Trillions of dollars are held abroad in central banks, commercial banks, and brokerage accounts. Most of these dollars will be sent back to the United States in the next three years to cover giant US government debt service, by dollar investors seeking higher yields than they can receive by holding overnight sweep deposits. The best spreads are found in maturities under 5 years, where investors will enjoy a 250 basis point premium over German or Japanese bonds of the same duration.
As these holdings are moved back to the US, inflation there will become further entrenched as USD from abroad join those already in circulation. This also leaves fewer dollars abroad, for countries to do business denominated in USD.
China hopes its currency, the RMB, will replace many of these trades that currently are conducted in dollars. In the case of countries buying from or selling to China, it is already a compelling economic case for both sides. But alternatives to USD trading would be attractive for any company or country concerned about sanctions, or simply the ability to trade at all, given the increasing scarcity of dollar reserves held overseas.
The RMB's share of global trade is already at least 5%, according to experts. This represents a doubling in only three years, as Chinese regulators seem now understand how to establish bilateral trading bands, while holding the RMB-USD trading band at a level they want, while also not requiring heavy use of their FOREX accounts to make the swap lines work.
There is another huge advantage for China in these arrangements: they make for easy foreign purchases from China's factory sectors. Trade will be easier for countries in RMB than in dollars, but only for products outbound China. Countries trading in RMB would necessarily NOT be importing from Europe or the United States. The RMB are not merely replacing the USD, but Chinese factories are replacing global ones.
Resources and links:
Stellar foreign demand in biggest-ever 2-year auction
www.zerohedge.com/markets/ste...
Global 10-year bond yields
www.economist.com/finance-and...
Move over, US Dollar. China wants to make the yuan a global currency.
www.washingtonpost.com/world/...
Негізгі бет Ғылым және технология The Chinese want the RMB to be a top trading currency. The US government is helping them.
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