US debt crisis turns focus on yuan as reserve currency

[Archean]

Washington may have averted a debt default by compromising on how to cut the US budget deficit, but underlying problems remain and those economic woes are driving a global search for an alternative reserve currency. Officials, from the head of the International Monetary Fund (IMF) to the Philippines finance minister, have warned that the US dollar may lose its reserve status. For China, the largest lender to the US and the world's second biggest economy, the answer is close to home.

I think in the short to medium term (as US isn't doing enough to address the fundamental debt issues) dollar is bound to loose ground to currencies from other emerging economies. Especially since Euro too is in deep trouble, Yuan may also become a key currency much earlier than anticipated by many.

 

[dogman_1234]

It would be a mistake to go to the Yuan. China has financial difficulties right now as well. They cannot support all those people.

 

[Archean]

Chinese have lot less financial troubles than all the western economies put together. However, they do have 'population' problem, pulling out all those people from poverty is the major issue for them. So far, they have been reasonably good at handling it. Yesterday I was checking some numbers and I did find a peculiar fact which is more alarming than this, i.e. they have significantly reduced further investment in US securities/bonds etc. this can hurt the dollar even further, especially since last many years US has been the 'net exporter' of investment.

Anyway IMO a 'basket of currencies for reserves' proposed by the BRICS countries is the best solution going forward, thereby, reducing reliance on once single currency.

 

[Pyree]

But if you buy Chinese yuan, it goes up, Chinese with money already will be richer but export will suffer. Workers lay-off, the world no longer gets cheap goods and Western country will have to find another country or reestablish their industry for manufacturing, but they are out of money. IMO, use bitcoin.

 

[Gulli]

Chinese have lot less financial troubles than all the western economies put together. However, they do have 'population' problem, pulling out all those people from poverty is the major issue for them. So far, they have been reasonably good at handling it. Yesterday I was checking some numbers and I did find a peculiar fact which is more alarming than this, i.e. they have significantly reduced further investment in US securities/bonds etc. this can hurt the dollar even further, especially since last many years US has been the 'net exporter' of investment.

Anyway IMO a 'basket of currencies for reserves' proposed by the BRICS countries is the best solution going forward, thereby, reducing reliance on once single currency.

China has enough money because they let half the population live in extreme poverty. The same goes for the other BRICs. I don't think this kind of behaviour should be rewarded.

 

[Reynod]

I have the answer ... it is simple really ... simple.

I move we vote World of Warcraft Gold as the new reserve currency !!!

Who is with me !!

 

[Archean]

Or whatever that bitcoin thing is?

 

[Archean]

Sorry for Double post:

But as far as I know Gulli, they have pulled something like 500 million people out of poverty, that is a huge achievement in itself, in 2004 their poverty rate declined to 10% from 64% in 1970s. In the last 25 years or so China has been the most rapidly growing economy in the world, so I think life quality of its people continue to improve just as well. One of the major issues facing Chinese economy is Rural-Urban income disparity, which is something every country struggles to address anyway. So is the issue of corruption, but then again very few countries can claim to be totally free of corruption (and certainly US is not one of them).

US poverty rate climbed to 14.3% according to a survey conducted in 2009 (census bureau), incidentally the number could have been worse had the US Govt. not extended unemployment benefits. Another factor which stopped this number rising further is people are sharing homes with their parents + siblings etc. I remember we discussed in some other thread how wages has been pretty much stagnant in US for decades now, but since 2007 the median income fell as well, so it too is a contributory factor in rise of poverty.

 

[Gulli]

Sorry for Double post:

But as far as I know Gulli, they have pulled something like 500 million people out of poverty, that is a huge achievement in itself, in 2004 their poverty rate declined to 10% from 64% in 1970s. In the last 25 years or so China has been the most rapidly growing economy in the world, so I think life quality of its people continue to improve just as well. One of the major issues facing Chinese economy is Rural-Urban income disparity, which is something every country struggles to address anyway. So is the issue of corruption, but then again very few countries can claim to be totally free of corruption (and certainly US is not one of them).

US poverty rate climbed to 14.3% according to a survey conducted in 2009 (census bureau), incidentally the number could have been worse had the US Govt. not extended unemployment benefits. Another factor which stopped this number rising further is people are sharing homes with their parents + siblings etc. I remember we discussed in some other thread how wages has been pretty much stagnant in US for decades now, but since 2007 the median income fell as well, so it too is a contributory factor in rise of poverty.

Let's just say that the Chinese poverty limit is somewhat lower than the American one... Point is that most of the Chinese growth goes to the already wealthy (it's the same in the US, but ordinary Americans still have wealth from the 60s and 70s, the Chinese don't). They still have hundreds of millions of peasants who make $2 a day.

 

[Archean]

That is correct, but things in their part of the world are rather cheap as well. These figures were according to World Bank poverty related benchmarks. As Cost of Living is significantly less than most of the developed world, I think the figures make sense. Anyway, I think they will take about 10-15 more years to raise the average income (which is 3,200$ for urban population and 2,200$ for rural population according to 2006 figures) to more respectable levels.

+1 on Ordinary US citizen argument

 

[Gulli]

That is correct, but things in their part of the world are rather cheap as well. These figures were according to World Bank poverty related benchmarks. As Cost of Living is significantly less than most of the developed world, I think the figures make sense. Anyway, I think they will take about 10-15 more years to raise the average income (which is 3,200$ for urban population and 2,200$ for rural population according to 2006 figures) to more respectable levels.

+1 on Ordinary US citizen argument

Things are cheap because the Chinese underclass making things is poor. Mark my words: as the Chinese standard of living is raised and social programs extended to everyone, China will get into the same problems as Europe and the US, or at least won't have money left to shower the rest of the world. The same goes for Russia: they can only have those fancy jetfighters and submarines because they leave the roads full of potholes, only pay pensions when they feel like it and leave the care for their poor and elderly to foreign non-profits.

 

[Archean]

I agree on that too, unless off course they further 'temper' with the system to make it 'more equal' for everyone.

Along side infrastructure maintenance issues, Russians have another problem, I think they are the only European country with negative population growth. So if they don't fix this problem in due course of time ........... you know what

 

[wanamingo]

Holy crap I think I should take a screenshot of a polite discussion with slightly different viewpoints.

One thin g I would like to add about China somewhat off topic. The ratio of Men to Women is about 120 men for every 100 women. One of the highest in the world.

Think about how awful that would be. Not to mention when populations have more males hanging out they tend to go to war more often then not.

 

[Archean]

I wonder if their 'one child' policy have something to do with it.