Economics
The Redback Revolution
March 5, 2015
How China Is About to Flip from Trade Exports to Trade Services
By JC Collins
The Made In China label became a symbol of economic production lost in the western world alongside the rise of cheap labor and goods from the emerging economies. The cultural meme of “everything made in China” became common and could be heard at any given moment, anywhere in the developed world.
Whole industries and business models were built around the economic methodology of exporting cheap goods. Such as numerous chains of dollar stores, and brand name clothing outlets, which manufactured products in the Chinese provinces with the lowest labor costs, and then sold the goods at inflated prices to the developed world.
China now has the largest economy on Earth, and the monetary structure which made the USD the center of the solar system is shifting towards a multilateral framework. The Chinese currency, renminbi (RMB), or otherwise yuan, which is the unit of measurement, (such as the relationship between the British sterling and its unit of measurement the pound), will soon no longer be taking a subservient position against the American dollar.
The yuan, in both its on-shore and off-shore variations, has also been called the redback, drawing on the nickname of the USD, and it’s civil war version, the greenback. For years the redback has maintained a managed currency peg with the USD. This exchange rate regime has been managed by the Chinese government and the People’s Bank of China at an undervalued false exchange rate.
Over the last 5 years the redback has become more widely used for global payments, financial investments, and reserve management. The large amount of Bilateral Swap Agreements, BSA’s, and broader acceptance, has not yet been priced into the valuation. Nor has the growing status of the Chinese economy itself. Read more in the post Renminbi Is Already A De Facto Reserve Currency.
One of the main reasons for the internationalization of the RMB is directly related to the multilateral supra-sovereign reserve asset called the Special Drawing Right. The SDR is the unit of account used by the International Monetary Fund and is being re-worked as the global reserve unit of account which will replace the USD in the coming months and years.
The SDR basket is currently based on the valuations of the USD, the yen, pound, and euro. Every 5 years the basket is adjusted and currencies are included or removed. This the year the basket will again be adjusted and the redback will be added.
There are a number of reasons supporting this measure, but none more so than the need for stability in global liquidity. The growing sovereign debt crisis which is spreading from country to country will require large scale debt restructuring on a level that no one economy or domestic currency can handle effectively and efficiently.
The optimization of sovereign debt restructuring will take place through multiple methods, such as the SDRM process of the IMF, or Sovereign Debt Restructuring Mechanism. Other methods will be CAC’s, or Collective Actions Clauses. The CAC process will be initially, and primarily, used as a method of incorporating into the issuance of RMB bonds – which will be used in a broader array of debt instruments and bank loans – the methods to address the sovereign debt issue. This process will be used in Greece and the Eurozone as the multilateral develops further into its broader global framework. See post BRICS SDR to Bailout Eurozone.
The RMB CAC and BSA dual machinations will build upward towards the SDRM and the utilization of SDR denominated bonds to address global liquidity concerns. These bonds will be issued through the BRICS Development Bank and other financial institutions as the process is expanded internationally.
The inclusion of the redback in the SDR basket is required to bring broader stability to the SDR before the debt restructuring can begin in both CAC and SDRM methods. This stability can only be realized if the RMB ends its managed peg to the USD and is allowed to free float on the forex markets.
The yuan is significantly undervalued and needs to be strengthened before its inclusion into the SDR basket. The initial IMF meeting to discuss the SDR is in May of this year, with the actual adjustments taking place in the fall months. This means that sometime in the next few months Chinese authorities will have to end the managed peg and allow the redback to become more market oriented.
There is a concern amongst economic analysts that China is headed for a “soft landing’ or a “hard landing” as it’s credit markets contract and economic growth slows alongside the global deflation which is worming its way through the sinuses of the existing international system. This line of thought continues into the managed float regime as conclusions are made and published that China will not allow the redback to float freely on the forex markets because it could lead to a devaluation.
