Could China be preparing to launch the Renminbi as a convertible currency?
Beijing has signed Rmb650bn ($95bn, €72bn, £67bn) of deals since December with Malaysia, South Korea, Hong Kong, Belarus, Indonesia and, now, Argentina in an attempt to unblock trade financing that has been severely curtailed by the crisis.
I think it likely that the dollars position as the worlds reserve currency will be under threat over the next few days. Whilst I do not expect the dollar doubters to prevail, it makes sense that Russia and China use its underperformance as leverage in their negotiations.
For the first time since the end of the cold war, America's position as the global hyperpower is under question. To get what it needs to conclude the G20 succesfully, the United States will have to make concessions. The only questions are; to whom, what and how much?
China is on the cusp of becoming a super power. Russia is an authoritarian state and a defeated superpower, dependent upon a high oil price to keep its promises to its people and order on its streets. Both of these nations have great incentive (politically and historically) to declare victory over the US at the G20.
Their choice of language in their final communique's at conference end will be interesting. But what will fascinate will be what has been stated implicitly.
I think that the basket of currencies proposal as an alternative to the US dollar is a 'stalking horse' for the eventual launch of the Renminbi on the world markets.
According to the FT of March 31st, "Economists say the SDR plan is unfeasible for now but see Beijing's currency swap deals as pieces in a -jigsaw designed to promote wider international use of the renminbi, starting with making it more acceptable for trade and aiming at establishing it as a regional reserve currency in Asia, something that would also enhance China's political clout.
This weekend could be a defining moment in the short history of this century.
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