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The Yuan Will Not Replace the US Dollar, Nor Will It Be Backed by Commodities

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55 comments on The Yuan Will Not Replace the US Dollar, Nor Will It Be Backed by Commodities

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Commodities backed by the Yuan image from a Tweet

New International Currency?

Let’s not confuse a diminishing role for the US dollar with it’s demise as the global reserve currency.

I Side with Pettis 

The discussion is the same as it has been for years. 

Pettis Concludes 

“China isn’t moving in that direction.”

It’s very difficult to say everything that needs to be said about reserve currencies in a Tweet without chain numbering 15 or more. 

What Would It Take for the Yuan to Dethrone the Dollar?

  1. China would have to float the yuan.
  2. End capital controls
  3. Respect property rights
  4. Have a bond market big enough (China has virtually no gov’t bond market)
  5. Inspire global trust
  6. Be willing to have trade deficits
  7. Stop export mercantilism
  8. Have a currency market big enough

Perhaps China meets condition 8. It flunks the first 7.

The irony regarding point one is the Yuan is pegged to the dollar! By pegged I mean allowed to trade in a narrow ban, not a precise point. It certainly does not float.

How many requirements does the Eurozone meet?

The Eurozone meets conditions 1, 2, 3, 5, and 8. Condition #1 in this case is float the Euro.

Germany and the trade surplus countries in general will not easily or willingly give up on points 6 and 7.

Arguably, the biggest holdup against the Euro is lack of a unified bond market.

Individual euro-denominated countries have sovereign bonds but they trade at different rates due to different risks. 

There is no single eurobond to speak of.

Alternatives

There are no alternatives. To be a legitimate alternative, a county has to meet the above 8 conditions.

This is why talk of the yuan replacing the dollar is complete silliness. 

I repeat these conditions every now and again. Those were clipped from my June 29, 2020 post What Would It Take to Dethrone the Dollar?

Silly Statements

“It is estimated that the system will be based on a new international currency that will be settled as participating countries’ local currencies and commodity price indices.”

Estimated by whom? 

What Country Wants Reserve Currency Status?

Lost in the debate is the simple fact that no county even wants to have the global reserve currency.  

Few understand these two points: 

  1. The Reserve Currency and export mercantilism are incompatible. 
  2. Even if another country wanted to have the reserve currency (no country does because of point one), the US is the only country that meets the sufficient conditions.

Regarding point one, please think of China, Germany, and Japan. 

Heck, every country in the world wants to be export giants like Germany and China. 

Of course, that is mathematically impossible. 

It’s important to understand that the US is the global consumer of choice because of reserve currency status.

Countries export to the US and accumulate foreign dollar reserves as a result.

The question at hand is not reserve currency status, but rather what foreign countries do with their reserves.

Weaponizing the Dollar

Global Currency Crisis

The Fed, likely under pressure from Biden, confiscated Russia’s dollar reserves after it invaded Ukraine.

I discussed the implications on March 9, in Unprecedented Fed Action May Have Just Started a Global Currency Crisis

Unmistakable Message

Team Biden just sent unmistakable message to China, Saudi Arabia, Russia, well actually everyone

  • We can make your fiat reserves worthless overnight
  • Buy gold
  • Buy base metals.
  • Hoard things you have everyone needs. 

The Fed has no authority to confiscate reserves. This was an illegal action, and there are implications.

The key implication is that people better think twice about fiat reserves than can be taken at will.

Yet, that still does not imply another currency supplanting the dollar.

Currency Based on Commodities Solves Nothing

Q: How does a “currency” based on commodities solve anything?
A: It doesn’t. 

Holding physical commodities, especially gold, is the only way to guarantee what you have will not be taken.

Thus, there are other major implications for what the US did.

US Sanction Policy Drives China Into Russia’s Loving Arms

Recall Trump’s ban on Hauwei 5G technology and chips to support it.

The US lost out on chip sales and android phones sales. China is now making chips and phones and supplying Russia.

For details, please see US Sanction Policy Drives China Into Russia’s Loving Arms

The Fed’s confiscation of dollars added fat to huge sanction and trade war fires started by Trump. 

Re-Thinking Dollars

Actions by Trump and Biden will accelerate a move to re-think holding dollars, even if no dollar replacement reserve currency is remotely in sight. 

For further discussion, please see A BRIC House and an International Dollar Default by the United States

If you think about the implications of what I just stated, there is a 4-letter word that is the likely beneficiary.

