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A month ago we pointed out that as a result of Australia's unprecedented reliance on China as a target export market, accounting for nearly 30% of all Australian exports (with the flipside being just as true, as Australia now is the fifth-biggest source of Chinese imports), the two countries may as well be joined at the hip.
Over the weekend, Australia appears to have come to the same conclusion, with the Australian reporting that the land down under is set to say goodbye to the world's "reserve currency" in its trade dealings with the world's biggest marginal economic power, China, and will enable the direct convertibility of the Australian dollar into Chinese yuan, without US Dollar intermediation, in the process "slashing costs for thousands of business" and also confirming speculation that China is fully intent on, little by little, chipping away at the dollar's reserve currency status until one day it no longer is.
Two things though. There is still a industrial glut and China needs to run trade deficits to create enough currency. As long as there is an industrial glut the dollar will not be exposed and without another liquid currency, aka a country like China willing to print enough money, what will change?
I will credit Obama and congress for making it worse and wasting 5 years doing nothing, but its better to be lucky than smart. The world is dumber than we are. If they were smart enough to create enough currency the dollar might be undermined but they are running austerity....Stupid.
Some where down the line this is going to be a major problem I just wonder when.
Why will it be a major problem?
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