RMB up, dollar down

By Donald Hank

The Chinese yuan, or RMB, has now done what Chinese policy makers said it would, and in even less time. It is now reported to be the second most used currency in Europe after the dollar. According to a Chinese policy maker's analysis last year, that was to take 3-5 years http://www.renewamerica.com/columns/hank/141219.

And, with that growth in use for international settlements, the IMF simply could no longer ignore it. They finally added the RMB to the currencies in the SDR (Special Drawing Rights) basket. That is HUGE news but not because the currency basket carries clout in itself. It is news in the same way the accession of almost all US allies to the Chinese investment bank AIIB was, which was a kind of weather vane for confidence in the RMB, as I pointed out here: http://www.renewamerica.com/columns/hank/150319. The value of any currency ultimately boils down to confidence. Backing the USD by gold was the most direct way of inspiring confidence in the dollar since Bretton Woods. Until the US went off the gold standard. But then a safe haven was found for value in Saudi Arabia's use of only the USD for oil sales. That too was a means of holding confidence high, while adding to the world terror level. http://www.renewamerica.com/columns/hank/150314

It seems clear that the IMF's belated decision to add the RMB to its Special Drawing Rights basket was also a confidence builder.

I warned readers over a year ago (Oct 14 to be exact) that the Russians, Chinese and other BRICS countries were planning to pull the rug out from under the USD (http://www.renewamerica.com/columns/hank/141009).

Almost everyone snoozed through it. Americans are mesmerized by the lying msm and can't see beyond it. Nor has it occurred to them how easy it will be to make lemonade out of the lemon of a dropping dollar.

Then I found an eye-popping article in a Chinese news site that had never been translated. It was an interview with a Chinese monetary expert saying that the RMB would become the third most used currency in world trade in just 3-5 years. So I translated it and it was published here http://www.renewamerica.com/columns/hank/141219. The sheeple slept through this one too.

One of my readers was a big fund operator who lives in the Hamptons. He sneered at the notion that the dollar could ever be in trouble. His arguments were so silly and obnoxious I took him off my list. After all, if I want propaganda, I can buy newspapers and watch Fox and CNN.

Now I can say I told you so, but it doesn't feel good. I wish I could have helped my readers, but when people don't want to be helped, you might as well be wearing a muzzle.

In the Soviet Union they arrested people for telling the truth. In the Western world of today, they brainwash everyone into ignoring news about what is really happening in vital areas.

Some readers said "so what? We can't do anything about it."

Yeah nothing except invest in RMB-denominated bonds and other paper. Or even swap dollars for yuan and wait for the dollar to fall and your portfolio to grow.

But that is NOT advice. I just discuss trends and facts and you decide what to do.

Here is a final hint: In order to be included in the IMF's currency basket, the yuan had to be floated, essentially ending China's suspected currency manipulation.

So now we have a currency that Is being used more than any other, except the dollar and the euro in Europe. That means confidence and confidence in turn means strength – value.

The dollar vs the RMB can be crudely represented by a see-saw. The higher one currency goes, the lower the other goes

So if the rmb can be expected to rise in value, as one might surmise, then would this not be an ideal time to invest in RMB-denominated paper?

Just asking.

© Donald Hank