Here’s a hint: It begins with letter “G”. 

This post originated at MishTalk.Com.

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Mike Shedlock

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MountainMan
MountainMan
2 years ago
I thought that, throughout history, although there were other predominant currencies in the world, the US Dollar was the first and only reserve currency in all of human history (Bretonwoods?).
If so, how did nations trade before? Does the world really need a reserve currency?
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Treepower
Treepower
2 years ago
Seems people are struggling to distinguish between reserve currencies and currencies as reserves.  The pie chart of reserve currencies is dominated by the dollar and that’s unlikely to change for all the reasons you just gave.  However reserve currencies are a slice of a bigger pie – total reserves.  Currencies presently dominate that pie hugely, with PM and commodities only making up a small slice.  That is the pie which is going to change, thanks to debasement and the Fed’s confiscation.  Currencies as a share of total reserves are going to be usurped by commodities, regardless of the composition of the currency pie.
The whole yield curve is shifting upwards, regardless of slope.  QT is going to hurt yields, so will the deficit and as a bonus the Chinese will now be selling USTs because…Russia’s confiscation.  I see 10 year USTS above 4% by Christmas, 6% by 2024.
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KidHorn
KidHorn
2 years ago
No one is seriously saying USD will lose reserve state overnight. It will be gradually chipped away. The move by the Saudi’s is to sell oil to China in exchange for Yuan. It means the Saudi’s will have fewer dollars to buy US debt or goods with. And more to buy Chinese stuff. Will it cause a collapse in USD? No. But it will chip away at it.
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FrankieCarbone
FrankieCarbone
1 year ago
Reply to  KidHorn
Too fast and even the dumbest Mur’can (that includes surgeons, engineers, lawyers, etc..) will figure out that “sumpting ain’t right”, forcing them to put down the remote and stop watching “The Real Housewives of New Jersey” for a few minutes and that might cause a collective national temper tantrum, possibly even riots. So yeah, I think your spot on here KidHorn. Slow motion, controlled crash landing is in the best interests of our aristocracy and their enemies, lest the enemies of The American Aristocracy be accused – hypocritically so – of engaging in economic warfare.
Our problem (meaning those of us that actually read books) is that most Mur’cans are so horrendously mal educated and ignorant that even if the dollar did collapse overnight, that while they would sense that something horrible just happened, they wouldn’t have a clue to understanding what happened and how it occurred.
And we all know that The Narrative would hammer the message that “Putin is responsible” and that’d be good enough for them. If you can’t put it into a sound bite or talking point then it’s TMI. Plus, you gotta phrase things in black and white: Good vs Evil, Democrat vs. Republican, yada, yada, yada… Whether it’s factually accurate or not doesn’t matter.
Sad state of reality in this nation. It really is. Same idiots who elected Trump, then Biden. Let that sink in for a minute.
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blacklisted
blacklisted
2 years ago
Why do you believe govt cannot confiscate gold, AGAIN?
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Dr_Novaxx
Dr_Novaxx
2 years ago
Reply to  blacklisted
Are you referring to FDR’s Executive Order 6102 in April of 1933?   They didn’t confiscate gold, they only made it illegal to hold more than a few ounces.  Despite hefty fines and threats of long prison terms, the US Government did little to enforce this “confiscation.”  And neither will they do anything in the future to confiscate because it would be like trying to tame the wind, and unleashing a whirlwind as a result.
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Dr_Novaxx
Dr_Novaxx
2 years ago
Reply to  blacklisted
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blacklisted
blacklisted
2 years ago
The transition to China being the economic center of the world is a process, not an event. Armstrong has been forecasting this process will be obvious no later than 2032. I would not bet against Socrates, especially when we are seeing the West cutting off it’s nose and shooting itself in the foot and head. 
Some believe this trend can be stopped. I would tell these people to look at the WEF board, the massive number of companies that are on board with the WEF agenda, the “Young Global Leaders” graduates, and the infiltration throughout the world by the WEF.
Western govt’s have been sold on the WEF’s debt default plan, because they believe this will maintain their perks and power (versus the real solution of downsizing govt, and doing debt-equity swaps to restructure govt). 
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ZZR600
ZZR600
2 years ago
The US$ did not emerge as a reserve currency overnight, nor will it’s replacement. Maybe no alternative currency currently meets all the 8 points mentioned that are required for reserve currency status, but arguably the US$ no longer meets points 3 & 5 (property rights and trust)
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Democritus
Democritus
2 years ago
China and property rights? I saw pictures of highways and buildings being built around houses that some owner refused to sell… Maybe it’s not that bad over there.
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Jackula
Jackula
2 years ago
One issue for China is they hold a bunch of US debt, so much that its their problem plus its needed to balance trade flow. Not to mention the west is where the bulk of their produced goods are sold.
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GodfreeRoberts
