A major change is occurring in the international money system on October 1, 2016. Yet one hears next to nothing about it in the media. Here is an overview of what is occurring & why it matters.
What is occurring on October1, 2016?
The Chinese yuan officially becomes a world currency.
How does the Chinese yuan become a world currency?
The Chinese yuan will become part of the basket of currencies that the International Monetary Fund (IMF) uses to manage the world-wide monetary system. The IMF disburses funds when there is a need to maintain stability in the world-wide banking system. (One recipient of such aid was Greece).
The basket of currencies used by the IMF for this purpose has been the US Dollar, the Euro, the Japanese Yen and the British pound. On October 1, 2016, the Chinese yuan joins this group of currencies.
Why is inclusion of the Chinese yuan in the IMF reserves significant?
China will now part of an elite group of countries that make policy in regards to international banking. It is recognition that China is a world economic power.
What does this change mean to the strength of the US Dollar?
In the short term, nothing. The US Dollar remains the dominant global currency. The overwhelming amount of international monetary transactions are in US dollars (Eight five percent by some accounts).
For that to change, there would have to be a loss in the confidence in the US Dollar or a gain in confidence of the Chinese yuan.
So why does this matter to me?
Americans need to understand that the dollar, someday, will no longer dominate the world. Government officials must be held accountable by the public to put policies in place to keep the dollar strong. A weak dollar would mean paying more for the necessities of life. For example, a fifty percent decline in the value of the dollar would mean paying perhaps $10 a gallon for milk!
It is hoped that this very broad overview throws some light to a little-understood topic. With this knowledge in hand, readers can place a more informed vote for public officials.
John J. Kasperek passes along information he feels is important in the money lives of people.