Oil’s up, Gold’s down and the Dollar’s going, going, gone?

Hey, America, what’s happening to your dollar?

Are we looking at the imminent demise of the US dollar as the dominant currency for conducting business, trade and investments? Is it about to be to be replaced by the next big thing in the history of the world, namely the Chinese Renminbi or Yuan? Why does one currency have two names?

International trade

International trade is traditionally carried out in dollars. Suddenly things are changing. The Chinese government is making agreements, first with Brazil and now with Malaysia, in which trade will be conducted in the currencies of the countries concerned: renminbi and reals, or renminbi and ringitts.

The US dollar will be standing outside the fence and watching this going on.

My Loan Account

Are you telling me that my next Cash Advance Loan will be made in Renminbi or Yuan and that I should come with a U-Haul truck to pick up all the paper?

The dollar

The immediate impression being created is that the dollar is imminently doomed, consigned to the proverbial garbage can of history, whereas the relentless rise of the renminbi is inevitable. But before you race off to enroll in “Mandarin for dummies” classes and mastering the use of chopsticks, let’s consider a few aspects of the “renminbization” of global finance.

We’ve been there before

The Western world went through a similar bout of angst and pessimism exactly 20 years ago with the Japanese yen, and the outcome was that the Japanese economy imploded in 1990 and has never recovered, whereas the American economy did recover and went on to much bigger and better things.

China is different

There are many arguments why China is different from Japan and why America is also different today. Very simply Japan committed national suicide by failing to procreate and so allowing their population to age, (read decline). This has sapped the vitality of the economy and continues to do so.

America

In contrast, the American economy is the beneficiary of fresh blood pumped in, both by natural growth and by new immigrants. The massive immigration of the 1990s and early years of this decade will be a strong influence on the American economy for many years to come.

I am dollar linked

I live in a dollar-linked economy and with the fall of the dollar, I am suffering. Look at this example. An article I wrote on the 28th of April 2009 brought me about $17. I exchanged that for 72.25 shekels. This article, which I hope will also bring me $17, will, at the exchange rate quoted by the bank today, bring me only 66.80 shekels, 8 percent less. And there is no way I can cut the link!

Dollar linkage

I know that 8 percent is not serious, but the point is that everything is linked and everything has fallen by that same 8 percent between those two dates. When it comes to buying an American car, for instance, we are talking about major money. If it is an apartment, and there are apartments priced in dollars, it can easily put an end to the deal. Of course there is a good side to linkage, but that’s another article.