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What happens if/when China becomes the Reserve Currency of the World

Discussion in 'Anesthesiology' started by aimedicine, Aug 8, 2015.

  1. aimedicine

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    As you are all aware, china is currently #1 in economy (dethroning the U.S) but they are not the Reserve Currency because their banking system need some work (and they are aggressively working to fix it), so what happens once they fix their banking system and become the reserve currency...i mean right now we can keep printing money senselessly, while blowing our fiscal debt to astronomical proportion, but we all know this can only last for so long...
     
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  3. jason46242003

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    The world as portrayed in Mad Max will finally come true and I will embrace it.

    It will be a glorious day!!!!!
     
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  4. pgg

    pgg Laugh at me, will they?
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    Lots of things in the world make me periodically angsty, but China isn't one of them.

    China's problems are larger than our own, and they are less well equipped to handle them.
     
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  5. BLADEMDA

    BLADEMDA ASA Member
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    It has been said that democracy is the worst form of government, except all those others that have been tried” – Winston Churchill.

    I don't trust the Chinese and certainly wouldn't want their currency. While many on SDN view our leaders as corrupt (e.g. the Clinton Foundation) the fact is the Chinese operate in the shadows and are not to be trusted.

    If you are looking for the real world "reserve currency" look no further than gold. The good news is that the U.S. greenback is still very strong so the "reserve currency" is on sale and may even go lower. If you want "reserve currency" now is the time to be following GOLD for sub $1,000 per ounce purchases.

    Who knows when our debt will finally catch up to us forcing massive tax increases across the board.
     
    #4 BLADEMDA, Aug 9, 2015
    Last edited: Aug 9, 2015
  6. BLADEMDA

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  7. BLADEMDA

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    Gold isn't an investment as much as it is a hedge/insurance against the US dollar. The prudent thing is to limit gold to no more than 5-10% of your portfolio.
    I'm waiting to add Gold when it drops below $1,000 an ounce but even then I won't exceed 10% of my portfolio. Gold is currency and needs to be viewed as such.

    If you want an investment in gold then speculate on the gold miners
     
  8. inquisitiveanes

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    But isn't gold a barbarous relic!. Gold has been going down consistently and the USDx has been gaining.
    Gold silver ratio is another thing to look at. When the gsr becomes extreme the payout from buying silver is probably more than that of just buying gold
     
  9. pgg

    pgg Laugh at me, will they?
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    Silver is an industrial metal that gets mined and consumed. Gold is not.

    They're both shiny and valuable metals but I think looking for meaning in the ratio of their price is a fool's errand.
     
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  10. dr doze

    dr doze To be able to forget means to sanity
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    investing and speculating are two different things. Precious Metal Equity is a reasonable investment. It has equity like returns with low correlation to equities. It also has horrific volatility and frequently takes decades to pay off. So if you have the cash, the stomach, and the patience go for it.
    Physical gold- :barf:
     
  11. BLADEMDA

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    Physical Gold is currency just like the US greenback in your wallet. I like having some physical gold and own GLD ETF as well but I view this as more of a currency hedge than an "investment." Physical Gold isn't tracked by the IRS so in the future an exchange to US greenbacks can be done utilizing currency trade in person: I give them my coins and I get US dollars.

    The OP was concerned about the US currency and was looking for an alternative currency as the true reserve currency of the world. To all the Central Bankers that reserve currency is GOLD.
     
  12. BLADEMDA

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    How Much Gold Do Central Banks Actually Have?

    Ask an economist why the price of gold goes up or down and he will invariably tell you that it is merely a function of the law of supply and demand. If more people want gold and fewer people want to sell gold, the price goes up. If there are more willing sellers than buyers, the price of the precious metal will decline.

    It also follows that those who own the most gold have the greatest power to influence its price. The largest owners of gold are countries and their central banks. When the United States, China, India, or Russia decides to become a net-buyer or net-seller of gold, it has a far-reaching impact on gold prices.

