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Will China Overtake the U.S. as World Leader and Reserve Currency?

Will China Overtake the US as World Leader and Reserve Currency? This has not happened yet, but it may not be far down the road if the US does not get its fiscal house in order.

 

Washington, DC -- (ReleaseWire) -- 02/04/2014 -- Will China overtake the U.S. as world leader and reserve currency? asks Dawn Bennett, Founder and CEO of Bennett Group Financial Services. This has not happened yet, but it may not be far down the road if the US does not get its fiscal house in order. The United States has been the biggest national economy since 1871, but more than half of Americans have slapped an expiration date on its global reign. This fear came to light in a Roper poll taken in September of 2013 with results reported in The Wall Street Journal:

http://blogs.wsj.com/chinarealtime/2013/11/04/americans-say-america-is-still-no-1-for-now/

http://online.wsj.com/news/articles/SB10001424127887324263404578611623402415576

http://blogs.wsj.com/chinarealtime/2013/07/18/what-the-unofficial-data-say-about-chinas-slowdown/

According to the poll, only 43% of Americans believe the U.S. will be the world’s dominant economic power 5-7 years from now. Nearly one third have already ceded the title to China even though the U.S. GDP is nearly twice that of China.

The years of weak economic growth in the U.S. is catching up to us and we are feeling it. It shows up in polls like this and it’s why there is this point of view. It looks like the poor management of the U.S. is finally catching up to it and the sad part is the rest of the world agrees. It’s not just Americans being sensitive to it, but from Canada and Asia, to Australia, where upwards of 75% of the world population has determined that China is the nation that will command the most power ten years down the road. However, the U.S. still remains the center of the world’s global current economic order for one reason and one reason only, it’s because the U.S. dollar is the cornerstone of the international monetary system.

That certainly begs the question: how long can the dollar remain the world currency of choice? But maybe a better question is: will the Chinese renminbi be the next global reserve currency? In 500 B.C., a Chinese high -ranking military general, strategist and tactician, Sun Tzu, wrote in his book, The Art of War, that all warfare is based on deception. This means the Chinese don’t need to tell us what they are doing, they can keep it a mystery. Unlike the U.S. which broadcasts its intentions from every rooftop and media outlet. We believe the Chinese have designs to end the U.S. dollar dominance and that this will be a game changer for all of us; unfortunately a negative one. But here is a “newsflash”, the game is already changing.

Part I of China’s Plan

Part one of the changes started back in 2009 when a Chinese state counsel advisory team set up a task force to consider expanding China’s gold reserves and suggested to the Chinese government that China’s gold reserves should reach 6000 tons in the next three to five years. From the studies we’ve seen, they are at 5,500 tons right now.

So what does gold have to do with their plan to make the renminbi the international reserve currency of choice? A gold backed renminbi versus a heavy debt laden dollar is China’s ambition. It is a doable, plan to own the dominant currency of the world. In addition, we believe gold is being price suppressed by the U.S. as well as central banks in order to make the U.S. dollar, Euro and Yen look stronger.

With all the printing of money by the U.S., it should have pushed down the value of paper currency, but it hasn’t. It has served to accelerate the timeline for China to take down U.S. dollar dominance. It’s the opposite of what the U.S. is trying to achieve if China is doing this.

Going back to 2009, which is the turning point for the U.S. and China, The People’s Bank of China said “An international monetary system dominated by a single sovereign currency has intensified the concentration of risk and the spread of crisis.” The Chinese could see back then the U.S. was not getting its economic house in order and that the fiscal policy was not handling the financial problems. So, Xi Jinping, the President of China, made the most powerful statement of intent, saying, China and the world should start building a de-Americanized world.

Part II of China’s plan

China has already taken steps to make deals with other countries. As a matter of record, The Bank of China has put together and executed already 2 Trillion Yuan worth of currency swap deals between 20 countries and yes the U.S. media did not pick up on this nor did the U.S. government share this with us, but they knew this was happening. They cut a number of deals in 2013 with Russia, Iran, Angola, Sudan and Venezuela to have oil sales to China converted to renminbi rather than the U.S. dollar, which has been OPEC’s currency of choice since the 1970s. Other agreements they cut are: China and Australia now have a currency pact and the UK and China are now engaging in currency swap deals. China and Brazil signed a $30 billion currency swap agreement.

So the bottom line is China is very serious about becoming the country with the international reserve currency of choice and through some new currency arrangements and by potential backing of the currency with gold, they will win. The sad part is the U.S. is letting them go through these moves without the U.S. doing something to change its game plan. The Great U.S. now has a debt to GDP ratio of 115% and has no plan to get rid of it. So the U.S. is not exactly in a position to challenge China and if the U.S. does lose the privilege of having the U.S. dollar as the reserve currency at the center of all deals and business around the world, then Americans better get ready for hell to break loose because today’s world currency of choice can become tomorrow’s wall paper.

Bennett Group Financial Services LLC, based in Washington, D.C., is a comprehensive financial services firm committed to providing opportunities to clients’ as they seek long-term financial success. Its customized programs are designed with the potential to help grow, lower overall risk and conserve client assets by delivering a high level of personalized service and skill. For more information, call 866-286-2268 or visit http://www.bennettgroupfinancial.com.

Securities offered through Western International Securities Inc. (WIS), member FINRA/SIPC. Investment advisory service offered through Bennett Group Financial Services, LLC (BGFS), a registered investment advisor not affiliated with WIS. BGFS and WIS are separate and unaffiliated entities.

About Dawn Bennett
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program on http://www.WMAL.com called Financial Myth Busting http://www.financialmythbusting.com. She can be reached on Twitter @DawnBennettFMB or on Facebook at Financial Myth Busting with Dawn Bennett or dbennett@bennettgroupfinancial.com