This simply will not happen because the actual real world value of the RMB has not been priced into the managed regime. Once the managed peg is ended and the currency free floats, the yuan will experience strong real exchange rate appreciation as the existing BSA’s and foreign reserve amounts increase dramatically alongside the further internationalization and inclusion into the SDR basket.
The argument which is made against the appreciation of the yuan is that it would destroy China’s trade exporting economy. As such, it would further reduce economic growth and deepen the contraction of credit markets in the country.
What isn’t widely accepted is that the appreciation of the RMB and a move away from the existing trade exporting model is exactly what China wants. Not only do they want it to happen, but they have taken strategic and necessary steps to ensure that it happens.
Over the last 10 to 15 years China has continued to modernize along with the flow of economic growth. At one point, China was building the equivalent of three Chicago’s every year. The construction of these ghost cities, which have remained relatively empty, created a world wide shortage of iron and rubber.
Many analysts assume that since these cities have sat empty all this time that it was a clear sign of a real estate bubble in China. But nothing could be further from the truth.
The engineering of the ghost cities were a part of the National New Urbanization Plan which intends to move 100 million people from the rural population into the cities by 2020. The intent is to increase the urban population of China by 60% and create a larger consumer class as the economy shifts away from the exporting model.
This will be the largest human migration in the history of the world. The economic strategies and cultural engineering used to accomplish it will be studied for generations to come.
China is about to create a middle class.
In its efforts to regain the superpower status which it had previously held three times in the last 2000 years – the Han Dynasty, the Tang Dynasty, and the Qing Dynasty – China has developed an urbanization plan which is meant to attract “elite human talent” to the “elite cities” which will be structured under strict population controls and citizenship will be based on a point system.
As the old world USD based system recedes into the shadows of yesterday, (like the British Empire before it) we can determine that the National New Urbanization Plan of China will become, under the emerging multilateral framework, the Global Urbanization Plan of the United Nations. See post Development Goals of the New World Order and The Globalization of Central Banks.
For all the GDP growth and opportunity to modernize which the exporting model afforded China, it came with some increasingly apparent downfalls. First, the trade exporting model creates massive inequality within the population, which is being addressed by increasing the percentage of urban population and decreasing the percentage of rural population.
Secondly, it contributed directly and indirectly to under-consumption and over-investment. This will be reversed by shifting the Chinese economy from the existing trade exporting model to a trade services model.
The exporting model is self-explanatory but the trade services model may need some further review.
As the redback appreciates and is added to the SDR as one of the reserve currencies making up the basket, China will be looking at ways of expanding existing services and creating new ones. These services consist of financial services (think Eurozone bailout and McDonald’s bonds), communications, transportation into international markets and regions, promoting tourism, and the exporting of media and traditional Chinese values and heritage.
Chinese economic strategists have a set a target of reaching $1 trillion of Trade Services by 2020, the same year in which the urbanization plan is set to include 60% of the population. This is a dramatic shift away from the policy of exporting goods which carried the growth of the Chinese economy for decades.
When China ends the managed peg to the USD, other ASEAN economies will follow. As a broadening of the Chiang Mai Initiative Multilateralization, member countries such as Vietnam, Malaysia, and Indonesia, amongst others, will also end existing pegs and establish floating pegs with the RMB. The strong economies amongst the group will see currency appreciations alongside the redback. See posts Why the Vietnamese Dong Will Reset, The Dongs Revaluation is Imminent, and Dong & the Pan-Asian FX Trading Center.
The geopolitical tension which is taking place in the world is symptomatic of this transition away from the unipolar USD based system towards the framework and macroprudential policies of the multilateral SDR based system.
The USD, which has held the position of the Sun in the solar system since 1944, will soon be relegated to the position of a Jovian Giant, alongside the redback, as the SDR moves into the center position, from which all other currencies and commodities will both define, and maintain, their orbits.