GodfreeRoberts
2 years ago
SDRs, Special Drawing Rights, are Keynes’ Bancor reincarnated.
A synthetic currency whose value derives from a global, publicly traded basket of currencies and commodities .
Immense beyond imaging, and stable as the Pyramids.
Everyone gets a seat at the table and a vote.
What’s not to like?
After China’ PBOC helped the US Treasury through the GFC, here’s what happened (and what will, for real, happen in two weeks):
2009 PBOC: “We want SDRs”
2012 Beijing values RMB in SDRs
2014 IMF’s first SDR loan.
2016 World Bank’s first SDR bond
2017 StanChart’s first commercial SDR note
2019 Central banks restate currency reserves in SDRs
2022 Russia China to announce new reserve currency Apr 1.
Hint: Imagine a synthetic currency whose value derives from a global, publicly traded basket of currencies and commodities.
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Esclaro
Esclaro
2 years ago
Gold? What a joke. Gold is in the toilet being flushed at the moment. 
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FrankieCarbone
FrankieCarbone
2 years ago
Reply to  Esclaro
Do you ever look at the weekly or monthly charts Eslaro? 
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Esclaro
Esclaro
2 years ago
Reply to  FrankieCarbone
Over the long term it is up about 10% for the past year and 56% for the past five years but these returns pale next to the returns in the stock market. The problem with gold is the PPT and the bullion banks will never allow it to find it’s true value in the market. They use paper gold trades to drive the price down periodically. It’s a rigged market.
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MountainMan
MountainMan
2 years ago
Reply to  Esclaro
In reply to “they use paper gold trades to drive the price down periodically. It’s a rigged market” I have to think that they do it now, because they can.
Wait for the political/geopolitical winds to change and, chances are, either it cannot be manipulated anymore or someone else will be manipulating it and, maybe for the new manipulator, a higher gold price is a better proposition.
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Maximus_Minimus
Maximus_Minimus
2 years ago
The main force in human society is inertia i.e. laziness for change. That’s why the dollar will be declining but ever so slowly, then suddenly.
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Jmurr
Jmurr
2 years ago
The US government respects property rights?
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Mr. Purple
Mr. Purple
2 years ago
Reply to  Jmurr
Think “tallest dwarf.”
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FrankieCarbone
FrankieCarbone
2 years ago
Reply to  Jmurr
Yes they do. They respect the right to take your property for any excuse whatsoever. 
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Dr_Novaxx
Dr_Novaxx
2 years ago
Yep, Yuan ain’t a gonna cut it.  What about the Bancor that old John Maynard Keynes proposed at Bretton Woods?  
Is there a global Central Bank Digital Currency in the works?
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Mike 2112
Mike 2112
2 years ago
Nowhere is it written that there can only be one alternative to the dollar.
The Yuan, crypto, gold, and other currencies can ALL be used if the parties involved agree to use these mediums.
What Biden did to Russia and what Trudeau did to the Truckers showed the world’s countries and citizens the need to decentralize the currency systems in their lives.
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FrankieCarbone
FrankieCarbone
2 years ago
Reply to  Mike 2112
I don’t see an either-or scenario either, at least not yet. I see a bipolar global economy but the west gets hammered by this because the East has all of the resources. So it makes little difference as the economies of the west would suffer tremendously from this. 
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Jack
Jack
2 years ago
Reply to  Mike 2112
Keep the 5% of unemployed Canadian truckers out of the argument. The 95% of truckers that were employed continued to work hard.
This minority lost a few thousand dollars but caused billions of lost trade and higher domestic inflation.
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Eddie_T
Eddie_T
2 years ago
Mish, do you have an opinion on the Chinese using their dollar denominated reserves to LEND in dollars?  Luke Gromen seems to think that is an effective financial  weapon the PROC is using against us now. How do you view that?
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Columbo
Columbo
2 years ago
So, no worries on a competing reserve currency for now, but the U.S. is sure doing a good job of trashing 3. and 5. lately.
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Captain Ahab
Captain Ahab
2 years ago
At the risk of misquoting, “the simple fact that no county even wants to have the global reserve currency” is entirely the issue.
Have you considered the possibility that a single country’s currency is NOT the global reserve currency?
I’ll begin with the proposition that  the rest of the world resents being held hostage to one nation’s currency after recent events, but there are any number of other motivations. It makes no logical sense for Singapore to price, and collect payment in US dollars (or any nation’s currency) for its goods when selling widgets to Iceland, for example. A true global currency should float against all currencies, calibrated using underlying economic fundamentals of each country, not artificial exchange rates. All it takes is the appropriate ‘unit’. It needs to be stable as such, growing in volume with real global growth, long lasting, unable to be inflated, simple, unique, etc. Let’s call it the ‘goldar.’ It is far superior to other commodities for this purpose, and baskets of currencies.
