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Sunday, April 13, 2014


The rumor going around is that the new Shanghai Free Trade Zone is going to be moving to a convertible renminbi / yuan by this summer. 

To follow that up, this note from Standard Chartered Bank, says that "at least 40 Central Banks have invested in the yuan and several more are preparing to do so. The trend is occurring across both emerging markets and developed nation Central Banks diversifying into 'other currencies.'" 

Perhaps most ominously, for king dollar, is the former IMF manager's warning that, "The yuan may become a de facto reserve currency before it's fully convertible".

WOW!  Now, generally speaking, to be a reserve currency the currency has to be fully liquid, and held by all central banks to facilitate the terms of trade. 

But, think about what this guy had to say here for a minute: As long as China has the currency swap agreements in place with all the nations that they trade with, and some they don't trade with, and those countries hold renminbi / yuan as a reserve currency to facilitate the terms of trade, then who needs full convertibility to be a reserve currency?  Apparently not the renminbi / yuan.

These currency swap agreements that China has been signing with countries have removed the U.S. dollar from the terms of the transaction.  China now only uses the currencies of the two countries making the trade. 

And what does that mean for Gold?

Well, if China no longer needs to buy US debt to stock US dollar reserves, how on earth can the Fed keep winding down its debt purchases without creating a massive liquidity crisis?

And with the current levels of debt any liquidity crisis is bound to reveal another solvency crisis.

The Fed will be forced at some point to AGAIN CHANGE COURSE and when it does, it will have lost all credibility.

It will obviously postpone this most damaging move for as long as possible.  But when it does again change course and INCREASE ASSSET PURCHASES gold will take off on the final massive upleg of this long term bull.


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