The greenback, like the redback, are both about to go through some dramatic adjustments and re-engineering as the multilateral continues to emerge. – JC
http://philosophyofmetrics.com/2015/03/05/the-redback-revolution/#more-2255
Search found 1 match for more-2255
The Redback Revolution March 5, 2015 - Mon Mar 09, 2015 6:10 pm
|
|
Today at 9:52 am by Rocky
» utube 3/28/24 MM&C Iraqi Dinar - IQD Update - SWIFT - Purchasing Power - Urban Renaissance - Releas
Today at 9:51 am by Rocky
» Al-Mandalawi: Iraq is witnessing competition between major companies...and the House of Representati
Today at 9:49 am by Rocky
» The President of the Republic stresses the importance of the role of programmers in developing the w
Today at 9:46 am by Rocky
» The Minister of Industry and Minerals follows up on the technical and production performance of the
Today at 9:45 am by Rocky
» The Minister of Finance is following up on the field the progress of the newly implemented ASYCUDA s
Today at 9:44 am by Rocky
» Statistics: There are more than 15 million bank accounts in Iraq
Today at 9:42 am by Rocky
» Representative: One paragraph hinders the passage of a general amnesty within the House of Represent
Today at 9:37 am by Rocky
» Parliamentary Finance: “The draft federal budget law will be devoid of new job grades.”
Today at 9:36 am by Rocky
» Parliamentary action to resolve the fate of “food security contracts” in 15 governorates
Today at 9:35 am by Rocky
» 300 factories turned into "iron scrap" in Diyala
Today at 9:34 am by Rocky
» A deputy expects the dollar exchange rate to reach 140 Iraqi dinars
Today at 9:32 am by Rocky
» Al-Yasiri: The American administration is working hard to destroy the Iraqi economy
Today at 9:31 am by Rocky
» Infographic: The highest annual salaries of leaders of Arab countries
Today at 9:30 am by Rocky
» Communications announces that the electronic signature project has reached advanced stages
Today at 9:29 am by Rocky
» Parliamentary Integrity presents a file related to Kuwaiti violations of Iraqi oil
Today at 9:27 am by Rocky
» Parliamentary move to include amendments to Parliament’s internal regulations on the agenda (documen
Today at 9:25 am by Rocky
» The Iraqi President urges the Minister of Finance to expedite the payment of salaries to the Kurdist
Today at 9:23 am by Rocky
» Central Bank of Iraq sales exceeded $251 million at today’s auction
Today at 9:21 am by Rocky
» The Foreign Minister questions the "Iraqi resistance" attacks against Israel: the other side did not
Today at 9:20 am by Rocky
» The Minister of Labor announces progress in the electronic payment system
Today at 9:17 am by Rocky
» Interior Ministry: For the first time, we controlled the smuggling of petroleum derivatives by 98 pe
Today at 9:16 am by Rocky
» International companies offer offers to invest in the Dhi Qar marshes.. What distinguishes them?
Today at 9:15 am by Rocky
» “Tough” comments on interest rates raise the dollar globally
Today at 9:14 am by Rocky
» Iraq is the fifth largest oil supplier to South Korea in a month
Today at 9:12 am by Rocky
» Recovering more than 100 billion as a result of more than 200,000 employees on social welfare
Today at 9:11 am by Rocky
» The Sudanese consultant announces the completion of Baghdad Metro track designs
Today at 9:08 am by Rocky
» Al-Sudani stresses ending the problem of triple-shift schools
Today at 9:07 am by Rocky
» Iraq begins building two new tankers to transport petroleum products
Today at 9:06 am by Rocky
» Forming a council for “competition and preventing monopoly”
Today at 9:04 am by Rocky
» Features of an Iraqi-Turkish agreement regarding the status of the Kurdistan Workers’ Party
Today at 9:02 am by Rocky
» {Al-Buzrajiya} between the hammer of fraud and the power of the owners
Today at 9:01 am by Rocky
» Ministry of Oil: The gas sector is witnessing great development
Today at 8:59 am by Rocky
» An agreement with Britain in the field of securities
Today at 8:58 am by Rocky
» Discussions between Baghdad and Ankara to open a new port
Today at 8:57 am by Rocky
» Trade: About 11 million citizens updated their new card information
Today at 8:56 am by Rocky
» Electronic payment is sustainable growth
Today at 8:55 am by Rocky
» Experts: Iraq qualifies to be an important tourist country
Today at 8:54 am by Rocky
» Amending the Health Professions Law “robs” scientists of the central appointment 3 years after it wa
Today at 7:20 am by Rocky
» Is the “blessings package” that Erbil paid to the citizens of Kurdistan related to the elections?
