The New Banker:

There is a new banker in town, much to the chagrin of Christine Le Guard and the I.M.F. (International Monetary Fund) This is, of course China, who recently, acting alone, and without so much as a nod of approval, from the powers that be, executed giant currency swaps with Russia and Argentina.  These swaps were executed using US dollars  held by China as a result of a highly favorable balance of trade with the United States over the past ten years. The effect was to prop up the Ruble and the Peso by showing confidence that the exchange rates with the dollar would recover, or at least would not get any worse.

Even though the leaders of China have stated that there was no quid pro quo for the transactions we all know this is bunk. What China is doing is following the well trodden path of economic nationalism or enlightened self-interest, as first practiced by the Romans and later by the Spaniards, the British, and more recently the Americans. The only difference being is that US dollars are being used instead of Chinese Yuan, or gold and silver.

There are many other examples of the same policy. the largest being the new  ship canal, capable of floating supersize bulk carriers from the Pacific to the Caribbean through Nicaragua that is being built and financed by China. The size of this undertaking is similar to that undertaken by the British with the Suez Canal and the Americans with the Panama Canal and is being built for much the same purpose.

This burst of economic exuberance does not sit well with the established Western trading nations, especially when it flies in the face of economic sanctions, such as those now in place against Russia, for the transgression of the Crimea. But short of the suicide of outright military action, that no one in the west seems to have the stomach for, there does not appear to much that can be done about it. Perhaps it is time for the West to remember the”Golden Rule” namely he who has the gold makes the rules.

No one really knows the size of China’s War Chest in dollars or gold. Suffice it to say it is very large and China is now by way and far the largest creditor of America and Western Europe. Just like any banker the Chinese economist must always be concerned with the dangers of putting all the dollar eggs in one basket. So why not export capital in dollars? and bypass the IMF and other troublesome Western based institutions controlled by the United States.

As I have postulated before The Grand Pooh-bas of China have a king sized problem. The hegemony of the Communist Party depends in large part on the ability to maintain a rising standard of living for 1.36 billion inhabitants of the continent. This continuing  endeavor will require a whole heap of natural resources that China does not have and must therefore secure. The easiest way to do this is through outright ownership or other forms of economic nationalism. Even more enticing if the resources such as oil and natural gas are available  are available from a neighbor, such as Russia, who just happens to require financial assistance to overcome  a cyclical storm.

We can look for a lot more of this.

Stay Tuned.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s