All international goods/services are priced accordingly. Domestic transactions will continue in the country’s own currency. For example, Iceland prices its widgets (using its currency/costs and perception of trade) and Singapore buys. The transaction is digital, handled by neutral parties. At the end of a month (for example), accounts are balanced,  and the net transfer of actual gold is made.
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Maximus_Minimus
Maximus_Minimus
2 years ago
Reply to  Captain Ahab
You pretty much describe the system that existed before the gold standard was abandoned with some digital sauce.
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Jack
Jack
2 years ago
Reply to  Captain Ahab
Makes total sense. In today’s electronic world there should be no reason 2 countries cannot trade in their own currencies.  
Seems odd that currencies must be converted to a third currency to make a transaction.
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StukiMoi
StukiMoi
2 years ago
As long as the Chinese government insists on subsidizing the US by effectively pegging the Yuan to the Dollar, it’s not really all that practically relevant. It’s when they stop, that change starts happening.
China won’t continue forever. Then, since everyone needs to buy all their stuff from China, all those “everyone’s” will need to maintain reserves of what the Chinese demand payment in. Or be caught massively flatfooted by ay currency move.
When that happens, China will also become a much bigger consumer. Since Chinese people, who produce something others want to trade for, will easily outbid people who produce nothing anyone particularly wants. So, whether consumer goods or commodities, a larger share will flow to China. Leaving less for the US. Which will provide further impetus to for anyone wishing to sell to them, then to those wishing to sell to those selling to them etc., to increasingly Yuanize.
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Green_Squirrel
Green_Squirrel
2 years ago
Reply to  StukiMoi
China has been preparing for the day, for over 20 years, that they will no longer trade with the US.
It’s called the NEW Silk road, to Europe. Second China has a nuclear monetary bomb called $1.2 Trillion in US Debt.
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FrankieCarbone
FrankieCarbone
2 years ago
Reply to  Green_Squirrel
But.. but…but… “China needs us”. If I had a nickel for everytime I heard that Tee-Vee talking point. 
Proof that national menticide has been an extraordinarily successful endeavor. 
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Sunriver
Sunriver
2 years ago
Reply to  FrankieCarbone
Heck the FED’s balance sheet (‘The Piggy Bank’) holds more U.S. Debt than all of China.
Ah yes, the wonderment of having the ‘worlds reserve currency’.
We went from the ‘Gold Standard’ in 1972 to the ‘Uranium Standard’ thereafter.
OR if you like,
“The Dollar is our currency, but it is your problem.”  Why?  Because it is backed by Uranium.  Certainly there is no ‘trust’ in the dollar as a solvent entity unto itself.
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FrankieCarbone
FrankieCarbone
2 years ago
Reply to  Sunriver
Well, the Minuteman III is a real piece of crap compared to the new SARMAT, or even the prior generations of TOPOL and TOPOL-M are more lethal and pentrable in spades. Then you have the fact that hypersonics can penetrate from the South, where we have no early warning system. So, by that logic, Russia, being hands-down the #1 nuclear super-power, should have the reserve currency. 
Yet it doesn’t. Go figure. 
Power projection and intimidation with now wholly obsolete carrier missile target coffins, coupled with the Petrodollar cycle have kept the dollar alive. We’re now seeing that challenged and quite effectively so. We still do not have a solution for Bramos II “carrier killer” and the third generation is in testing now. China’s got them sea-skimming hypersonic carrier busters too btw. So there’s that. 
Whether it was by intent or a fortunate side effect (for Russia), they already won this war if only because they opened a massive crack in the Global Reserve Currency which is supposed to be unconditionally apolitical and therefore a safe haven come hell or high water, and in our knee-jerk, showed the world that it isn’t. 
Funny, two psychopaths, Trump and Putin, pushed the buttons of the also psychopathically arrogant so hard that they let their true colors show. And it wound up destroying the empire both from the inside and the outside in the end. One polarized the nation. The other polarized the world, who, if you are serious, would admit that they all say the right thing in public but in secret act in a far different manner. Right now it’s go along to get along, until the right time presents itself to bail from the USD, and that time is a-comin’. 
Tick, tock, tick, tock…..
What Biden did in his knee-jerk response to Putin is say to the world: “If you cross the most wicked government on Earth (the US, N. Korea a close second, they’re just incompetent at totalitarianism) then you risk losing it all.” 
Tick, tock, tick, tock…..
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StukiMoi
StukiMoi
2 years ago
Reply to  Green_Squirrel
For a long time, the priority of Chinese economic planners, has been to maximally facilitate their exporters’ competitiveness in US/Western markets.
But that’s not some sort of universal setup that Moses dragged down from Sinai. Rather, it was just because The West produced all kinds of things a modernizing China needed, but couldn’t produce themselves. So, they needed Dollars to get them. Also, the Dollar was LESS OBVIOUSLY AND IMMEDIATELY just a debasement racket back then.
Now, though, with The West so completely failing at their end of the bargain; producing things which China can’t get elsewhere (or honestly producing anything at all); having a bunch of printed-out-of-thin-air dollars aren’t all that fundamentally important.