Today at 7:19 am by Rocky
» Exceeded 5,000 projects.. Allocating 10 trillion dinars to support governorate reconstruction plans
Today at 7:18 am by Rocky
» “His need no longer exists.” Parliamentary Finance confirms the necessity of returning the retiremen
Today at 7:17 am by Rocky
» To communicate with the bases... 12 directives from Al-Sadr, including blocking numbers for non-gove
Today at 7:15 am by Rocky
» In an interview with "Baghdad Today"... an Iranian researcher reveals the importance of Haniyeh's vi
Today at 7:14 am by Rocky
» After it was 63 trillion in 2023... the 2024 budget deficit will rise to 80 trillion dinars
Today at 7:13 am by Rocky
» Parliament reveals the date of the first evaluation of the governors and determines the party respon
Today at 7:11 am by Rocky
» The President of the Republic informs Al-Araji and Al-Basri: Momentum must be mobilized to eliminate
Today at 7:10 am by Rocky
» Can the Federal Court sue others? A legal clarification of its response mechanism to abuse
Today at 7:09 am by Rocky
» Despite promises to soon stop burning gas.. What is the secret behind Iraq renewing the Iranian gas
Today at 7:07 am by Rocky
» Advisor to Al-Sudani: The dollar is on the way to further decline, and 70% of Iraqi traders have ent
Today at 7:06 am by Rocky
» Iraq exported more than 99 million barrels of oil last February
Today at 7:04 am by Rocky
» Barzani “gives good news” to Kurdistan employees: salaries, land, and loan exemptions
Today at 7:03 am by Rocky
» Alia Nassif: Nour Zuhair returned to the port of Umm Qasr to make deals.. An influential Shiite forc
Today at 7:02 am by Rocky
» The Prime Minister announces the movement of nearly 500 stalled projects
Today at 7:00 am by Rocky
» A government strategy to enhance investments.. Iraq is on the verge of a new era of economic develop
Today at 6:59 am by Rocky
» Ranging between 20% and 50%.. The Kurdistan government decides to reduce service fees, customs dutie
Today at 6:58 am by Rocky
» Al-Sudani: The reform approach in the security services is an integral part of reform in other secto
Today at 6:56 am by Rocky
» Everyone in Iraq wants the Sudanese visit to Washington to be successful, even the factions!
