My only criticism with the article is that it does not address the underlying issue of debt backed money. It is not just the dollar that is being challenged, in my opinion, but the debt backed dollar standard, that is, under the current system accumulated foreign reserves are exchanged for trading partner's debts, and not an asset, like gold in the pre 1971 era.
Nonetheless, the article makes some valid points that I also made in yesterday's post:
The new world monetary order continued to evolve with two separate developments Tuesday.
Japan said it would join China in buying debt securities to support beleaguered European sovereign creditors. In so doing, the world's No. 2 and No. 3 economies were acting to try to hold together the euro as a viable alternative to the world's reserve currency, the dollar, from the No. 1 economy, the U.S.
At the same time, China permitted trading of the renminbi in the U.S. for the first time -- a significant step in the RMB becoming a full-fledged international, convertible currency.
To be sure, steps taken by both Japan and China are being motivated by their own considerations. But they are both part of the loosening of the global monetary system away from its dollar-centric mooring.
..."Normally, it would be considered a pretty sick joke: Japan, the world's largest debtor by a mile, riding to the rescue of eurozone debt? C'mon now!" comments Uwe Parpart, Cantor Fitzgerald's Asia Strategist in his daily missive to clients. "But these are not normal times and if Japan has nothing better to do with its forex reserves than stuffing them into the European sinkhole, why should anyone object?"
Indeed, but Japan and China would prefer to have the euro survive than to be stuck with just the dollar as the sole viable currency for international transactions and as a reserve. What's more the economic impact of a break-up of the euro would hit Europe as a whole, a major trading partner for the export-dependent economies of Japan and China. Thus, the countries no doubt see themselves keeping Europe afloat rather than pouring reserves down a sinkhole.
... In essence, Japan and China are buying time. Obviously, their hope is that Greece, Spain, et al, will have a chance to grow out of the debt deflation. Good luck to that.
That also would provide time for an evolution of the monetary system, with the renminbi playing a greater role. The Bank of China, a state-controlled commercial bank, is expanding RMB trading in New York after it was permitted last year in Hong Kong, the Wall Street Journal reports.
This also follows an expansion of RMB dealings directly in other currencies, such as the Russian ruble and Brazilian real. Traditionally, Such "cross trading" typically involved in the exchange of one currency, say RMB, for dollars. Then, those dollar would be exchanged for rubles. This intermediate step is starting to be eliminated, cutting out the middleman of dollar dealings.
...According to the old Chinese saying, the thousand mile journey starts with a single step. These steps are part of the movement away from dollar hegemony, a journey already begun.
Misthos here. Overall, I agree with the writer's view of these currency developmets. However, should dollar hegemony come to an inflection point, that is, it reaches a more serious stage that also may affect US National Security, I think the US has something up its sleeve that most countries do not. I have written about it HERE.