As China lobbies for the Yuan added to the SDR basket of reserve currencies, we can’t help but wonder what the consequences will be for Americans if the Chinese successfully complete their plans.
From L Todd Wood, for Birch Gold Group
Donald Rumsfeld famously said during the stressful times after 9/11, “…there are also unknown unknowns. There are things we do not know we don’t know.” This is the world the global financial system finds itself in today. The stability of the U.S. Dollar based system is breaking down. A new financial world order is taking its place.
It has been widely reported that China has made a big push to add the Renminbi, or yuan, to the International Monetary Fund’s Special Drawing Rights (SDR) basket of reserve currencies that is used to value global monetary assets. Last week, the G7 met to consider this issue among others and concluded that while a technical review must be completed first, the yuan’s addition in the SDR “is desirable.”
What the world really doesn’t understand is how this change could affect the global financial system and trading markets.
It is a safe bet that the U.S. Dollar and other Western currencies will hold less sway. This is the first emerging market currency to be added. This means the BRICS will gain financial power over decisions regarding the allocation of global capital.
Is this a good or bad thing for Americans?
I think one of the most critical ramifications that many in the financial and political system are not considering or talking about, is the risk that Chinese business practices will be allowed to creep into the system. One of the main reasons Western economies have been so successful is the foundation of the English rule-of-law, and how we deal with corruption. Yes, there is corruption in the West, but there is a system in place to deal with it and keep its effects muted. And the great thing is, for the most part, it works!
In emerging markets, corruption is rampant. How will allowing China more control over global capital help if this is the case? The jury is still out. If more money is sloshing through Chinese banks and more transactions are denominated in yuan globally, could some of this corruption make its way to the West?
China also doesn’t have a good history of promoting global peace and stability. Recently, for example, they’ve been making a fuss about their claims in the South China Sea. Let’s say they don’t get what they want: If they were able to control more of the global economic system, could they try to blackmail the rest of the world financially?
America and West have made their mistakes but I don’t think an argument can be made that over the long term the West has been a force for geopolitical instability. The colonial days are over. China’s colonial days may be just beginning. Only last week, China threatened to shoot down Australian Air Force plans if they fly over the man-made islands China is building in the Spratly Islands.
It is with these fears that I consider the ramifications of adding the yuan to the IMF basket of global reserve currencies. We just don’t know what bad effects may be headed our way. We don’t know what the Chinese are thinking and plotting.
What are you to do in the face of all of this uncertainty and “unknown unknowns”? If you too feel uncertain about the future, you may want to move some of your savings into physical gold and silver. When all else has gone bad, as other currencies have risen and fallen, gold has remained the one constant. When you’re ready to get started, we’re here to help.
If you’re ready to learn more about how to protect your savings, check out this video in our YouTube channel.