Today at 6:55 am by Rocky
» Sources and experts expect the agenda.. in his bag is the Baghdad dollar and the factions’ truce, bu
Today at 6:54 am by Rocky
» The decision to raise gasoline prices arouses the ire of drivers...a reminder of the large demonstra
Today at 6:53 am by Rocky
» Parliamentary services: 3 important hospitals in Baghdad will enter service at the end of the year
Today at 6:52 am by Rocky
» Iraq signs a contract to supply Iranian gas for a period of five years
Today at 6:50 am by Rocky
» Parliament adds a voting paragraph on amending the Penal Code to its agenda
Today at 6:49 am by Rocky
» His political advisor: We are not afraid of Sudanese entering the elections alone
Today at 6:48 am by Rocky
» Parliamentary services explain the reasons for the rise in real estate prices in Baghdad
Today at 6:46 am by Rocky
» Attia, criticizing the government's decisions: "The citizen's feathers will be ruffled without servi
Today at 6:45 am by Rocky
» Parliamentary Communications: Zain Iraq and Asiacell did not pay their debts
Today at 6:44 am by Rocky
» The Governor of Karbala announces the imminent establishment of the largest industrial city in the c
Today at 6:43 am by Rocky
» A government determination to end the issue of displaced persons in the middle of this year
Today at 6:42 am by Rocky
» Iraq buys gas from Kurdistan to generate electricity
Today at 6:41 am by Rocky
» Parliamentary signatures to include an amendment to the internal regulations to decide the choice of
Today at 6:40 am by Rocky
» In Basra.. a demonstration against foreign workers in Iraqi companies (video)
Today at 6:38 am by Rocky
» Al-Samarrai: Presidency of Parliament is an entitlement to the constituents, and calling it a “frame
Today at 6:36 am by Rocky
» Electronic food supplies in 6 governorates... covering 11 million Iraqis and “writing off” about 700
Today at 6:34 am by Rocky
» Corruption of the Ministry of Transport.. Representatives express their surprise at the minister’s s
Today at 6:32 am by Rocky
» The biggest supporter of the invasion of Iraq.. The death of former US Senator Joe Lieberman
Today at 6:31 am by Rocky
» Iraq is ranked “late.” A list of the most and least safe Arab countries for women
Today at 6:30 am by Rocky
» The Council of Ministers exempts the Gulf Interconnection Authority from guarantee fees: it is a gov
Yesterday at 9:48 am by Rocky
» The Iraqi government raises the size of the 2024 budget, and Parliament is “surprised”
Yesterday at 9:46 am by Rocky
» Popular Movement: We have many economic options away from American hegemony
Yesterday at 9:42 am by Rocky
» The Oil Parliament stresses the need to transfer part of the revenues to the producing governorates
Yesterday at 9:41 am by Rocky
» It will cover 14 regions in eastern Iraq.. A deputy reveals the “border electricity” project
Yesterday at 9:40 am by Rocky
» Experts Warn Mass Migration Threatens US Food Security
Yesterday at 9:37 am by Bama Diva
» Al-Fateh: America occupies Iraq through agreements
Yesterday at 9:37 am by Rocky
» Anger in Iraq over a "sudden decision"... and a reminder of a "general strike" that paralyzed the co
Yesterday at 9:34 am by Rocky
» Parliamentary Committee: Parliament is discussing today a decision that “disturbed” the Iraqis
Yesterday at 9:33 am by Rocky
» Ministry of Electricity: Our production will reach 27 thousand megawatts by May
Yesterday at 9:31 am by Rocky
» Diagnosing the “most important” problems in the oil file between Baghdad and Erbil.. What is the rel
Yesterday at 9:30 am by Rocky
» The Iraqi Fiqh Academy and the Sunni Endowment issue a fatwa to pay Zakat al-Fitr
Yesterday at 9:28 am by Rocky
» The National Bank of Iraq continues its digital transformation by launching its new banking system a
Yesterday at 9:26 am by Rocky
» Parliamentary Investment and the Central Bank are discussing the housing initiative
Yesterday at 9:25 am by Rocky
» The Prime Minister announces the restart of 500 suspended projects
Yesterday at 9:23 am by Rocky
» Al-Barti assesses the region's employees: Your salaries are insured and will be paid after resettlem
Yesterday at 9:21 am by Rocky
» Iraqi-American discussions in anticipation of the Sudanese visit
Yesterday at 9:20 am by Rocky
» Iraq and Turkey hold meetings in Ankara to discuss technical issues related to the development road
Yesterday at 9:17 am by Rocky
» A government parliamentary agreement to support budget revenues and governorate allocations for inve
Yesterday at 9:16 am by Rocky
» Oil: The gas sector is witnessing great development
Yesterday at 9:15 am by Rocky
» A Kurdish-French agreement to develop trade and economic relations
Yesterday at 9:13 am by Rocky
» Exchange companies in Mosul demand that they be entered into the currency selling window
Yesterday at 9:12 am by Rocky