A New Currency Bloc – The Chinese Question
Estimated Chinese Holdings
Stumbling Block
In any new world financial reform proposal, the Chinese voice will be very important. After all they are the world’s largest creditor nation! They have US$2 trillion worth of IOUs with them. Of course, the composition of these US$2 trillion Chinese reserves is a state secret. And after the Chinese come the Japanese with US$1 trillion of reserves. Russia, India and Brazil total to another US$1 trillion.
Given the Chinese history in the last 100 years, the Chinese will not agree to any ‘hare-brained’ scheme by ‘tin-pot’ dictators, who are sitting on some raw materials – and think that the future belongs to them. The world has so many of this variety, that it does not require me to be specific.
Even a serious attempt by the EU, with the Euro, has not been able to significantly dent the dollar market share! Apart from the Euro, in the the last 10 years, there have been at least 3 half-baked – and unbaked attempts to break the dollar hegemony. So, there you have it – it is out in the open!
What can you do about the Chinese question?
The Way Out
China, in its own short term interest (importantly) and long term interest (definitely) needs to find a way out!
Buying gold in such large quantities is not possible – there will simply be no deliveries. Increasing import ‘trade volumes’ is also difficult – as what more can China import. It cannot send many more Chinese on holidays! They don’t have the single-mindedness of the Indians – when it comes to buying gold.
What it can do is buy Western firms! China has been always been a laggard in terms of growth in software! Maybe they can buy some software firms. The domestic Chinese entrepreneurial spirit has been damped in the last 100 years. What if the Chinese were to spend on some Venture Capital funds! What if China were to kick-start their fast-moving consumer goods industry by buying P&G!
The Chinese need to acquire some big ticket assets – for about US$1.5 trillion and bring down their reserves to US$0.5 trillion. This will reduce US outstanding debt, create demand for US stocks, lift the Dow Jones, and create value for the dollar. As I see it this is the only way that the Chinese can cash in their chips. The House will not let them take it away any other way.
And then the Chinese are free to join any currency bloc – or even initiate one!
PT Barnum – Seven Pillars of Western Wisdom
Sanitize and smuggle
With passage of time, the real harm to the Indian society by some of the foreign rulers is forgotten. For instance, the Mughal period saw the impoverishment of the Indian farmer, due to uncertainty over land title, whimsical tax regimes – and not the religious agenda, which has been ‘sold’ to Indians. By latter colonial rulers, the British.
We may see a repeat of the same phenomenon, this time, seeing the colonial rule through rose-tinted glasses. Colonialism was an unmitigated disaster – and should be clearly remembered as such.
We may see attempts to cover up the colonial misrule, by ‘academics’ whose motives are not always obvious or in the open. One such ‘academic’ is Kishore Mahbubani.
Kishore Mahbubani
Gushing Press
H.E.Professor Dr.Kishore Mahbubani, of the National University of Singapore, Dean, Lee Kuan Yew School of Public Policy has recently written a book.
In an interview with The Times Of India he opined, a cloying, subservient and ignorant view of the modern history. “Asia has benefited immensely from the western seven pillars of wisdom — free market, science and technology, meritocracy, pragmatism, culture of peace, rule of law and education” says Mahbubani.
On Mahbubani, comments The Economist, very patronisingly, “Kishore Mahbubani makes some sensible recommendations.” Strangely, The Economist, says this is “an anti-Western polemic, designed to wake up Americans and Europeans by making them angry. In that goal, it will certainly be successful.” Reportedly, The Economist, has decided that Kishore Mahbubani is an “Asian Toynbee preoccupied with the rise and fall of civilisations.”
Echoing The Economist, is The Shanghai Daily, which pronounces “Singaporean author Kishore Mahbubani has been likened to an Asian Toynbee”. Joining the fray, The Deccan Herald chips in with “Kishore Mahbubani is the ultimate foreign policy guru.” Niranjan Rajadhyaksa of The Mint (a HT-WSJ publication) intones,“Asia has both suffered and learnt a lot from the West … Mahbubani has been extremely fair.”
I tried disagreeing. I thought I had overwhelming evidence. But after the Mahbubani experience, with liberal doses of assistance from St.Barnum’s (patron saint of propaganda), I must admit, I was enlightened.
