Citing four sources with knowledge of the matter, Reuters reported on Tuesday, China’s major state-owned banks reportedly sold US Dollars in the offshore spot foreign exchange market, as authorities sought to steam the recent slide in the Chinese Yuan.
I’ve just connected the dots and wonder if China selling off US debt is connected to the possible announcement, later this month, of a BRICS currency backed by gold:
What would happen to US/Western debt if such an measure was announced?
The BRICS can not be backed by gold. There is not enough gold.
That does not mean the price of gold will go up. Odd that.
Gold is a paperweight or a doorstop.
Nothing?
If you think it being backed by gold vs. fiat would have an impact, can you elaborate?
I would certainly think it would have an impact on gold prices (likely push them up as a gold backed currency should lead to gold being removed from circulation - though it really has already been removed prior to any potential announcement) but since our debt is fiat and not gold-backed, I am not seeing the direct impact it would have on our debt. Your linked article suggests as much (though it does suggest it would increase the price of Treasuries - not sure I see the logic in that prediction).
I’ll predict: nothing. The idea that Brazil, Russia, India, China and South Africa are somehow going to roil world markets and/or somehow change the demand for US debt is a fantasy, larger than anything Walt Disney, Robert Heinlein, or JD Rowling could conjure, even with a bowlful of mushrooms.
Walk up to your friendly local banker and ask “Hey, want to exchange some US bonds for those in Russian and South Africa?” and you’ll be laughed off the street.
Actually it would destroy China, India and Brazil. The reason, it would impede capital formation in those countries.
adding
After Bretton Woods bank failures are different.
Meaning prior bank runs etc were not on liberalized economies. The confusion of currency value and bank runs, in a liberalized economy capital formation is much faster. That would mean to some people bank failures will be worse and more frequent. In fact that is not true. We have a different pattern yes but the system today is freer to heal and recover.
This allows us to take controls off of interest rates.
No I can’t elaborate as I’m not sure. Just asking for people’s views.
Despite the click-bait headline, the Kitco article actually laid it out pretty well: Absolutely nothing.