Sunday, May 27, 2012

Japan and China Start Direct Trading of Currency in One Week? US Dollar Out?

Things are starting to roll very fast towards the US Dollar losing its place as the world reserve currency. Incredibly, this just in from Zerohedge: China And Japan Dropping Dollar Cross Rate System, Will Transact Directly:

As Yomiuri Shimbun reported last night, China and Japan are set to launch direct currency trading, bypassing the dollar, and the associated benefits and risks, entirely. "But how can that be?" dollar purists will scream. After all, when one bypasses the dollar, one commits blasphemy to a reserve currency. Somehow we think China gets that. From the AP: "Japan and China are expected to start direct trading of their currencies as early as June as part of efforts to boost bilateral trade and investment, according to reports. With the planned step, exchange rates between the yen and the yuan will be determined by their transactions, departing from the current "cross rate" system that involves the dollar in setting yen-yuan rates, Kyodo News said on Saturday."

More specifics on how the world's second and third largest economy will just say no to dollar hegemony here.

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Mr. Nobody said...

Hi Mike,

I surprised that is hasn't happened with many countries already.

For example, I was always amazed from going from one country to another, right next door to each other, say the UK, and France, when it came to exchange currencies, at a bureau de change, one always had to go through the USD. So, one had to pay two spreads, from the UKP to the USD, and then from the USD to the FRF.

Since Bretton Woods ended when Nixon closed the gold window, why do you think this lasted for so long? Do you think it was a form of imperial seigniorage Mike?

All the best!

mike in tokyo rogers said...

I'm not exactly sure why this has gone on so long except that I do think that Marc Faber is correct when he says something like, "Everyone is waiting with the bag of money and no one wants to be the last one out the door. When the rush happens, it will be a panic. Don't be the last one out!"

Boo said...

We have been selling in yuan and closing books in yen for a couple years already. This change will only make the exchange rate a bit better and probably encourage an already well-established trend.

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