Saturday, March 29, 2014

China, Germany to build yuan center

China continues working on Plan B to bypass the US dollar while we wait to see what happens at the IMF. Germany and China announce the opening of an offshore yuan trading center to "allow the clearing and settlement of yuan trades in Frankfurt."

We have mentioned here that we think the BRIC nations (led by China) will continue to work on a Plan B they can implement in case the reforms at the IMF bog down. There is really no reason for them not to proceed setting up institutions and trade deals that bypass the US dollar. Whether they gain more power within the IMF or not, they can set themselves up to operate independently of the US dollar going forward. They gain leverage to pressure IMF reforms as well as they prove they can operate outside the US dollar dominated system.

If the IMF reforms are approved, the yuan will probably be a part of whatever basket of currencies may be included in a new global reserve currency (that replaces the dollar). If the IMF reforms are not approved, they just move forward on their own. That might slow down the process of the US dollar losing sole reserve status, but they are patient.

Either way, the balance of economic power continues to shift over time which we think will lead to a loss of sole global reserve status for the US dollar as more and more global trade takes place without using the dollar. Especially as the energy trade increasingly bypasses the dollar. We think all this is part of a process that will lead to major monetary system change.

Here are a few quotes from the article:

"Beijing and Berlin agreed to launch an offshore yuan trading center on Friday as President XiJinping visited Germany on the third leg of his European tour.
The central banks from both countries (the Bundesbank and the People's Bank of China) signed a Memorrandum of Understanding in Berlin to allow the clearing and settlement of yuan trades in Frankfurt.
It forms part of a series of deals the two countries signed on Fridaywhich sources say could be worth billions of euros. China will also set up a consulate in Duesseldorf.
The trading center will be a "great facilitator for both China-Germany trade and China-EU trade",said Meng Hongan expert on Germany at Renmin University of China."

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