In hard-money circles, we hear this story all the time: “China and Russia are creating a new world currency.”
This is the dumbest story in hard-money circles. Really, it’s imbecilic. The people who argue this way are saying that a fiat currency run by Commie apparatchiks, when combined with a fiat currency run by ex-Commie apparatchiks, will beat the U.S. dollar and the euro in international markets.
Do you believe this is likely? If so, on what basis?
But it’s not just hard-money sites that repeat this nonsense. A big story today is this: Yuan Passes Canada Dollar to Rank Fifth for Global Payments.
To which I respond: “Well, whoopdie-doo.”
Then we read this:
The yuan overtook Canada’s dollar to rank fifth for use in global payments, bolstering the case for the International Monetary Fund to endorse it as a reserve currency.
Big news, right? Wrong.
When you see a headline like this, think “Henny Youngman.” He was famous for this line: “How’s your wife?” “Compared to what?”
The proportion of transactions denominated in yuan climbed to a record 2.17 percent in December, from 1.59 percent in October, the Society for Worldwide Financial Telecommunications said in a statement.
That is half of the answer to “Compared to what?” Here is the other half:
The dollar and the euro remained the two most-used currencies globally in December with respective shares of 44.6 percent and 28.3 percent, according to Swift, a Belgium-based financial-messaging platform. The pound ranked third with 7.92 percent and Japan’s yen was fourth with 2.69 percent.
Yet we are asked to believe this:
“The yuan has a very high chance of being chosen as a reserve currency in the next IMF review,” said Nathan Chow, an economist at DBS Group Holdings Ltd. in Hong Kong. “The yuan could even surpass the yen in the rankings this year.”
I have a two-word question: “So what?”
The People’s Bank of China will promote yuan internationalization in an orderly way this year, according to a Jan. 20 statement published on its website. More than 50 global central banks and monetary authorities already hold yuan as part of their reserves, DBS’s Chow said.
Numerous media outlets ran this story. But none of them told us what percentage of reserves are in yuan. There is a reason for this. The story would look as ridiculous as it really is.
You can look this up on Wikipedia. It took me about 60 seconds.
U.S. dollar: 64%
Canadian dollar: 2%
The yuan is buried in “other.” So is the ruble. Or rouble. No one seems to know how to spell it. If it’s one half of the dominant future world currency, why can’t everyone agree on how it should be spelled?
When you read shocking headlines, think: “Henny Youngman.” You will save yourself a lot of worry.
The next time you read that Russia and China are creating a new currency, think: “other.” Then think “hype.”