This little bit of economic news seems to have quietly slid out of the papers here fairly quickly.
Fortescue minerals group is a medium sized player in the Australian iron ore market, it appears they have more confidence in the stability of the renminbi (Chinese currency) rather than the US dollars traditionally used for international commerce.
Tie that in with the US treasuries attempts to inflate away their domestic currency crisis and we may be looking at a severe downgrading of the prestige and value of the US currency as a unit of international trade.
A resources analyst says a decision by Fortescue Metals Group to trade using the renminbi signals a shift towards widespread transactions in the Chinese currency.
Yesterday, Fortescue Metal’s boss Andrew Forrest announced his group had completed its first ever deal using renminbi.
It is understood FMG is the first Australian company to trade in the currency rather than in US dollars.
The first, Mr Forrest is a pretty canny bloke, it remains to be seen if his business sense is right on this one.
The Chinese currency currently has its value pegged to the US dollar, if the dollar was to freefall it would be insane for the Chinese to allow it to take their currency down as well.
What would they then peg their currency to? The Euro?, British Pound?, The Yen? risky. Its difficult to see any other currency with the same “weight” to peg against.
He said he expects other Australian companies to follow suit.
“I don’t think it’s just Australian miners, it’s the Australian economy will definitely follow this move,” he said.
“It will start the flood because it makes it much easier now to do business with China, it’s part of China’s opening up and China becoming more efficient in global engagement.” Analyst Peter Strachan says the trade makes financial sense with China the region’s dominant economic and political force.
“They’re standing up and saying it’s our time,” he said.
Mr Strachan says many Australian companies will soon be trading with China using the renminbi.
“It’s not just going to be in iron ore, it will be in jocks and socks, through to refrigerators and whatever else comes through the door.”
The US government is printing money at a record rate, in all likelihood the US dollar is overvalued due to its reserve currency/trade currency status. If it were to lose even a large percentage of that just how much could the US dollar crash?
On the upside it would make exporting US products more competitive.
On the downside….everything else.
Now Im not a clever man, but I can see the US crippling itself in an attempt to ride out a downturn. Printing currency to inflate toxic losses is WORSE than the pricing correction trying to happen will be.