    The World Official Gold Holdings report, presented by the World Gold Council (WGC) in November of 2014, indicated that the combined gold reserves of all of the countries in the world totaled 32,056.5 tonnes. This number represents the physical gold held by central banks in their respective countries. As of the end of 2013, the WGC reported that the official amount of gold known to exist above ground was 177,200 tonnes. That means that central banks hold around 18% of all the gold that exists above ground.

    Countries with the Largest Gold Reserves (Tonnes)
    [​IMG]
     
  13. bronx43

    bronx43 Word.
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    Just saying that China's problems are bigger than our own is oversimplifying the issue. Sure, they do have more and bigger problems, but they also have some advantages over the US in terms of strength of the central government and lack of a welfare state (note that I think this is more a sociopolitical buffer than a financial one). Ultimately, the US hegemony will come to an end, and it doesn't necessarily have to be China as the usurper of that position. It would likely be a more multi-lateral world where a basket of currencies is preferred over one reserve currency. China is already gaining substantial influence in Asia, and they haven't had any issues convincing countries to join the AIIB. While it may still be in its infancy, it's at least a move towards dollar decentralization - one that wasn't possible just 10 years ago. Keep in mind that the dollar wasn't the reserve currency at the turn of the 20th century, so things may move relatively quickly.

    And to answer the question of what would happen should the dollar lose its reserve currency status... Well, then the US may find itself in some trouble fully financing its debts. In theory, the Federal Reserve can simply continue to monetize public debt, but at some point, it would begin to erode confidence in the USD. This would be further expedited if the rest of the world begin to fix their own debt problems (which may or may not happen). If the USD goes on a downward spiral, then you'll likely see runaway inflation here, and the Fed would be caught between a rock and a hard place. When these trends play out is impossible to predict in the slightest.

    Blade is right. I would hold some physical gold. In my mind, paper gold is ultimately inferior for the purposes of hedging against the USD. There's honestly not much value out there in terms of investments. Equities are largely overvalued. Fixed income has little to negative yield. Depending on your location, real estate may also be overvalued. Gold seems to be the only decent asset out there.
     
    #12 bronx43, Aug 9, 2015
    Last edited: Aug 9, 2015
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  14. bronx43

    bronx43 Word.
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    China just came out with their official gold numbers at over 1.6k tons. People are doubting this number - both up and down (most say they have more). But, honestly, it wouldn't surprise me if this is gross under-reporting on their part, since (if you've been paying attention) they've been buying like crazy over the past few years.
     
  15. Monty Python

    Monty Python Icelandic (see avatar) doesn't translate well.
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  16. BLADEMDA

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    Agree. My hunch is China has over 4 tons of gold but want to keep prices low so they understate their holdings. At the current price of Gold China will keep buying on the down low.
     
  17. BLADEMDA

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    Over9000 likes this.
  18. BLADEMDA

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    [​IMG]1) New Zealand dollar

    The New Zealand dollar is the safest store of value among the bunch. The Reserve Bank of New Zealand is the only developed nation central bank that plans on raising interest rates in the near future and the country has reformed its tax code to lower rates and increase transparency. New Zealand also has stable exports from undervalued agriculture assets.
     
  19. dr doze

    dr doze To be able to forget means to sanity
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    Devaluing one's currency is not the path to becoming a reserve currency.
     
  20. dr doze

    dr doze To be able to forget means to sanity
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    I'd rather have a freezer full of New Zealand Lamb Chops. New Zealand is a commodity/agriculture based economy; granted they are doing well. But they will tank during a prolonged global economic slowdown. Not to mention bad weather in their corner of the world.
     
  21. Mman

    Mman Senior Member
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    The US dollars in my wallet can be easily spent in almost any country in the world and exchanged for physical goods immediately. If I walked in to Target and tried to pay for my purchase with an ounce of gold, they wouldn't be able to do anything with it let alone let me walk out the store with my desired purchase.

    Gold isn't a currency by any meaningful definition. When the world ends, you aren't going to be able to barter it for anything worthwhile.
     
