The NY Times is reporting that China has decided to let the yuan float higher against the US dollar. There has been debate about a declining dollar for years as the US federal reserve trended steadily toward a policy of free money, appropriately distributed as the feds saw fit, of course. Market watchers have vigilantly peered at their forex screens, watching the dollar-yen and dollar-euro and dollar-pound, ever observant for some sign of our currency's demise. It was great sport for the speculators, and distracted their attention from the currency that was truly headed for ascendancy as the world's next reserve currency, the Chinese yuan.
Whether the dollar goes up or down a few pennies against the Euro is irrelevant. They're both dying currencies, destined to take their place in the dustbin of history with the Zimbabwe dollar and the German Reichsmark and the old Chilean Peso. The dollar-gold cross rate has been telling the dollar's fate for several years now, but the mainstream media attributed that to loony gold bugs who didn't understand how things worked. But, among fiat currencies the Chinese yuan has been slowly building strength, unnoticed because of the Chinese government's pegging of the yuan to the dollar. However, unlike America, China has a strong economy built on savings and real industrial growth. They make things the rest of the world wants to buy, at competitive prices. They actually having a thriving foundation to back the yuan. America backs her currency with requests for a handout so the citizens can afford to consume some more.
Finally, the yuan-dollar peg has become untenable. China can't continue to import inflation from the US, as Ben Bernanke implements his grand printing scheme to save us from another depression. China has real fundamental growth, they don't need a massive dilution of their currency on top of that. America has no real growth and no prospects for growth unless we adapt structural reforms to make American business competitive on the world stage, so we will attempt to paper over that reality with our garbage dollars. The destruction of the dollar has now begun in earnest and will accelerate as the Chinese gradually open up the yuan for direct exchange.
In coming years the Chinese economy will dominate world trade. As the Chinese become the top oil consumers on the planet, the yuan will replace the dollar as the petro-currency. Oil producers, and producers of every commodity will demand payment in a hard currency that is driven by international trade. America will stubbornly cling to our misguided ideals of the socialization of risk, making us unable to compete with global producers who are less encumbered by government and lawyers. We will struggle to pay for basic commodities and our Keynesian economists and Nobel Laureates will be shocked to learn that high rates of inflation are completely compatible with a shrinking economy.