Dollars are still convenient, since everyone is used to dealing in them. But it causes China big problems: Chinese has to work like crazy, compete and sell lots of stuff involving lots of labor and resources, in order to obtain the dollars needed to buy enough oil and other commodities. While the US can outbid them for those resources, by simply running an old printing press for another half hour in the afternoon.
As time goes by, and the productivity delta between China/Asia and the decaying West just keeps growing, the ability to obtain commodities becomes a bigger priority for China; than Chinese’s ability to offload Chinese goods to someone who doesn’t have anything other than the slight convenience of keeping the trading currency people have gotten used to, to offer in return.
Once those priorities take hold, the Chinese will start buying commodities in Yuan. Which sellers will take, since they are already buying supplies, and increasingly engineering services, from China anyway. Chinese companies are now the ones building airports, dams, windfarms, bridges, roads. Increasingly even oil services( which is a bit scary, as that is one area where Houston is still Houston. But hey, they’re educating engineers like nowhere else, and have more resources/capital than anyone…)
This latest “sanctions”/crass theft gaffe; has just made Saudi realize how much better off it would be by getting Yuan for its oil. Yuan which it cold then use to buy Russian bombs to drop on Yemen. And which the Russians could then, in turn, use to buy everything they need from China….. All without dealing with some gang of has-been, self righteous highway robbers; who have nothing but theft to bring to offer anyone anymore…. (aside from Hip Hop… Gangsta Rap in Chinese just ain’t the same. And in Moscow, they think guys from  Georgia (the republic, not the state) are black people…….)
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honestcreditguy
honestcreditguy
2 years ago
well this will help them float the Yuan…..don’t be one to dismiss what little u know about China
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FrankieCarbone
FrankieCarbone
2 years ago
Reply to  honestcreditguy
Here’s yet another circumvention of the global reserve currency for international trade in commodities. 
India this time. 
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whirlaway
whirlaway
2 years ago
Reply to  honestcreditguy
In the past, whenever someone tried to price oil in something other than the US dollar, their days were numbered.  Exhibit One – Saddam.  Exhibit Two – Gaddafi.    
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KidHorn
KidHorn
2 years ago
Reply to  whirlaway
Maybe that’s why the Saudi’s are thinking about this now. Going back into the ME would be an extremely unpopular decision.
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whirlaway
whirlaway
2 years ago
Reply to  KidHorn
Yes.  They can’t demonize the Saudis as easily as they could with Gaddafi and Saddam.   
Also, my comment was referring to Mish’s absurd argument that it just doesn’t matter what currency oil is priced in.   Well, we can see what happened to the two blokes who decided not to price their oil in US dollars…
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Eighthman
Eighthman
2 years ago
If two nations can do currency swaps, why can’t Eurasia do a currency basket for settling trades?                
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FrankieCarbone
FrankieCarbone
2 years ago
So Mish, At present (key emphasis on ” presently”, please do not disregard) I presently disagree with you as all indicators that I have seen have been nothing but a plan by China and/or Russia (perhaps even in cahoots, we’ll never know much that goes on behind the scenes) to destroy dollar hegemony via de-dollarization of the global economy. 
I’ve read and digested many of the points that you have made in this most excellent article. But you bring forth some new ones that simply cannot be disregarded. So now I must do my share of digging into these points and re-evaluate my position on this. Which, by the way, is something that do I have habituated to doing quite frequently on critical positions as new information does emerge with time. 
I desire to be correct, not “right”. Particularly in financial investments because acting on an erroneous geo-economic model as you know is a recipe for total wipeout. 
So I am going to chew on this and do a bit of digging so do not be surprised if a week or two later I revisit this very well thought out article with questions. You seem to be an outlier in being a mature man who is neither offended nor grudged by challenges to a framework. 
And if you turn out to be correct, then I shall thank you for it. One of my best friends, whom on the day that I met him 25 yrs ago on his first day of work out of grad school, once said to me in passing some of the most powerful and wisdom-rich words that I have ever heard and to this day I have ingrained them into my core set of principles that guide me through life. And those words are…
“When someone logically defeats me I thank them for it”. 
I am hoping that it is you thanking me because I do have some substantial positions based on this. But if you turn out to be correct, that is, in the list of probabilistically ordered events to which I base my investing on (I think probabilistically, which means I can carry with me many possible outcomes but I act on the one with the highest, and preferably highest as an outlier, probability event forecast). Regardless, if you do indeed turn out to probabilistically correct then you will have done me an enormous favor and I will publicly thank you for defeating my thesis. 
Now, seriousness aside, I’ve been wondering what situation that you think is/was worse for our nation’s well-being?
Biden’s mental incapacitation or Trump’s psychiatric incapacitation. Yeah, a bit jocular bit still a serious question. 
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Sunriver
Sunriver
2 years ago

