June 1, 2012
New York City
This week saw yet another move from the Chinese government to internationalize its currency and eventually overtake the dollar.
The latest? Direct foreign exchange between the Chinese renminbi and the Japanese yen. In other words, when the two nations trade, they’ll no longer need to use the US dollar as an intermediate currency.
China is Japan’s largest trading partner… yet a massive 60% of their mutual trade right now is transacted and settled in US dollars. When Honda in Japan buys supplies from a Chinese company, the two would ordinarily close the deal in US dollars. Until now.
This is just another of the many, many signs of increased internationalization for China’s renminbi. Others we’ve seen just in the last year include:
– direct currency swaps with many of China’s trading partners
– plans for other countries to issue renminbi-denominated sovereign debt (Indonesia)
– multinationals issuing renminbi-denominated bonds (Tesco, HSBC)
– ease for foreigners to open renminbi bank accounts (Bank of China in New York City)
Bluntly, the writing is on the wall for the dollar’s gradual displacement… and several years from now when the dollar’s share of global reserves becomes a minority, it will all have seemed so obvious.
The world’s favored reserve currency has frequently changed throughout history; from the Greek drachma to the Byzantine solidus to the Venetian ducato to the British pound, reserve currencies have fallen out of favor as the market loses confidence in the issuing government.
The same thing is happening now for the United States– the market is losing confidence fast in the dollar and desperately seeking an alternative.
Don’t be fooled by 10-year Treasury yields below 1.5%. This is not a vote of confidence in the United States government… but rather the single most important indicator of how ridiculously absurd the debt-laden, fiat-based financial system has become.
Holding precious metals in this environment continues to make a lot of sense, notwithstanding the constant drummings from Messiuers Warren Buffett and Charlie Munger.
I’ve long been a strong advocate of storing physical gold overseas; insolvent governments routinely resort to plundering the wealth of their citizens, and it would be no surprise to see a return to gold confiscation or criminalization once the mania phase hits.
If you already have gold and want to move it overseas, however, this can be a difficult task.
Our friend Tom is the poster child for this; he was thrown in a Mexican jail for several days for failing to file the appropriate customs forms for his gold coins even though he was only in transit through Mexico on the way to Panama.
I always recommend going with a professional service like ViaMat to move precious metals abroad. There are some things that are simply worth leaving to professionals.
But if you want to move gold overseas (Hong Kong and Singapore are excellent storage locations), here are a few resources you can check out to review customs rules:
Have a great weekend.