Was letting the mind run free the other day, thinking on the "current state of the world" (yes, I know - dangerous!) and a thought stuck its head up. We all know China is stacking gold (and probably silver). In fact, China and its citizens have just purchased lots of physical gold. They're selling some back as Pandas and Lunars and other coins and the mintages on those have been increasing, showing an increasing capacity to stamp pretty designs on pretty metals. What if the Chinese have decided to split their economy into domestic and international, using gold and silver money for domestic (call it Good Yuan) with a varying exchange rate for the international (call it Junk Yuan) that they use to trade with the rest of the world? They can "revalue" the internal currency, smacking inflation and debts down, while still keeping the Junk Yuan weak to help their trade. The control over the exchange rate between the two means inflation can't be imported. AND they can print as much Junk Yuan as they want without stuffing up the internal economy or accept as much USD as necessary (thus reducing the impact of Uncle Ben's presses on their internal economy). They can't unilaterally introduce a gold-backed currency for international trade because Gresham's Law would apply. They could introduce it into trade between themselves and Brazil et al but, again, there'd be problems. Naturally, the export (or removal from the PRC) of Good Yuan would be an economic crime against the People with the death penalty as the sanction for being caught. What does the Stacker community think? Is it possible? Feasible?
I'm trying to find if any other nation has tried similar currency arrangements/schemes before, to see what problems and issues they faced. Obviously there was the German 'Gold Mark' vs. 'Paper Mark' before World War One...and we all know how that went after the Treaty of Versaille. The closest contemporary example to this I can think of is the 'Cuban Convertible Peso' which is more-or-less pegged 1:1 to the US Dollar. Its circulated only in relatively low volumes mainly for domestic use by U.S tourists in Cuba. Obviously Cuba is nowhere near as large or export-oriented as China so I do not think this is a valid comparison.
According to Stephen Leeb, author of Red Alert: How China's Growing Prosperity Threatens the American. The Chinese Govt. is likely to introduce a gold backed currency in the future. http://www.youtube.com/watch?v=SiksOJE0r9g Listen from 13:00 onwards. (23:50 regarding a gold backed yuan)
@SilverPhoenix - you seem to be onto something. Read today that the French are keen for a deal with the Chinese.
Wonder if that has anything to do with the "lack of co-operation" of their German "allies". The French banks are into EU debt in a big way and the Germans keep refusing to let them leverage that rescue fund. Add that to the need to "put the question" to the German people for rescue type stuff in future and that leads to uncertainty. The French must be getting desperate.
China has traditionally used a silver based economy for a lot of its history (pre1900s). It has only been in recent times, since the formation of the Republic (about 90years ago) that silver was replaced by fiat. With the colonial powers forcing the Chinese people to accept drugs (opium) as payment (instead of silver) as well as many other factors, the silver based economy was destroyed. It will be interesting to see what the repercussions of reverting to a gold based economy might be like, and if the current world powers will allow this to take place.
China is rolling out the Pan Asian Gold Exchange (PAGE) which will, in effect, start internationalizing the Renminbi, but only so far as it is tied to gold. I do see the potential for this to transition to backing the Renminbi with gold properly.
I thought linking your currency to gold was banned by the Masters and attempting to do so would get your country invaded/liberated/normalised and the Freedom Fighters/Rebels/Communists pacified and your leader/dictator/puppet/ gunned down/die in custody/fight to the death until the currency market settles down again
Would be interesting to see NATO and the USA and any UN forces that could be gathered (if the PRC doesn't veto the discussion in the Security Council) take on the PRC. Taiwan would feel the dragon's fist first.
Nah, too much love and capital between Taiwan and the PRC for missiles to start flying... Japan would be the more likely candidate. There is currently so much economic trade and cooperation between Taiwan and the PRC, it benefits only the foreign warmongers if a shooting war were to break out between the two. No one forgets that the PRC and the Taiwanese people are also blood related... nobody in Taiwan or the PRC wants to go back to a war where you are shooting your own flesh and blood. One of the biggest foreign investors in China are the Taiwanese. Give the Taiwanese another 20years, and they are likely to become much more aligned with China, as they have already started shifting towards that position. Especially if Ron Paul gets elected as president, the USA is likely to shift towards less overseas interference, the withdrawal of their military bases in Taiwan, which is likely to benefit a PRC -Taiwan relationship. If a shooting war were to begin, it would probably start between the PRC and Japan... lots of bad blood between the two (historical foes from way back), some unforgiven sins (E.g. Rape of Nanking) and unrepentant actions (E.g. Enshrining the generals who committed the atrocities)... but even this is unlikely, so much cross border trade takes place that it benefits only the war industry. The PRC is happy to let some investments get bombed (E.g Libya), as long as they can maintain their growth. I think, if the trend keeps continuing, give the PRC a few years, and they'll be the undisputed economic superpower. Once that happens it is just like a game of Starcraft, the guy with the most minerals usually wins.
