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Short history of the dollar’s demise

Apr 12, 2014

The headline for the following article is in terms of China’s trade with Rwanda, but it is actually a short history of how the Chinese Yuan (currency) is replacing the US dollar. It all started after the banking crisis in September of 2008. But the big event began in November 2010, where China and Russia began trading in each other’s currencies, eliminating the dollar as the middle man. The article attributes this policy change to the near collapse of the banking system in 2008.


China, the world's second largest economy, is pushing for a bigger role for the Yuan in international trade by signing currency swaps with major economies around the world….

Experts now predict that, the end of the dollar's reign as the global reserve currency may be fast approaching….

The dollar has been the world's primary reserve currency since it replaced the British Pound sterling in 1945 following the Bretton Woods agreement, signed in 1944, that sought to make currencies convertible in order to facilitate trade….

Now, experts predict that China's currency pacts with major economies will ultimately lead to the day when the Yuan will substitute the dollar in all of China's trade with other countries; and could gradually end the reign of the dollar as a global reserve currency.

There is indeed a strong evidence to believe this assertion.

The article tells us of some countries China is now trading with in their own currencies, bypassing the dollar. Bold type means these are found in other news articles.

China and South Korea and Japan: December 2008

China and Hong Kong: January 2009

China and Indonesia: March 2009

China and Argentina: March 2009

China and Belarus: November 2009

China and Russia: November 2010

China and New Zealand: April 2011 (3-yr currency swap that can be extended)

China and United Arab Emirates: January 2012

China and Turkey: February 2012

China and Australia: March 2012

China and Brazil: June 2012

China and Malaysia: September 2012

China and Britain: June 2013

China and European Central Bank: October 2013

China and Germany: March 2014

The article focuses upon East Africa and specifically, Rwanda, saying:

Take Rwanda as an example; with Rwf1000, an importer can buy almost 10 Yuan, but only less than $2 for the same amount. In 2013, trade value between Rwanda and China hit $240 million which's a strong impetus for a currency pact between China and BNR.

Many of these countries are also making deals with nations other than China to bypass the US dollar--Japan and India, for example. Each of these new deals reduce the amount of trade conducted in US dollars, and erode the dollar as the world trade currency. When all nations use the dollar only in their trade with the USA itself, then all currencies will be virtually independent and have equal status.

The result will be catastrophic to the value of the US dollar, which has been supported in past decades by world trade done exclusively in dollars. At some point in time, we will reach the tipping point where the Federal Reserve will no longer be able to prop up the value of the dollar through its manipulative practices. When that point is reached, those holding dollars in savings accounts or US Treasury bonds will probably lose 45% of their assets (in terms of buying power). The actual dollar amount in their savings will not change, but the ability of those dollars to buy goods and services will be drastically reduced.

As they say, use it or lose it.

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Category: Financial
Blog Author: Dr. Stephen Jones