Any thoughts as to why the FED’s balance sheet (‘The piggy bank’) is not included in the Public US National Debt?  The debt clock does not include it.

Anyway, if a country that is unlucky enough to have the ‘worlds reserve currency’, it appears that; untenable debt is the likely outcome of that’s countries economy. Worse yet, that country can’t declare bankruptcy lest the whole world becomes bankrupt.

I’m not so certain I like the idea of the U.S. dollar being the world’s reserve currency, unless the dollar was pegged against the four letter word that begins with ‘G’.

This debt thing is NOT going to end well.

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FrankieCarbone
FrankieCarbone
2 years ago
Reply to  Sunriver
Yeah, that’s always bothered me too. You have to carry a negative balance-of-trade in order to create demand for dollars to keep the reserve status going forward, which just puts you deeper into the debt of other nations. 
But you do get the potent benefit of senoirage. Which means that you can export your inflation to the world and hence cheapen the real value of those debts. I seriously do not think that powerful advantage can be overlooked. 
But then again that is countered by the fact that since the money is fiat, backed only by FAITH (read Mish’s recent articles on this concept – excellent) and most banks create money via fractional reserve lending, then bank notes as you know are a promise to pay, or in simpler terms, debt instruments, with counterparty risk as the most recent example by the US and Russia glaringly pointed out.  
So if you model this mathematically you come to a conclusion to this question: 
Q: Where does the money on the interest for all debt creation come from? 
A: It must be borrowed into existence. 
That my friend is what is known as an unbounded exponential which ultimately results in the value of the dollar going to zero, which has been happening as a matter of fact. Think about it. Money expansion – and this is over-simplified but bear with me and allow it so as to make a point – can be modelled as A*exp(alpha), where A = base money and alpha = f(time, existing overall money stock, interest rates, and other factors). Yes, oversimplified but this component does exist in the model of money creation. I’m making a qualitative, not quantitative point as you can see. 
Look at our money supply. Even before the 98′ crisis the curve has an exponential curvature to it. We just raised the exponent significantly over the past 14 years. 
My hunch of why some entity would want this system is that it is far too lucrative at first to ignore and when combined with greed and short sightedness, and perhaps even a prior plan for a (great) reset of the system from time to time, would be irresistible to those of ill repute. 
And here is another idea that I have. You own this system. You know it will eventually fail, mathematically guaranteed. So you have a plan to have a new system TEMPORARILY backed by gold to restore confidence. But then you slowly start weaning off of the gold backing covertly (like LBJ and others did), since given that Americans are financially ignorant (so am I – I fully admit, but I try to wake up each morning a little less so than the day before), they will neither notice nor care as long as the punch bowl at the party is full. A few generations pass, it happens again as later generations ALWAYS repeat past foolishness, and you wash, rinse, repeat. 
This is one of several reasons why I think that gold bugs (full disclosure: I have a significant position in physical gold – wealth preservation) who who think that a gold standard will “solve our problems” are erroneous in their conclusion. 
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FromBrussels
FromBrussels
2 years ago
Imperically and therefore evidently with historical hindsight we should at least know and consequently admit :  NEVER SAY fn NEVER  !  
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Karlmarx
Karlmarx
2 years ago
