eichengreen in Why the dollar's reign is near an end:
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US at war with countries moving to Gold Standardby anthonyc31331 views
I was wondering what i should do with my fiat next month
I think i will buy some more gold
VicariousReality7 1 month ago