Monday, 20 April 2009

New global reserve currency based on industrial metals !

I have previously enthused about the maverick reporting skills of Ambrose Evans Pritchard from the Daily Telegraph and wanted to share this fascinating piece which was published recently.

The article addresses the shift in policy by the Chinese government away from holding the vast majority of its foreign reserves in US dollars and Treasury bonds and much more towards an accumulation of industrial metals, primarily copper.

Pritchard, in his piece, quotes Nobu Su, head of Taiwan's TMT group and which ships commodities to China, who gets straight to the point

"China has woken up. The West is a black hole with all this money being printed. The Chinese are buying raw materials because it is a much better way to use their $1.9 trillion of reserves. They get ten times the impact, and can cover their infrastructure for 50 years."

Also discussed is the enthusiasm from the head of the Bank of China for a resuscitation of the Keynesian idea of the "bancor" which would be a new global unit of account and potential reserve currency founded upon natural resources, which is something that I have discussed here previously .

The beauty of recycling China's surplus into metals instead of US bonds is that it kills so many birds with one stone: it stops the yuan rising, without provoking complaints of currency manipulation by Washington; metals are easily stored in warehouses, unlike oil; the holdings are likely to rise in value over time since the earth's crust is gradually depleting its accessible ores. Above all, such a policy safeguards China's industrial revolution, while the West may one day face a supply crisis.

What may have seemed like an academic issue when tabled as a topic for the G20 meeting just a few weeks ago is starting to look like it needs to be taken a lot more seriously by the current financial oligarchs. The Anglo-Saxon financial elite may have to adapt their thinking on this with more agility than they had hitherto realized.

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