If China wants superpower status, it will have to issue its currency in size and let the global FX market discover its price.
Quick history quiz: in all of recorded history, how many superpowers pegged their currency to the currency of a rival superpower? Put another way: how many superpowers have made their own currency dependent on another superpower's currency?
A real financial power issues its own currency and let's the global FX market discover the relative price / value of the currency.
Why does China cling to state control of its currency's valuation? The obvious answer is that China's economy and global role are too fragile to absorb a major revaluation of its currency up or down: a major loss in purchasing power would raise the cost of energy and other imports, while a major strengthening of the yuan would crush the global competitiveness of China's goods and services.
As for the idea that China will unpeg its currency when it backs it with gold, recall that "Backed by gold" means "Convertible to gold." If the yuan weakens and other nation-state owners of the currency decide gold is the safer bet, China will have to exchange yuan for gold if it wants to make good on its claim to be backing its currency with gold.
If the currency isn't convertible to gold, it isn't backed by gold at all; it's just another fiat currency backed by nothing.
If China is so powerful, why doesn't it let its currency float on the FX market like other trading nations? Until its currency floats freely like other currencies and the yuan's price is discovered by supply and demand, China's global role in currency payments, loans and reserves will remain near-zero.
https://www.zerohedge.com/news/2019-05-23/chinas-insurmountable-global-weakness-its-currency
Quick history quiz: in all of recorded history, how many superpowers pegged their currency to the currency of a rival superpower? Put another way: how many superpowers have made their own currency dependent on another superpower's currency?
A real financial power issues its own currency and let's the global FX market discover the relative price / value of the currency.
Why does China cling to state control of its currency's valuation? The obvious answer is that China's economy and global role are too fragile to absorb a major revaluation of its currency up or down: a major loss in purchasing power would raise the cost of energy and other imports, while a major strengthening of the yuan would crush the global competitiveness of China's goods and services.
As for the idea that China will unpeg its currency when it backs it with gold, recall that "Backed by gold" means "Convertible to gold." If the yuan weakens and other nation-state owners of the currency decide gold is the safer bet, China will have to exchange yuan for gold if it wants to make good on its claim to be backing its currency with gold.
If the currency isn't convertible to gold, it isn't backed by gold at all; it's just another fiat currency backed by nothing.
If China is so powerful, why doesn't it let its currency float on the FX market like other trading nations? Until its currency floats freely like other currencies and the yuan's price is discovered by supply and demand, China's global role in currency payments, loans and reserves will remain near-zero.
https://www.zerohedge.com/news/2019-05-23/chinas-insurmountable-global-weakness-its-currency
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