If you’re an economic nerd like me you’ll know what this news from Bullion Vault means.
The article considers how 2013 will be a pivotal point in the rise of the Chinese Remnimbi (Yuan) as a key player in the world currency markets. We all know the strength of the Chinese economy, nothing new here. But, the significance of recent announcements herald something new. Currently, Chinese currency is non readily convertible meaning you can’t trade it like you can, say, the greenback. This makes it pretty defunct as a global unit of trade.
The Chinese government, however, has plans. Recent deals with Australia have enabled the beginnings of convertibility. Add to this the ongoing quantitative easing (i.e. printing money) by the US Fed which is effectively destroying the value of the dollar you have a situation where the trillions of dollars held by the world’s central banks is becoming less valuable every day. So, what do they do? Banks aren’t going to hold reserves in Euros, too risky. The Yen is being destroyed by the Japanese printing presses as we speak. The only credible alternative is the Chinese RMB. Right now, the US Dollar is by far the better option but if Bernanke keeps printing money and if, as many analysts have predicted, an imminent meltdown is due in 2013/2014, central banks will lose faith.
Economists originally predicted “The Pass” by early 2020s, but now the IMF has brought that forward. We now face the unthinkable. China is set to become the world’s largest economy within 5-7 years.
For non economists, this means the end-game for the US Dollar as the defacto world currency.
Granted the end-game may take 5,10 or 20 years to play out, but it has begun.
It may not affect us in our lifetimes but it will affect our children in theirs. The next 20 years will see massive change and a shift in economic fortunes from west to east from the middle classes to the rich. Those who don’t read the signs, those who are heavy footed and resistant to change will be left behind.
We need to rethink our paradigms about life, career and economy and equip our children with the right mindset to take advantage and not be a victim of this change.
So here are the 5 things we need to be doing to hedge against Dollar Meltdown:
- 1) Point our kids in the direction of Asia: Our children need to grow up thinking that Asia is as valid an option as Europe or North America when it comes to business and career
- 2) Teach them Chinese: We need to be teaching kids Mandarin Chinese not French, German and Japanese
- 3) Go
WestEast young man! In the same way, those who didn’t change their circumstances in 19th and early 20th century Europe, the traditional base of Western economies (i.e North America) will be destroyed resulting in the mass erosion of middle class wealth. We need to teach our children to travel and to embrace the change.
- 4) Hedge in Gold: Those who store all their wealth in dollars risk losing out. When I mean wealth I mean anything that has dollar value (e.g. retirement funds, bank accounts). There aren’t many options to convert to Yuan today (the ETFs are pretty poor) and you either go with Dim-Sum bonds or open a Yuan backed account in Hong Kong. The alternative is converting portions of your wealth into gold to hedge against meltdown.
- 5) Internationalize: Our lives are too precious to leave up to the failed politics of nation states to determined. We need to rise beyond the bullshit of central banks and politicians and take control of our own concerns. There are many international baskets to place your eggs in. I can’t go into depth here (subject for a later post) but if you’re curious, you can start researching on the internet how to do this.