The fact is that the United States is the only major economy with the rule of law.  Even though the current administration is ignoring it for now. 
The very fact that the Federal Reserve’s theft of Russia’s reserves (whether or not it was warranted due to the war crimes being committed by that dictatorship) was illegal, means that Russia has a very practical and impartial channel to have the confiscation overturned.  That is the US justice system.  The Federal Reserve and the Administration would have to prove that they had the legal authority to steal the reserves.
I can think of no other major economy where this sort of redress is available.  Japan’s economy is too weak and Britain’s is too small.  China, well its China, and Germany is part of the Eurozone
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FrankieCarbone
FrankieCarbone
2 years ago
Reply to  Karlmarx
I do not think the rule of law exists in the US economy. Dig into the COMEX games and the CFTC’s blind eye towards them and then tell me if you still feel the same way. Read up on what SLV did when the Reddit crowd foolishly attempted to short-squeeze the silver market and tell me that any of those shenanigans were legal. Ya’ know what? The CFTC did nothing. In fact, the late Bart Chilton, former Chairman of the CFTC has said in interviews on Youtube about the lawlessness in the commodities markets. No, there is no rule of law. Seriously. Watch Bart. Riddle me this: Why are some (favored) institutions allowed to have highly illegal and very large, controlling position limits (JPMC for example on Ag) on certain commodities and no alphabet agency lifts a finger to enforce the law? Is that “rule of law”? Of course not. 
How about when the YOLO crowd tried to short-squeeze the WS crowd who had enormous, company-destroying positions and the SEC hauled the 20 and 30-something into DC for hearings while ignoring the predatory hedge funds that were trying to drive the stock to zero. the YOLO’s had every right to bet against them. That’s a risk that the “favored” didn’t consider and they got burned for it. But there is no rationale for interrogating the small-change long buyers in this fiasco other than to protect “the favored”. Rule of law my butt. This has been going on for decades BTW.  
We live with pseudo-centrally controlled markets. Price discovery is dead. If we lived in a land where the rule of law abounded then this statement would not be true. I have to disagree. I am almost certain that most, if not all markets are rigged by WS and/or The FED and possibly even the Treasury via the TGA. 
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Tony Bennett
Tony Bennett
2 years ago
but but … SDRs! … oh, right … that was the replacement for $US a few years ago …
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Mish
Mish
2 years ago
Reply to  Tony Bennett
Yes too funny.
You must remember this:
Rude Awakening for the US in January? No, Just More Alarmist BS From Rickards
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FrankieCarbone
FrankieCarbone
2 years ago
Reply to  Mish
I do get a kick out of the spats between him and Harry Dent over gold. They are quite entertaining indeed. 
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Six000mileyear
Six000mileyear
2 years ago
The Yuan is backed by the full faith and credit of the CCP.
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Tony Bennett
Tony Bennett
2 years ago
Reply to  Six000mileyear
and likely to be devalued soon.
they’ve got to paper over a lot real estate woes  … besides usd/jpy getting too strong for their comfort.
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FrankieCarbone
FrankieCarbone
2 years ago
Reply to  Tony Bennett
Thank goodness we don’t do that! /sarc. 
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Jojo
Jojo
2 years ago
Reply to  Six000mileyear
I’m sure you forgot to put a sarcasm tag on your post?
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FrankieCarbone
FrankieCarbone
2 years ago
Reply to  Jojo
The irony is rich. 
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