And I also want to know, who your PR agency is, Kishorbhai!
1. Free Markets
I was a non-believer in Western commitment to free markets. After reading Kishore Mahbubani, I realized, I was reading too much propaganda about how Indian mangoes could not be exported to USA for the last 18 years – because of pesticide residues.
India, (wrongly) disallowed imports of allegedly, ‘over-priced, gas-guzzling, polluting’ Harley-Davidson motorcycles. USA, in turn taught India a thing or two about free trade. After a sufficiently, enlightened India, lifted restrictions on imports of Harley-Davidson motorcycles, pesticide residues disappeared, and the US allowed imports of Indian mangoes again.
I am sure that Indian farmers, with some devious trickery, ensured that pesticide residues vanished.
For the last 300 years, the West restricted imports of fabrics and garments. Dhaka’s de-urbanization due to this in the 1800-1900 is written into history – wrongly. The last law was the MFA agreement which created a quota-based regime for textiles, in the West.
Agricultural subsidies of nearly US$20 billion dollars by USA and EU, to their farmers are also in the spirit of free trade. For the benefit of the starving Rest, the West is giving these subsidies to Western farmers, to lower food prices. How does it matter that the agricultural economy of the recipient nations gets destroyed!
Things like non-tariff barriers are hokum and over-worked Eastern imagination. The story of repeated and frequent rejection of mushroom exports from India is also in the spirit of free trade.
Indian applications for ‘equivalence’ certificates have been pending with EU for the last 7-8 years – and not processed for the last 7-8 years due to lack of manpower. Interim annuals approvals are given instead – in the spirit of free trade, after some ‘concessions’.
Of course, the Western zeal for free trade extends to enforcing opium trade (just ask the Chinese). Kishorebhai, I only wish, ignorant Easterner that I am, is that we in India can enforce ‘free trade’ in opium today in USA and the Europe.
When the ignorant East, did not see the benefits of Western invention of free trade, the West was compelled to use force (remember Commodore Perry? For more details, ask the Japanese).
Mahbubani’s assertions are right. These ‘facts’ above are like a bikini. What they reveal is indicative, what they conceal is vital! In this case, the Western spirit of free trade. How can the ignorant East, question Western wisdom – or ethics, integrity, motives? Of course, all these cases and incidents are a conspiracy to defame the West.
2. Science & Technology
Before Western invention of Science and Technology, what did the East know?
Zilch. Zero. Sifr. Shunya. That is all. This claim about India inventing the zero and infinity is probably right. Because they had infinite knowledge about Zero – and nothing else. All their books about geometry (Aryabhatta, Bhaskara) are just figments of Eastern imagination. Eastern knowledge about eclipse prediction has now been proved wrong by Kishore Mahbubani’s expose. Indian shipbuilders and steel technology was just puffery – as demonstrated by Kishore Mahbubani.
Of course as Hegel said, there is no African history. I realize after reading Kishore Mahbubani’s interview that there is only Western Science and Technology. It must have been some Westerners behind the ‘achievements’ of China, Africa and India.
How ignorant I was before being enlightened by Kishorebhai!
PT Barnum adds – Are you not forgetting the option of crediting aliens?
3.Meritocracy
Poor ‘Blacks’!
They were always mislead by their leaders. The only place in the world that they could find equity, was in the West. If the West had not ‘bought’ these poor ‘Blacks’ and allegedly ‘enslaved’ them, they would have still have been in Africa – and lost the benefits of the Western meritocracy. Some Black leaders are today claiming that they have even contributed to Western technology.
The sheer audacity!
Similarly, if the Gypsies had not left India, (supposedly) a thousand years ago, they would have lost all the benefits of Western civilization. Early Punjabi settlers in USA did not properly understand their position in Western society. They were basically inferior people who demanded equality to their White masters.
This mis-perception, of course, created misdirected protests. These ignorant immigrants from the East did not properly understand Western meritocracy.
The Wisdom Of St.Barnum – If Japanese and Chinese immigrants faced discrimination in the USA, it was their fault – why did they have to look different?
4. Pragmatism
I agree that the West is truly pragmatic!
