Throughout most of the 20th Century, the United States enjoyed outstanding financial benefits by having the dollar serve as the global reserve currency of choice. The U.S. was an obvious choice, because it was blessed with a stable political climate, a robust and growing national economy capable of absorbing a great deal of unforeseen economic challenges, and one shielded from the ravages of war on their own soil. However, in October of 1959, a Yale professor named Robert Triffin sat in front of a congressional Joint Economic Committee to discuss elements of a book he was publishing called, “Gold and the Dollar Crisis: The Future of Convertibility.” During that meeting, he explained to the Committee that the Bretton Woods system was doomed and that the dollar couldn’t survive as the world’s global reserve currency without taking on growing and compounding deficits. And in 1971, what he had warned them about came absolutely true.
Both China and Russia are and have been in “complete control” of their own currencies. In the case of China, their lack of transparency has undoubtedly been a constant source of consternation for countries considering doing business with them. And although they successfully initiated their first crude futures contracts during the last week of March, those concerns have never been greater. However, the term “currency manipulation” has far more faces than a princess cut diamond and individual faces can easily be misconstrued. For example, less than eight years ago, the finance minister of Brazil saw fit to say that the U.S. is promoting a “currency war” and the Indian finance minister suggested that the U.S. was promoting “irresponsible monetary policy.”
The U.S. response at that time was that monetary policy was properly addressing the current domestic economy’s weakness. Quite obviously opinions in New Delhi and Sao Paolo were radically different from the U.S. viewpoint. But it’s very possible that both parties are right. This morning, President Trump tweeted that China is guilty of “currency manipulation.” But exchange rates are made to move relative to economic performance and the anticipation of future events. Fluctuations are an inevitable economic spillover of our interconnected world. A myopic view can support almost any possibility, but every aspect of today’s global economy is in a state of volatile flux, so now more than ever, a broad, calm and rational approach to any scenario is called for.
Yuan value determines the cost to create and manufacture in China, not just the yuan price of foreign currencies. In addition, the inflation rate has been higher in China than its global trading partners. The relative price of Chinese exports has increased by 50% in the last ten years, while in the U.S. it’s been as flat as a pancake. And 40% of the increase occurred in the past two years. The world is operating with a hair trigger and it’s time for global leaders to sit back and take a good long look at the true global picture. There’s no room for knee-jerk reactions and no reason to ignore the fact that our past is an integral part of our present and future. Physical precious metals are the best hedge against the kinds of economic pressures headed our way. Call American Bullion at (800) 653-GOLD (4653) for immediate assistance with appropriate portfolio protection.
Although the information in this commentary has been obtained from sources believed to be reliable, American Bullion does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. American Bullion will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided on this blog is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals.