China's State Press Calls For 'Building a De-Americanized World' 634
Hugh Pickens DOT Com writes "Businessweek reports on some not-so-subtle commentary from China's official Xinhua News Agency on the U.S. budget showdown: 'It is perhaps a good time for the befuddled world to start considering building a de-Americanized world.' Key among its proposals: the creation of a new international reserve currency to replace the present reliance on U.S. dollars. 'The cyclical stagnation in Washington for a viable bipartisan solution over a federal budget and an approval for raising the debt ceiling has again left many nations' tremendous dollar assets in jeopardy and the international community highly agonized,' the authors write. 'The world is still crawling its way out of an economic disaster thanks to the voracious Wall Street elites.' The commentary calls for a greater role for developing-market economies in both the World Bank and the International Monetary Fund, adding 'the authority of the United Nations in handling global hot-spot issues has to be recognized. That means no one has the right to wage any form of military action against others without a UN mandate.' The commentary concludes that 'the purpose of promoting these changes is not to completely toss the United States aside, which is also impossible. Rather, it is to encourage Washington to play a much more constructive role in addressing global affairs.'"
Meanwhile, U.S. Senate Leaders are claiming a deal is close to reopen the federal government until mid-January and defer the debt ceiling debate until mid-February.
It's starting (Score:5, Informative)
China still has substantial currency controls on the renminbi. It's difficult to move renminbi to other currencies. There's a "State Administration of Foreign Exchange" which issues permits to do that. Businesses and individuals in China can buy goods with renminbi from other countries, but exchanging renminbi for dollars or euros or doing other cross-currency financial transactions is heavily controlled.
(Lately, there's been a surge in Bitcoin transactions in China. This provides a way to get around exchange controls. This activity will probably provoke some government action if it gets big.)
Because of those exchange controls, the renminbi has not been a major international currency. That was the deliberate policy of the People's Bank of China for years, because they didn't want their internal economy yanked around by external events. That policy changed in July 2013 [wsj.com]. China now has a big enough economy internally to outweigh external holders.
Retail controls are loosening. HSBC and Standard Chartered Bank will now let you open a bank account outside China denominated in yuan. But it's not freely exchangeable yet.
Here's a summary of "Circular Concerning the Simplification of Cross-Border RMB Procedures and Improvement of Relevant Policies" [china-briefing.com] from the People's Bank of China. The changes are slow and cautious, but are happening.
Not just calling for in press (Score:4, Informative)
Re: No real reserver currency alternatives (Score:4, Informative)
Google "special drawing rights" or "SDR" to learn about how, who and why.
Re:Summary says it all (Score:5, Informative)
We need 50 years of surpluses.
People really have short memories. In the late '90s, there was concern by economists and financial analysts that the projected budget surpluses (surpluses) would result in the public debt being paid off by 2012. Paid off, zero, gone. The concern was that it wouldn't allow enough time for the markets to adapt to the end of the US Treasury Bond as the ultimate safe harbour. People were throwing ideas around for alternatives, in a world where the US would have no debt.
Then you guys elected GWB. Problem solved.
Re:I'm Sorry, China (Score:5, Informative)
Not on already bought assets but new bonds are countinuously issued to pay interest and to fund new expenses. An investor can stop buying new bonds and that has the effect of "calling in their loan". Investors can agree that a country has a higher risk and ask for higher interest rates. No country issues new bonds in the blind without contacting the right rates. If it doesn't it won't be able to sell all the bonds it needs because investors will buy from someone else. The world is full of countries issuing bonds. And there are not only bonds.
If a country does that (a selective default) it's going to get a hard time selling bonds to anybody else, at least at the same interest rate. It's a matter of trust.
In the end, if you issue bonds it's because you need somebody's else help to pay your bills. You can't piss them off too much or they'll leave you without money once you spent everything they already gave you.
Re: Everything they say is true. (Score:2, Informative)
Since the USA have shown they have no problems with meddling with energy supply for political ends, and damn the collateral damage (e.g. selling an oil valve control system with a backdoor to a destruct mechanism), no one really wants to deal with the USA if they can help it.
Re:Everything they say is true. (Score:3, Informative)
Comment removed (Score:4, Informative)
Re:Summary says it all (Score:5, Informative)
Massive government cuts are what drag economies down. Japan tried it in the 90s, Britain is trying it right now. You get 10 years of a sunken economy bumping along the bottom before it can even get back to where it was before the crash, while everyone else recovered a long time ago.
Obama did the right thing by stimulating the economy. You get out of recession first, and then when times are good again pay down the deficit. Cutting during the recession is suicide. A recession is caused by people not spending money and business drying up, so what do you think will happen if one of the biggest and most reliable spenders (the government) makes huge cuts?
Re:I'm Sorry, China (Score:5, Informative)
India just isn't as successful as China. It tried too hard to skip the whole industrial revolution thing and went straight for services and then cocked it up.
China had it right, go through it's own industrial revolution and become a manufacturing powerhouse, and as you grow that then try and focus more towards services which is what it's attempting now/next.
India just ended up making a complete hash up of services with so many companies now realising what an awful mistake outsourcing software development, call centres, finance and HR and so forth to there actually was.
That's why whilst China has flown into the spot of second largest economy, India is still stuck barely hanging on to it's top 10 spot with Russia and Canada biting at it's heels, all this despite the fact that India has just as much access to natural resources as China, is similarly situated globally, had better relationships with important export destinations, and and has a similar population size at 1.2 billion.
There was a time when people were looking at India as the next big thing alongside, or possibly even ahead of China. Now the world has turned it's attention more to the likes of Brazil alongside China.
India and China aren't that interchangeable, America couldn't just drop China tomorrow and replace it with India, as India has lost many years in failing to optimise itself to the demands of the global economy in the way China did.
See here for an illustration of the problem:
http://en.wikipedia.org/wiki/File:China_india_gdp.jpg [wikipedia.org]
The fact is that China is just more successful than India. China got it right. If America switches it's focus to India, it wont be China that loses out because India has neither the manufacturing capacity nor infrastructure to support it to meet US demand that China has built up precisely because of India's premature misadventure into services (even in Finance where for a while India was pipped to be a top 3 financial centre it's fallen far for example: http://en.wikipedia.org/wiki/Global_Financial_Centres_Index [wikipedia.org]). That means the US will be unable to acquire the products it demands whilst everyone else gladly takes them off China's hands.
Re:I'm Sorry, China (Score:5, Informative)
Right, but one of the reasons people invest in US bonds is that they feel they are more stable than other investments.
The real questions is do they feel other investments are now better.
Generally speaking, they are not, considering economists are currently predicting that if the USA defaults, the whole global economy grinds to a halt...
so those other investments have a significant exposure.