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Dawn of Asia Magazine
The Internatinalization of the Chinese Yuan (2012)
The Fallacy of the US Dollar (2011)
Faces Behind the Label (2010)
Stop The Buck - The RMB Should not Rise (2010)
The Speed Of Money (2009)
Marginalized Migrants in China (2008)
Minority Peoples Groups (2004)

 

 The Fallacy of the American Dollar

                                                                                                        by  Chuck Chan, Consultant

The US Dollar continues to give pressure against major world currencies by printing more and more money and adopting a lax monetary policy.  Inflation pressure continues to build up inside the US and at the same time shipping some of the inflation pressure to other countries such as China, Japan, India, Russia and Brazil. 

After the global financial crisis in 2009, the monetary policy of the US has been working towards the increase of money supply to booze its crumbling economy.  Deficit financing has become an heavy burden to all American.  The real purpose of deficit financing is to invest interest and wealth into the hands of our own people. But the madness is, deficit financing falling into the hands of foreign countries like China, Japan and Germany, the United States government will gamble away wealth into the hands of foreign governments. 

China is undergoing pressure to appreciate its value of the Yuan.  If the Chinese currency is going to rise against the US dollar at this current rate, it will suddenly create a short term bubble in China’s economy.  Hot money will continue to pour into China from other foreign countries.  The question is: the balance of payment between these two countries.  China’s export cost will increase and the cost of imports will decrease.  China will continue to combat competition and inflation by slowing import growth; but with the pressure of the rising Yuan, this tactics will not benefit China as well as the rest of the world.  Instead of pushing the Yuan to rise, the developing countries should join hands together t0 cooperate to push the US dollar to rise for the benefit of the international economy.

At this moment, the rise of the US Dollar in fact will really help the US and salvage the global economy.   The higher import price will cause an inflational pressure for the US.  Although the export commodities will create a competitive edge for US manufactured products; but most of the products in the US are now produced in foreign developing countries such as China, India, and Central America etc. These products would also suffer from similar inflation pressure as they are exported back to the US. 

At this juncture, the author predicts more and more countries will unpeg from the US dollars as the US continues to play this continuous game of inflation.

The BRICS countries - Brazil, Russia, India, China and South Africa – the world’s 5 largest developing nations have already come together to form a coalition to call for a financial reform of the international financial system which has been mostly dominated by developed nations.  By calling for a substantial shift in voting power in the IMF and the World Bank, these nations will form a basket of currency standard for the global economy.  The core of the matter is whether the world would continue to finance the falling US economy.  Some of them have no choice because the major nations of the world are holding onto trillions of US Treasury Bills and currency.  If they are holding another currency or another standard such as gold or BRICS, which has more solid financial backing, would they be able to get out of this financial crisis?  1

 “BRICS nations' combined GDPs accounted for 18 percent of the global GDP in 2010 as their combined population accounted for 40 percent of the world's total. Trade volume of BRICS countries has also shot up year to year, with an average annual growth rate of 28 percent from 2001 to 2010. The total volume of trade among BRICS countries reached $230 billion last year.” 2

 It is about time to change the dealer of the game! China will continue to promote its currency as an international trading currency.  Whether the world recognizes it or not; the neighboring countries are currenty setting up bi-lateral trading agreement with China’s Yuan for settlement of their contracts.

 

1. Chinadaily.com.cn 4-17-2010

2. Chinadaily.com.cn 4-12-2011