Dr.RA Mashelkar, a senior scientist and administrator, writes:
“A recent study by an Indian expert group examined randomly selected 762 US patents, which were granted under A61K35/78 and other IPC classes, having a direct relationship with medicinal plants in terms of their full text. Out of these patents, 374 patents were found to be based on traditional knowledge …”
After annihilating the Australian Aborigines, the Australian Government decided to apologize. What more does the world expect? This apology from the magnanimous West was as pragmatic as anyone can get! Kishorebhai, we have a saying in India, about cats going on a pilgrimage after killing a hundred rats. In this case, of course, the West went one better. They killed millions of humans – and apologized for that!
Western practice of Pragmatism at its best!
St.Barnum sez – What could be more pragmatic? I agree with Kishore Mahbubani!
5. Culture Of Peace
The Native Americans were wiped out – nearly the entire race! Today they are a relic – a tourist attraction! Like rare animals in a zoo!
Aborigines in Australia have similarly been annihilated. Two world wars in a space of 40 years. The entire Jewish population of the world has been reduced to 10 million – by the West.
But, Kishore Mahbubani says, the Western civilization is about peace! And he is right!
These wars were forced upon the West – and were fought to bring peace on Earth. Now since there are no Native Americans and Aborigines, how can there be a war with the Native Americans and Aborigines. Similarly, if there are no Jews, there cannot be a war with the Jews. The West is also trying to cleanse the earth of all Muslims. Then there cannot be a war with Muslims also.
St.Barnum pays a tribute to Kishore Mahbubani – Kishorebhai, you concept of culture of peace is stunning to say the least. Hats off.
6.Rule of Law
Completely true and a matter of fact!
Consider the Western laws on slavery! And those related to minorities! Or current laws in the UK and US to deal with terrorism.
The disenfranchisement laws came into effect by the 1890’s – that continue till today. This ensured that the disproportionate numbers of ‘Blacks’ could not vote – and George Bush became the President of the USA for the 2nd time. After some 60,000 ‘Black’ Voters were disenfranchised, George Bush technically, won by less than 1000 votes (most of the disenfranchised voters were expected to vote against George Bush).
Petty crime (where poor) ‘Blacks’ were convicted in higher ratios were grounds for disenfranchisement. These laws ensured that 10 times higher number of ‘Blacks’ were disqualified compared to Whites. If that is not bad enough, it continues till now. Such tactics continue to be used to limit Black participation in democracy.
In 1904, the US pressured Tomas Estrada Palma, a ‘puppet’ Cuban President, to sign the Platt Amendment. This allowed US intervention in Cuban affairs, if ‘vital’ US interests were at risk (meaning at US will) – finally modified only in 1934. The many laws which made Gypsy hunting legal – like laws which made hunting animals legal. The latest news in that Italians are going to crack down on Gypsies – as per a EU law.
St.Barnum confirms – Yes, Kishore Sir! The West believes in laws.
7.Education
I must admit, that Western education does achieve its goals!
West does produce leaders, generation after generation, who relentlessly execute the same agenda. The annihilation, the massacre, the pogroms – against natives in America and Australia, minorities like Gypsies, Jews and various Christian sects. The kidnapping of Aboriginal and Gypsy children. The massacres in Africa – from Roman times to 20th century. And now the specter of Islamic Demonization.
St.Barnum adds – This degree of continuity and consistency is missing with others. There is something about Western education Mr.Mahbubani, I agree.
Country Model of the West
The real country model that the West manages itself on is something else Mr.Mahbubani. Loot – of gold, resources, ideas. And slavery. Add significant amounts of fraud.
Nothing more and nothing less. And their strategy to ‘white wash’ this – propaganda. With Kishorebhai’s plausible sincerity, I am not quite able to decide if Kishorebhai is an innocent and ignorant victim of Western propaganda or a part of the propaganda.
Either way, his book and his ideas are trash – and this post is a case of intellectual slumming.
China’s Bullion Reserves – Gold, Silver and Silk
Modern economic research estimates that through most of last 1000 years, China and India have accounted for about 50% of the world economy. 20th century was different for both. While Indian gold based systems are better known, Chinese gold story is very different.
1. China & Neighbours – Gold Producers
India was always an importer of gold. Domestic gold production in India’s core geography has historically been negligible – or low.
