CHINA TO STOP HOARDING FOREIGN CURRENCY…November 25, 2013
Yesterday I wrote about the significance of the Vatican hiring the same auditor accounting firm as that for the Bank of International Settlements. Today, while this news is somewhat dated, it bears mentioning, because it is yet another indicator of a seismic shift beginning to occur in the way the world's finances are constructed. One might refer to this as a paradigm shift in a manner similar to Thomas Kuhn's The Structure of Scientific Revolutions. But first, the story:
There's three huge things in this article to note, and, I believe, perhaps a kind of "hidden text" that is worth considering, but the "hidden text" cannot be readily discerned without the other three(assuming I am not simply seeing things, which is always a strong possibility):
- The Chinese are going to stop stockpiling foreign currency reserves, a euphemistic way of saying "we've had it" to the nuts in the West's central banks, and particularly in the Federal Reserve and those in charge of US financial policy;
- This is accompanied by rumors and suggestions that commodities trading in Shanghai might soon be priced in Yuan rather than Dollars, a huge move away from the Dollar as reserve currency, if true; and finally,
- The move away from stockpiling dollars presages, according to many(and I am inclined to agree), a Chinese move away from buying U.S. debt securities.
I doubt the last move will be done precipitously, as it serves no one's best interest to suddenly withdraw and collapse the US economy. It will be done as a series of calculated steps, perhaps timed to coincide with political events which can then be played to China's benefit. It's an old play in the playbook.
So what might the hidden text be here?
Let me go back to something that occurred during the conversations former Assistant Secretary of Housing and Urban Development Catherine Fitts and I had the previous weekend. There, she outlined a model of what she thought might be taking place: a gradual move away from the central banking-debt-war-and-secrecy model, to one based on equity. This is, to be sure, a very different paradigm, and one which has been so long absent in world history that everyone has almost forgotten how it works. Indeed, we've been living under the central bank-debt-war paradigm for so long, it is difficult for people to conceive of any other system. But an equity system would eliminate secrecy to a certain degree, whereas debt-war systems inevitably not only require it, but require ever larger amounts of it, until the point that the entire system is so overrun with secrecy and corruption it no longer functions.
Perhaps - and bear in mind, it is a big perhaps - China's move away from "foreign reserves" and the move away from US debt securities is a halting, tentative, perhaps even hesitant move toward that type of system. After all, the article isn't informing us of whose securities the Chinese are likely to buy in place of the USA's, if they buy anyone's at all. But more importantly, as yet another signal, perhaps, that they are at least challenging, if not the central-bank-debt-war paradigm directly, then at least perhaps challenging the crass extent of it in the West, is their quiet but quite evident stockpiling of gold. In short, they mean to back their currency with value, with something other than debt and promises and military power, and with something of quasi-independent value apart from the promises and assurances of the Chinese government itself.
While this may seem to be painting a "rose colored glasses" scenario in a certain sense, one far out of step with the track record of Communist governments, there is one more thing, perhaps, to recommend that one should at least consider it: the Chinese simply aren't stupid (they certainly appear to be a lot less stupid than western leaders currently). Their own analysts no doubt have been telling them that the financial paradigm is itself changing, and while central banks would represent an appealing power structure to authoritarian governments(after all, the BRICS nations have announced their own development bank and already capitalized it), the Chinese leadership is not so naive as not to plan for every contingency.