Market Watch

Australia Moves Away from World Reserve Currency

China’s foothold and the BRICS just got a little stronger. Already strong trading partners, it didn’t surprise me that China wouldn’t mind having Australia on board. Of course its the statement by China that the dollar is no longer the only game in town which really matters.

… with the Australian reporting that the land down under is set to say goodbye to the world’s “reserve currency” in its trade dealings with the world’s biggest marginal economic power, China, and will enable the direct convertibility of the Australian dollar into Chinese yuan, without US Dollar inter-mediation, in the process “slashing costs for thousands of business” and also confirming speculation that China is fully intent on, little by little, chipping away at the dollar’s reserve currency status until one day it no longer is.

And while previously the focus was on Chinese currency swap arrangements, the uniqueness of this weekend’s news is that it promotes outright convertibility of the Yuan: something China has long said would happen but many were skeptical it ever would. That is no longer the case, and with Australia setting the precedent, expect many more Asian countries (at first) to follow in Australia’s footsteps, because while the developed world is far more engaged in diluting its currency as a means to spur “growth”, Asian and developing world nations are still engage in real, actual trade, where China is rapidly and aggressively becoming the world’s hub.

 The politically correct statement…………

Former ambassador to China Geoff Raby, now a Beijing-based business figure, told The Weekend Australian: “The value of such a deal would be substantial for exporters to China, especially those that import a lot from China like mining companies, as it would remove business constraints including exchange-rate risks and transaction costs.“

Actual statement…………The days of the dollar are limited.

Full Hedge article HERE