Developing countries start to trading in Yuan

By Alex Mai at 5 July, 2009, 11:56 am

While it is unacceptable weakening dollar keep buying up raw materials from developing countries, start trading in Yuan is for the great interest of developing countries. It’s perfect time for China to convince countries like India and Brazil to trade in it’s currency.

As every crisis started in U.S or the European countries where most of bubble happen to exist, they always throw trillions dollar to fill up the gap while the bubble burst. Countries like the U.S inflating the economy and repay it’s debt in weakening dollar to developing countries.

“This international financial crisis has fully exposed the weaknesses and loopholes in the international monetary system,” a deputy Chinese foreign minister, He Yafei, said at a briefing last week. “If this issue is raised by leaders during the meeting, it is natural, because we are all discussing how to respond to the international financial crisis and promote recovery.”

He said Chinese officials have no plans to raise the issue but will discuss it if others raise it.

Hu is expected to press for a bigger role for China and other developing countries in global finance.

China won a pledge of more influence for developing countries in the International Monetary Fund last November at a summit on the global crisis. But the United States and other governments have yet to commit to specific changes.

Any world financial structure “must be broadly based, having both developing and developed countries as members,” He said. Link

GDP should be measured in terms of energy produced vs energy consumed. It should not be measured in dollars. Let me give an example. The cost of fixing a plumbing problem is $300 in the US. India and China could do the same job for $20. We add $300 to US GDP but India/China gets only about $20 added to its GDP. Now that’s NOT how GDPs should be “made up”. It does not mean India or China is cheap. It could also mean US is overly expensive.

When other countries switch to other currencies US dollar value will plummet and imagine what the GDP numbers will look like. It will look worse than depression with no real depression.

What we are seeing is not nations moving to a new currency but using their own currencies for trade. They do a currency swap with a nation they trade with and then buy with the currency of each nation and avoid the dollar.

While a new global currency isn’t needed it will probably evolve eventually. The advantage to the SDR’s being the global currency is that no nation’s currency is used and each nations currency would be able to float to the SDR’s if they decided to use them. But, again, it isn’t what we will have as much as what they don’t want. They don’t want a global currency tied a currency of a government that doesn’t know what it is doing.