When talking to preppers, you will get many different scenarios that they think might lead to the end of the world (as we know it). There are ecological fears and fears of terrorist attacks. One of the most credible ones that I find go to an economic collapse. This would be brought around by the dollar being replaced as the reserve currency.
There are buzzings going around that say to watch the Chinese, as the yuan is most likely to be the replacement currency, since it is the strongest in the world. Now it being strong is a little bit of a smoke and mirrors trick, as it is only strong because the Chinese government controls all of it. Up to this point, only people living in china could own the yuan and no one outside of china could even trade it.
I read an interesting article this weekend about how the scenario of the yuan replacing the dollar was impractical and largely unfounded. They state the liquidity issues that the yuan face as a reason that it will not be the go to monetary base. Added to that is the fact that the government of china is not the friendliest to outsiders and for that matter, neither is its justice system. Outside government and businesses are not likely to see a fair outcome if some dispute arose. The fact that no one can own it, seems to limit its potential to being the new standard.
Today however, news agencies are reporting how the yuan is inching closer to becoming a global currency. Forbes reports that the yuan is only two years away from becoming a global currency.
A system to settle cross-border yuan transactions and boost the convertibility of the currency is being set up in Beijing and will be rolled out by 2014, Central Bank officials noted yesterday. Once set up, it would allow countries to settle payments in Chinese goods in yuans instead of dollars. Over the long term, the use of the yuan, particularly in Asian trade, would take some demand away from the dollar which currently enjoys the status of both the world’s reserve and trade currency.
For the World Bank, China’s growing role in global trade, the size of its economy and its role as the one of the world’s largest lenders, mean that the yuan’s internationalization is “inevitable”. Acceptance of the Chinese currency as a major global reserve currency, however, will depend on the pace and success of financial sector reforms and the opening of China’s external capital accounts, the World Bank said.
HSBC and The Wall Street Journal have articles out about this as well. In fact, almost every news organization that deals with finance is talking about this. One thing they are not mention, however, is the fact that the U.S. is leading the way for this to become a reality. It is our government that is sponsoring China before the International Monetary Fund to give the yuan global reserve currency status.
THE global lender HSBC, which only recently sold so-called dim-sum bonds in London worth two billion yuan or $317 million, looks to sell more within the year for a still undetermined amount.
This was learned on Thursday from Spencer Lake, co-head of global markets at HSBC, who said the bond sale proved the ready liquidity of a yuan-denominated instrument even outside of its Hong Kong office and boosted the likelihood of the unit to become an international currency.
Lake said the near-term plan was to make London a yuan hub in the manner that Hong Kong had been for many years now.
“The yuan as international currency will not happen in a snap but we’re building the infrastructure for more and more people to get used to it,” he said.
This developed as economist Jeffrey Sachs told a press conference the Chinese yuan or renminbi should eventually become the preferred currency of trade.
I don’t see any way that the dollar can be a stable, sole reserve currency any longer. The United States is not in a position to play that role. The role of the US in the world is diminishing in relative terms.
This shift will help the government, but it will be the citizens who will be hurt. Our money will be worth less. Our purchasing power will be diminished as the dollar becomes weaker. You can see people in the financial community know this and are accepting it. U.S. banks have been rushing to do business with china as that is where their future lies.
What about the average person in the U.S.?
You have some options.
– Start acquiring those things you know you will need for when the economy starts to go down. You need to start acquiring food and water, as water is quickly becoming a global commodity as well. There are some areas where it is illegal to capture rain water from your roof. A pact was just signed by those states that border the Great Lakes to ban exporting of water outside of their borders. People are making money now, selling their water rights, but they do not have the for thought or care of those who are going to be hurt when it is gone and people are suffering. You can live longer without food than water, so do not underestimate its worth.
– Starting making a move to become debt free. We have seen who gets hurt when the economy takes a nose dive. Those who are in debt and struggling to live paycheck to paycheck are the ones who were being evicted from their houses when the recent mortgage crash. These people are out of their homes, yet FannieMae just made it back on to the Forbes 25 list. Not bad for a company that was bailed out by tax payer money. Pay off as much as you can to avoid losing what you have.
– You see people making a move to gold and silver. The dollar will become worth less and less, but it will not be replaced by people bartering for gold coins or silver necklaces. Gold and silver will be a great investment, but mainly in the long term. You will not want to depend on them for day to day transactions at first. Their value will increase compared to the dollar, so what you invest your dollar in today, has a good chance to double or triple in three or four years. Banks will survive and so will the financial markets. Don’t rush to cash in all of your investments now, but you might want to start looking at investing more overseas. There are several ETFs that are being developed to invest in the yuan like the WisdomTree Dreyfus Chinese Yuan (NYSE: CYB). These might be a bit sketchy right now as market rules are being ironed out, but you can always invest in places like England. London is looking to replace New York as the financial capital of the world and it will most likely achieve this, with the help of the Chinese.
I do not see the U.S. becoming the wasteland that we see in the post-apocalyptic movies, anytime soon, but our standard of life will change in the next 5 years. If you have not seen or read Hunger Games, you might think about it. it depicts a world that is separated out between those who are wealthy and in charge and those who struggle to keep alive and keep their areas producing products for the wealthy. I don’t think it will get to the point where we will watch people made to fight to the death, but there will be a larger separation between those who have and those who need. Do not get caught unprepared.