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Thread: now even Canada is bypassing US Dollar

  1. #1
    Banned Melonie's Avatar
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    Default now even Canada is bypassing US Dollar

    from

    (snip)Canada settles first trade deal in yuan

    HSBC Bank Canada said Wednesday it has completed the first Canadian trade using the yuan exclusively, as the Chinese currency continues to gain traction as an international reserve alongside the U.S. dollar. The deal was conducted for B.C.-based industrial auctioneer Maynards Industries.

    Fabrice de Dongo, a spokesman for HSBC Canada, said HSBC made a direct payment in the yuan currency on behalf of Maynards to a company in China. Previously, the payment would have had to be converted into U.S. dollars first.

    The ability of Canadian businesses to now conduct trade using the yuan will open up many opportunities in China, said Mark Watkinson, an executive vice-president with HSBC Canada, said.

    "China is one of the fastest growing economies in the world, and provides enormous business opportunities for Canadian companies doing business internationally," he said in a release. "The ability to conduct trade in [the yuan] may assist [businesses] in taking advantage."

    The vast majority of global trade is conducted using the U.S. dollar. But with the greenback taking a hit during the past year along with the rise of the Chinese economy, there has been discussion in recent months of adding the yuan as another reserve currency. Some, including Robert Zoellick, World Bank president, have even suggested a return to a modified gold standard.

    Letting Canadian businesses trade with Chinese companies in the native currency, bypassing the U.S. dollar, eliminates some exchange risk.(snip)


    'et tu, Brute ?'


    Canada has now joined the ranks of Russia, Venezuela etc. in bypassing the big New York banks as well as the US dollar re foreign trade settlements with China.

    The results of this change fall into two major areas. First, by eliminating Canada's need to purchase US Dollars on the world market as an intermediary step in foreign trade settlements with China, overall 'external' demand for US Dollars is reduced. This in turn will eventually result in a lowering of the US dollar's exchange rate = purchasing power ( with associated US dollar denominated prices for food, energy and anything else that involves world market commodity pricing rising as a result ). Second, by cutting out the 'middle man', far less money will be earned by the big New York banks as a result of CDN$ to US$ then US$ to Chinese Yuan currency exchange fees. Instead, China's HSBC bank will be earning those fees.

    An unavoidable side effect of this change will be a lowering of the US dollar's exchange rate versus the CDN$. This in turn will prompt more Canadians to cross into the USA for shopping trips, and will also prompt US companies and individuals to spend less money on Canadian products and services.

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    Featured Member flickad's Avatar
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    Default Re: now even Canada is bypassing US Dollar

    I had a discussion several hours ago with a friend about this and related issues and am afraid this could be the beginning of a worrying trend. That said, America did pull itself out of the Great Depression to emerge as a superpower, so there is certainly a precedent suggesting that things can still be turned around.

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    Banned Melonie's Avatar
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    Default Re: now even Canada is bypassing US Dollar

    America did pull itself out of the Great Depression to emerge as a superpower, so there is certainly a precedent suggesting that things can still be turned around
    This is true ... but even more disturbing if one studies the actual economic mechanisms by which this was made possible.

    - beginning in earnest in 1939, the US became a major arms manufacturer for 'export' markets, providing US jobs and US balance of trade profits.

    - beginning in earnest in 1939, US financiers became a major lender to Nazi Germany, as well as to the UK, France, Russia etc., providing major profits for US investors throughout the war ( i.e. profiting from both 'sides' )

    - throughout the early 1940's, gov't mandated conversion of US consumer goods production facilities to war goods ( i.e. no new cars only jeeps and tanks ), and gov't mandated rationing of strategic war material ( i.e. rubber, aluminum, copper, food ) forced a drastic reduction in US consumer spending levels due to the resulting unavailability of goods for purchase. This by default vastly increased US individual savings rates. This in turn provided the US with a huge domestic source of capital. Some of this US capital was in turn 'lent' to foreign countries at a profit.

    - throughout the early 1940's the military draft plus the added labor requirements of US industry created a major domestic US labor shortage. This reduced de-facto US unemployment to zero, and also allowed US wage rates to rise significantly - with the costs of those high US wage rates gladly being absorbed by the foreign buyers of US military export goods ( using borrowed money lent to them by the US ! ).

    - throughout the early 1940's the US was also a major exporter of oil, food, etc. at inflated price levels, vastly improving US balance of trade profits.

    Essentially, America's emergence from the 'great depression' can be directly traced to the precipitation of a world war ... a world war in which America was able to play a disproportionately large role in terms of finances and industrial activity, and also a world war in which America was able to avoid major 'damage' versus the levels experienced by other nations ( both in terms of physical damage, as well as in terms of relative casualties ).

    Arguably, these conditions should never be reproduced today - even if they could.

    Also, beginning with a recession in late 1945, and repeating almost immediately in 1948-9, once the US economy began exiting a 'war footing', it also began declining right back toward 1930's conditions. Fortunately, declines never got that deep. The decline was obviously tempered by the 'permanent removal' of some 1,000,000 working age US males who had been killed or disabled during the war ( and therefore not joining the ranks of the US post-war unemployed ). The decline was also tempered by a wave of pent-up US consumer spending on new cars, applicances, houses and other consumer goods that had been unavailable by gov't mandate during the war years. The decline was also tempered by the fact that, with production facilities in most foreign countries having been reduced to rubble during the war, the US was about the only country that still had surplus capacity to manufacture consumer goods for export.

    Again, these conditions should never be reproduced today - even if they could.

    Circling back on topic, let us not forget the 'Bretton Woods' agreement of July 1944 ... which essentially anointed the US dollar as the world's reserve currency, thus guaranteeing huge future profits for US financial institutions as well as 'locking in' artificially high strength of the US dollar's exchange rate ( thus lower de-facto prices for all world market commodities and trade goods for buyers paying in US dollars ) which lasted into the 1970's. The last vestiges of Bretton Woods is what Canada is now bypassing !

    ~
    Last edited by Melonie; 01-22-2011 at 05:52 AM.

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