China’s Long Game
With a civilization dating back 4,000 years, China has accumulated much more than just a rich sense of history. It has developed a compelling sense of destiny backed by a keen adeptness at playing the “long game.” China’s ability to position itself slowly and strategically, as a formidable global competitor, is a feat that is as astounding as it is alarming.
Although China has been involved in global trade for centuries, it showed very little interest in importing European culture–an error that eventually stifled its progress; an error that, in the last several decades, China has reversed.
The tables now have turned, and it’s important for Americans to realize the potential severity of this turn.
The Shanghai Cooperation Organization and the US Dollar
Have you heard of the Shanghai Cooperation Organization (also referred to as the SCO)? Formed in 2001, the SCO is a five-country partnership mobilized to promote economic and military cooperation. Its goal is to achieve a “revolution” in wealth among its partner countries.
What’s important to note is the scale of this partnership: they make up 40% of the world’s population. It’s even more important to bear in mind that there is one thing getting in the way of its strategic vision: the US Dollar.
China’s economic power is already far stronger than most realize
Does China have the economic strength and resources to execute its anti-US Dollar strategy? Judge for yourself:
- China is THE dominant superpower in world trade (not the US)
- China and its partners have a GDP of $50 trillion
- China exports more finished products than any other country in the world
- Based on purchasing power parity (PPP) estimates, China’s economy is significantly larger than the US
The only thing standing in the way of China’s and the SCO’s global commercial conquest is the US Dollar. But China and the SCO have already taken steps to fix that problem: gold.
How China plans to use gold to displace the US Dollar
It will be an exceedingly difficult if not impossible feat for China to replace the US Dollar with the Yuan as it currently stands. China will not be able to do this without a stable guarantee to back the yuan. And this is where gold comes in.
China has the option to displace the US Dollar in a slow and even pace. It can use the Shanghai Futures Exchange to convert yuan into gold, paying exporters in gold rather than yuan or dollars. China would not have to use state-owned gold, as most of the physical gold would be sourced through the market. By the time Shanghai reinforces its position as the largest holder of physical gold, the yuan’s stability and liquidity (as a gold-backed currency) should improve. And from this point, the displacement begins.
This process has already begun, with Russia’s central bank opening an office in Beijing to facilitate gold deliveries from Russia into China.
However, China can also choose a more disruptive course of action: they can announce plans to make yuan convertible to gold at a fixed rate. This would immediately displace US Treasuries as the zero-risk bond standard, creating chaos in western financial markets.
So far, China has opted for the least disruptive option. Nevertheless, it is important for every American to bear in mind just how well positioned China is to initiate and escalate a currency war.
What’s central to all of this is gold. Aside from being one of the most reliable forms of sound money, physical gold is the one critical element that will define the winners and losers of this conflict.
Fortunately, for us Americans, gold is something that we can all buy and hold to protect our wealth, should our own national currency collapse!
By Jeff Cavanna | GSI Exchange Media Correspondent