The chancellor of the UK, George Osborne, finalized a deal with China on Tuesday allowing the British pound to be directly traded against the renminbi (the official currency of China.) London has grown into the most active RMB center outside of mainland China according to a joint statement given after the China-UK Economic and Financial Dialogue in Beijing. To allow London to continue growing as a hub for Chinese trading the Chinese government has announced it will allow investors based in the city to buy 80 billion yuan worth of stocks, bonds, and money market instruments from financial institutions in the Chinese mainland.
With the agreement, the British pound becomes the 4th national currency to trade directly against the renminbi. In addition, Osborne has announced that the British government will allow China to build nuclear reactors in the UK. Later in the year, UK prime minister David Cameron is expected to visit China in a move that further signals improved relations between the two countries. The official Chinese media outlet Xinhuanet.com recently called for the end of the USD as the world’s reserve currency. With moves to have the renminbi trade directly against other major currencies such as the British pound China is putting itself into position to fill the void if the international community decides to move to a post-dollar world.
If China could position it’s renminbi as either the new reserve currency or the primary member in a basket approach, I’m sure it would go a long way towards solving their current economic decline. It would also put the United States in a very bad position as far as repaying the vast amount of debt owed to China. If the dollar is no longer the reserve currency, China could call in large amounts of the debt its owed without obliterating international markets in the process. China has already stopped buying our debt, hence why the Federal Reserve now buys it (after printing it). Now they are cementing their own currency in traditional international finance hubs like London and calling for an end to the USD as the reserve currency. Considering we have a president that just might default on the debt (even though this would violate the 14th Amendment and the money is there to pay the debt) I think we are in deep trouble.
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