China's Yuan Becoming World's Currency Of Choice

by Franz Schurmann

(PNS) -- With the U.S. budget deficit and trade deficit looming, what currency would be considered the safest currency to invest in if the dollar took a sharp dive? Today the answer would be "none." But what would come closest to a "safest currency" would be the Chinese yuan, also called the RMB.

Last week people in the former Soviet republic and now independent country of Azerbaijan were ridding themselves of American dollars and frantically looking for manats, the national currency of Azerbaijan. In the former Soviet republics, including Azerbaijan, and in Russia itself, the rich and middle classes have considerable stashes of American dollars in their banks.

From 1940 until now the American dollar was the only universal currency in the world. It could be used everywhere and anywhere, for tourists and for deals reckoned in billions. In 1940, much of the gold above the ground was deposited into Fort Knox by governments terrified that Hitler would win World War II. But in 1944, when it was clear that the Allies would prevail, American leaders launched a number of conferences around the theme of post-war planning. One of them was the Breton Woods Conference.

While delegates attended from many countries, the main protagonists were American and British. But John Maynard Keynes, the famed British economist, could not compete with American Harry Dexter White. White made the U.S. dollar the dictator who decided other countries' currencies with a thumbs-up or a thumbs-down. And the mega-stashes in Fort Knox gave America immense power to bend recalcitrant countries to Uncle Sam's will.

A working global currency has to have three strengths to be accepted and used all over the world at all times. Most important is that it always delivers the economic values expressed on coin, paper or now electronic numbers. Second the global super-currency must have enough money to finance capital anywhere and anytime. And third it must be a "safest currency" or a "safe haven."

The unraveling of the American super-dollar began during Vietnam War. On March 31, 1968, President Johnson announced he was not going to run for another term. The bulk of his speech was not about the Vietnam War, but about the gold crisis. And on August 15, 1971, President Nixon announced that he was going to cut the connection between the dollar and gold.

LBJ knew what he had to do but decided not to do it. Nixon, on the other hand, made the right move and in the election of November 1972 won by a landslide. On July 15, l971, he accepted an invitation to visit China. From then on, every president either visited China or used the hotline to keep in contact with China's leaders.

Will Bush do what Nixon did in February 1972? So far, no fixed date has been agreed on.

President Bush wants to rebuild New Orleans without taxing the American people. He has so far not said how he will do so. But former President Clinton explained how his successor is already doing it. In an interview with ABC's George Stephanopoulos he said the United States depends on Japan, China, Britain, Saudi Arabia and Korea. "Never in the history of our republic have we ever financed a military conflict by borrowing money from somewhere else," Clinton said. He pointed out that the Chinese keep loaning us money "for Iraq, Afghanistan, and Katrina."

As a result, the Chinese yuan is silently beginning to look like a universal currency. It plentifully delivers everyday economic values without devaluation. It has enough money to finance capital anywhere and anytime. And it is a "safest currency" or a "safe haven." Not so long ago, Hong Kong banks did not handle yuan. Now they handle not only mainland China yuan but most of the Indian Ocean countries' currencies. Even Kuwait, which houses a major American base also deals in yuan.

Russia and former Soviet republics have for some time welcomed the yuan. In Russia alone there are some 5 million Chinese workers who mainly labor on infrastructure projects. It's not impossible that some Azeris shifted their dollars into yuan.

If Bush goes to China soon it will indicate that the United States will not resist the ascendancy of the yuan and instead work with China on the big challenges facing the world.