  22. BLADEMDA

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    When the world ends I doubt that US greenback would even be worth the paper it's printed on. The fact is GOLD can be exchanged for any currency in the world. When a country tries to print its way out of economic ruin the price of gold reflects it. Gold isn't as easily manipulated by Central Banks over a long time period compared to fiat money.

    Bottom line is Gold reflects purchasing power better than any fiat currency.
     
  23. BLADEMDA

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    Gold is genuine Wealth, it is real money
    Throughout history no paper currency has survived in its original form. Paper currencies are normally inflated away until they are worthless. The purchasing power of the US dollar has declined by 90% since 1950. The situation is the same for most currencies. When governments come under financial pressure they can never resist printing money to pay for debts, be they war debts or just excessive spending.
    Gold is the only currency which has no liability attached to it.

    So far no paper currency has survived intact over a longer period whilst gold has represented real money for several thousand years. When paper money fails investors who own gold still have a currency which holds its value despite the fact that banks may be bankrupt. Iceland is a recent example of how paper money can lose its value over night. With the massive debt levels and money printing in many countries including the USA and the UK the risk of a similar default in other countries is very high.

    Gold has at all times represented real wealth as well as being a medium of exchange. “Old money” has always maintained a percentage of its wealth in gold since the specific characteristics of gold make it probably the safest and most attractive investment for storing and preserving wealth.

    Gold stored outside the banking system should be the foundation of the wealth pyramid for high net worth individuals. Therefore, physical gold or silver should not be considered as an asset which is valued or traded on a daily basis.
     
  24. BLADEMDA

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    GREENSPAN: Yes... Remember what we're looking at. Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can macth it.
     
  25. BLADEMDA

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  26. BLADEMDA

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    The 'Big Long' - Goldman Sachs And HSBC Buy 7.1 Tons Of Physical Gold
    Aug. 10, 2015 3:40 AM ET
    Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)



    Summary
    • On August 6, 2015, Goldman Sachs, which has issued very bearish forecasts on long-term gold prices, took delivery of a 3.2-ton purchase of physical gold.
    • On August 6, 2015, HSBC which also claims to be bearish, took delivery of a 3.9-ton purchase of physical gold.
    • In both cases, the purchases are registered as being for the benefit of the bank's own house account, rather than the accounts of customers.
    • Investors should do as the banks do, not as they say.
     
  27. BLADEMDA

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  28. BLADEMDA

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    Remember, Gold is a currency and will fluctuate with the value of the US dollar or any other currency which devalues/debases over time. Right now, the US greenback is strong so Gold is weak/cheap but will that persist? Why not "hedge" some of your currency or portfolio with a real hard currency which holds its value over time.

    5% of a portfolio maybe 10% for sub $1,000 per ounce Gold makes good fiscal sense.
     
  29. BLADEMDA

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  30. Mman

    Mman Senior Member
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    Ever walk into a bank or store anywhere in the world and try to pay for something with gold? Didn't think so. It's not a currency. It can't easily be exchanged for anything. Like I said, when the US greenback isn't worth the paper it's printed on neither is the gold worth it's weight in anything.

    Gold is a commodity.

    If you are concerned about financial apocalypse, ammunition will come in far more handy than gold. At least with enough guns and ammo, you can get what you need. Gold won't help at all.
     
  31. BLADEMDA

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    Gold is NOT an investment like a stock, mutual fund or ETF. Those assets will outperform GOLD over the long run. Gold is a currency to be used in place of fiat currency. Think of it as CASH which holds its value over long periods of time. But, before buying gold one must analyze the cost to mine one new ounce of gold in US dollars. Think of this cost as "fair value" so prices 10-20% below fair value represent opportunity to add this currency while 20% over fair value means one should consider lightening up on the currency.
     
  32. Mman

    Mman Senior Member
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    While that is mildly interesting, it's less than you'd have been rolling over US treasuries over that same time frame. $100,000 to turn into $4,500,000 in 100 years is barely more than 3% return annually, and that's actually cherry picking a time frame that helps gold look as good as possible.
     
