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Miles Report No. 51 - 2014 11 15

These reports are now available at Axis of Logic

Miles Report No. 51 - Harper disses the US dollar.

And there it is official - Canada now has a Chinese renminbi exchange agreement. I have to admit it is a clever economic move by Harper as China is the world’s rising economic power - even if beset by its own economic problems. The talk on the business news is two parts: first the extra business deals that arise because some Chinese companies will give preference to other countries that deal with the renminbi; and secondly the savings that Canadian businesses will have without having to exchange with U.S.dollars first. .

Both of these aspects tie into the primacy of the US$ as the world’s reserve currency. All inter-bank transactions are channeled through SWIFT, the Society for Worldwide Interbank Financial Telecommunication. Don’t be too fooled by the fancy title - what it amounts to in essence is a centralized system wherein all transactions that deal with the US$ pass through its computers. Although a “private” system, SWIFT is set up by banks, and banks these days are pretty much fully integrated into the political economies of different countries, especially in the U.S., the EU, and Japan.

This gives the U.S.government a great deal of information on global business trends - and a great deal of control should it decide to do so, primarily by deleting a country’s ability to use the system. It has done so with Iran, with some results - and some of those results have been to push Iran into a gold/barter/local currency exchange system with various countries including China, India, and Russia. Russia was threatened with it after the neo-nazis took over Ukraine, but wiser heads have prevailed so far - and even so, Russia and China are both doing their best to exit the US$ reserve currency.

With Canada having a direct renminbi exchange it no longer has to use the SWIFT system in order to transmit payments between China and itself. That is one of the reasons that Chinese businesses would prefer to do business with countries that have renminbi exchanges. At the same time, while maintaining some business privacy, they are also saving money, as converting to US$ and then back again increases expenses at both ends.

More importantly - and this I covered in my previous report - by not using US$, the role of the US$ as global reserve currency is weakened. I can’t imagine that this going over too well with Harper’s neocon Republican handlers (read "Party of One" by Michael Harris). It is an interesting juxtaposition - at one end, kissing Chinese butt, and at the other spitting in the Russian face. Russia is rapidly becoming part of China’s resource hinterland, as well as an integral part of the new ‘Silk Road’ of high speed transit and communications that is being developed through middle Asia towards Europe, via Moscow.

I have never denied Harper’s intelligence, only how he uses it. In this case - although the business presentation is that of cheaper trade and more trade - it is another chip taken away from the power of the US$ as the global reserve currency. How well this plays out will be interesting to follow.

The U.S. is a faltering economy. The latest balance of trade figures show that the U.S.-China trade balance overwhelmingly favours China. The U.S. is a debt ridden consumer laden importer nation, while China holds trillions of U.S. dollars and treasury notes in reserve. Not all is perfect in China, but China could collapse the U.S. economy overnight if it so desired, but for the moment the status quo of wealth being transferred eastward is working well for them.

So which way are we going? Are we simply hedging our bets? We are small players in the global economy, and our own currency is tied to the weakening US$, without anything to support our dollar as the U.S. economy declines. Except maybe now, our trade will turn towards China more and more, and like Russia, we will be a resource hinterland for them.

We already have the FIPA with China, and this renminbi exchange agreement was more than likely a parallel agreement with the FIPA bargaining discussions. Notice that FIPA is not advertised as a ‘free’ trade agreement, even though it is compared to NAFTA, which is titled to be all about ‘free’ trade but is really about corporate governance of trade. As US$ hegemony weakens, Canada, rooted as it is in the U.S. economy, is already leaning with the winds of change to being fully involved within the Chinese trading sphere.

I doubt that China cares too much about our human rights problems (vis a vis First Nations), nor would they worry too much about Canada’s mostly symbolic military supporting the U.S. global hegemon in Syria and NATO. What is evident is that China is playing a long term economic game, pulling Canada into its embrace.

Fortunately, that embrace is civil, businesslike, and not at the barrel of a gun, or the exploding end of a U.S. made Boeing Hellfire missile. Yes, Canada is a peaceful neighbour of the U.S., but it also supports its militarized foreign policy that is designed essentially to protect the petrodollar as the global reserve currency.

In short, creating a renminbi exchange is a move in the right direction, and to some degree, for the right reasons.

Now if we could only do something about our ridiculous militarized posturing….

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