in a period of terminal decline, and that the Chinese renminbi is going to take tremendous market share away from the dollar – and they want a big piece of the action. To that end representatives of the Hong Kong Exchange and the Singapore Exchange, THE two dominant financial centers in Asia, have signed an agreement to combine their forces in rolling out more financial products denominated in Chinese renminbi. This has massive consequences for the global financial system – and the future of the U.S. dollar.
The renminbi has already surpassed the euro to become the #2 most-used currency (8.6%) in the world when it comes to trade settlement, according to a report released yesterday by the Society of Worldwide Interbank Financial Telecommunication (SWIFT). The U.S. dollar has the lion’s share of trade settlement (+80%) but just look at how quickly the renminbi has grown; in January 2012, its share of the global market was just 1.9% so it has grown by nearly a factor of 5x in less than two years and, with today’s agreement between Hong Kong’s and Singapore’s financial exchanges, that growth will likely accelerate.
As we’ve discussed before, the dollar is in a unique position simply because it is the world’s dominant reserve currency. When a rice distributor in Vietnam does business with a Brazilian merchant, they close the deal by trading US dollars with each other… even though neither nation actually uses the dollar. It’s been this way since World War II, simply because there has been such a long tradition of trust in the United States, and a steady supply of dollars throughout the world, but this confidence is fading rapidly as merchants and banks around the world have been seeking alternatives, primarily the Chinese renminbi.
As the dollar’s market share in international trade decreases, it will mean the end of US financial privilege. No longer will the U.S. be able to print money without repercussions and, as so many other nations have learned the hard way, when you print money with wanton abandon and indebt your nation to the hilt, there are severe consequences to pay.
Today’s move between Hong Kong and Singapore gives us a glimpse into this future. We’ll soon see more financial products – oil, gold, Fortune 500 corporate bonds, etc. denominated in renminbi and traded in Asia and, as trade in these renminbi products grows, the dollar will be closer and closer to its reckoning day.
Years from now when this has played out, it’s going to seem so obvious. Just like the post-Lehman crash in 2008, people will scratch their heads and wonder– ‘why didn’t I see that coming?’…Duh. Same thing. People will look back in the future and wonder why they didn’t see the dollar collapse coming… why they didn’t recognize that it was a bad idea for the greatest debtor nation in the history of the world to simultaneously control the global reserve currency…
The warning signs are all in front of us and today’s agreement between Hong Kong and Singapore is one of the strongest signs yet."
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