  33. BLADEMDA

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    "Gold is first and foremost money. Money that cannot be printed or debased. It therefore insulates its owner from the negative outcomes historically associated with fiat [paper] currencies," Grant says.
     
  34. Mman

    Mman Senior Member
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    And you should NEVER have any expectation that holding a currency is a good idea for any long term investment. And the posters here are overwhelmingly investing for the long term. So using gold as an investment is by definition a bad idea for the overwhelming majority of people here. If someone wants to hedge themselves for the next 2 or 3 years, maybe you could argue they should own some gold. Then again if that's all we are worried about we should all quit our jobs and live off the grid.
     
  35. Mman

    Mman Senior Member
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    If it's money, how come it can't be used to buy anything?
     
  36. BLADEMDA

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    You don't get it. Imagine walking into the attic in an old home in Boston and finding a $20 bill from 1920 vs a $10 gold coin minted that same year. Which one would you prefer to find? Gold is currency and our Constitution states as much.
     
  37. BLADEMDA

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  38. Mman

    Mman Senior Member
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    If you can't buy anything with something, it isn't a currency regardless of what a several hundred year old document says. As for walking in an attic, I'd rather have found some old stock certificates.
     
  39. Mman

    Mman Senior Member
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    "most negatively correlated" isn't a good thing when you are comparing to something that skyrocketed up especially when you are constructing a long term portfolio.

    Like I said, if you want a short term hedge, maybe, but long term? Zero chance it turns out well.
     
  40. BLADEMDA

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    Gold hits 3-week top on lower dollar, shares after yuan move


    Gold rose for a fifth session in a row on Wednesday, hitting a fresh three-week high as the dollar and global equities slid on concerns over China's devaluation of its currency.

    Earlier in the day, the People's Bank of China set the yuan's midpoint reference rate weaker than Tuesday's surprise 2 percent devaluation.

    The move sparked fears of a currency war and hit global equities, prompting some investors to seek assets perceived as safer such as gold. The metal has now recovered more than 3 percent from a 5-1/2-year low of $1,077 during a late-July rout.

    Spot gold was up 1.3 percent at $1,122.20, its highest since July 20 at $1,121.40 an ounce. U.S. gold for December delivery gained 1.3 percent to $1,122.40 an ounce.
     
  41. BLADEMDA

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  42. BLADEMDA

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    For those who think Gold isn't a currency but a commodity look at the price of Gold vs Oil vs Copper after China's devaluation of their currency.
    Gold went UP when the other Commodities went down.

    Gold is the safest currency in the world.
     
  43. pgg

    pgg Laugh at me, will they?
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    Is that the "one ounce of gold buys one fine men's suit" argument?

    Gold went from $300 to $1800 in about a 10 year period. That's a lot of suit volatility.
     
  44. BLADEMDA

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  45. pgg

    pgg Laugh at me, will they?
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    What did gold do during the 2008 financial crisis?
     
  46. BLADEMDA

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    Currency Speculation abounds in Gold which is why a fair value analysis is important for pricing that suit. Fair Value of Gold based on mining one ounce of new gold vs the value of the US dollar is around $1100 an ounce.
     
  47. BLADEMDA

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    Spikes in anything can be due to traders. Look at the price of Silver just a few years ago. $48 an ounce for silver? Gold at $1900 per ounce? What about Gold at $800 an ounce?
     
  48. BLADEMDA

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  49. BLADEMDA

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    My portfolio is a "mature" portfolio which means I hold some assets which many on here would view as poor. TIPS, Treasuries, Cash, etc are all under-performing asset classes these days vs stocks or high yield bonds. Yet, I know that because my best earning years are behind me I need those assets in my portfolio.

    Gold can be an alternative to those poor performing "cash type assets" like TIPS, US Dollars, etc.
     
  50. BLADEMDA

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  51. BLADEMDA

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