Treasury Secretary Lew met with Chinese Vice Premier Wang Yang and Finance Minister Lou Jiwei on the sidelines of the G-20 Leaders Summit
Is it just odd timing that this announcement comes behind the chaos of the Paris attacks? Or is the quiet announcement designed to float under the radar? Is this a classic diversion technique, for example, when criminals start a fire in one place so they can rob a bank around the corner?
With the uncertainty around the globe and the dollar hanging by a thread, the timing seems very suspicious. Why would leaders intentionally add more financial uncertainty in the midst of such fragility? Why not just wait until next year as they said they would?
Nevertheless, while the world was following the tragic events unfolding on Friday night in France where hundreds of innocent civilians were killed or injured, an important economic development took place at the IMF, whose staff and head Christine Lagarde, officially greenlighted the acceptance of China’s currency – the Renminbi, or Yuan – into the IMF’s foreign exchange basket, also known as the Special Drawing Rights.
As Reuters summarizes, the recommendation paves the way for the Fund’s executive board, which has the final say, to place the yuan on a par with the U.S. dollar Japanese yen, British pound and euro at a meeting scheduled for November 30.
Unless something dramatically changes in the next three weeks, of course, although that seems unlikely: moments ago Bloomberg reported that Treasury Secretary Lew met with Chinese Vice Premier Wang Yang and Finance Minister Lou Jiwei on the sidelines of the G-20 Leaders Summit in Antalya, Turkey, according to readout sent via e-mail by U.S. Treasury, where “Secretary Lew reiterated that the United States intends to support the Renminbi’s inclusion in the Special Drawing Rights basket provided the currency meets the International Monetary Fund’s existing criteria.”
This could ultimately lead to two things that would greatly impact the price of gold:
1) The dollar becomes less important in global currency swaps
2) China backs the Yuan with gold and the currency becomes the new world’s reserve currency
Either or both would cause the dollar to decline in value and gold – the ultimate currency – will increase substantially in value.
We’ll now get to see how the economy responds to the inclusion of the Yuan. It’s no longer speculation. It just doesn’t seem at this point like a positive, sun-shiney glow is around the move…at least not positive for the U.S. economy.
Sometimes you can tell a lot by how things are presented or unveiled: a choice steak cooked to perfection isn’t so appetizing when presented on the lid of a trash can.
Senior Portfolio Manager
Blanchard and Company Inc.
Bridgewater’s Ray Dalio explains why everyone should allocate some of their portfolio to gold:
“If you don’t own gold…there is no sensible reason other than you don’t know history or you don’t know the economics of it…”
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