China, on the other is different. Mongolia and China have been significant gold producers in history. Estimated gold reserves from current ore mining in China exceed 600 tons – and exploration efforts are expected to increase this to 3000-3500 tons. China is the world’s 4th largest producer of gold – ahead of USA and behind Australia, and expected to overtake South Africa soon.
Currently, illegal mining in China is big time activity and is indicted for supporting poaching!. Chinese were exporters of gold and silks.
2. Chinese – Great believers in silver
Chinese common coin was a silver coin – the tael (which came from the Malay word tahil; which came from Indian word tol; meaning ‘measure’). There were 2 taels – one was commercially pure silver ingot of one Chinese ounce called a liang. The other was a kuping tael – which was coin. Bulk silver was used as currency and called sycee. There were many other taels like Tsaoping, Peking, Tientsin, Hankow, Canton. Chinese also use silver jewellery – against gold preferred by Indian women
Jiaozi - circulated in Sichuan in the Chunhua period of Emperor Taizong of Song Dynasty
Chinese rulers circulated paper money for longer (from 6th century onwards) and greater area than any country in the world. The first paper currency jiaozi was issued in 6th century – which collapsed very soon. The Song dynasty re-introduced paper currency in 9th century due to copper shortage. Probably, some Jewish merchants were also involved in the jiaozi manufacture.
Kublai Khan’s (a descendant of Genghis Khan) paper money management meant that all Chinese had to deposit all gold (or be prepared to die) with the Khan’s treasury and they got a currency note which was trade-able. This ‘system’ received wide publicity in Europe (thanks to Marco Polo). 600 years later, Roosevelt did the same with the Americans – and collected 8000 tons of gold.
Western consumers bought tea, silks and other Chinese commodities for which they paid in silver. The Chinese did not need much of Western goods – like India. To correct this negative balance of trade, Europeans promoted opium in China. When Chinese resisted the Opium trade, wars followed.
In early 19th century AD, Opium imports into China by British, French, American, Dutch, Spanish traders, sourced from India led to an outflow of silver from China – and a currency crisis. The ruling Qing state went into a downward spiral– culminating in the Chinese Civil War and rise of Communism. The Kuomintang (supported by Chinese underworld, The Green Gang, The Red Gang and The Blue Gang) was pitted against the Mao Ze Dong’s Communist Party – and both were armed and supported by Western powers.
Opium for China was produced by indebted Indian farmers and a few Parsi traders set up their offices in Hong Kong. However, the Parsi role diminished after the advent of steamships, their big losses during the Opium Wars and the rise of the cotton trade. Other Indian traders, possibly restricted by ‘shubh labh’ compunctions played a lesser role (compared to the European traders) in this Opium trade.
Major opium trading companies like Jardine Matheson, David Sasoon & Company and sundry traders set up The Hong Kong & Shanghai Banking Corporation for facilitating this misery. The Chinese Opium problem was finally solved by several draconian measures during Communist rule.
5. Wars In China
When Chinese resisted the Opium flood, Western traders resorted to war. The Japanese emboldened by new found wealth and military technology, joined Western powers. The Sino Japanese Wars, The Opium Wars with Europeans and The Boxer Uprising before WW1 imposed large war reparations on the Chinese. The Civil War in China between the world wars destroyed Chinese commerce systems. The Cultural Revolution has left the Chinese commercially backward.
6. How did the Chinese preference for silver affect them?
In 1500, the approximate exchange ratio between gold liang and and silver liang was 1:4. Today it is 1:50. Silver mineral deposits, mining and availability is more elastic than gold. Elasticity of gold production is very low. Secondly, above ground supplies of gold are far higher than known below the ground estimates. Hence, manipulation of gold prices over a period of time is difficult.
Touchy … feely … selly … silly …
7. Current Status
China, as the world’s largest holder of US dollar debt is constrained in its move to increasing gold reserves through market operations. A dollar sell off by China could collapse the world’s currency system – and the biggest loser would be the Chinese! But a negotiated conversion of some dollar reserves to gold is eminently possible.
Between 2000-2007, the Chinese Government increased their monetary gold reserves from more than 300 tons, to more than 600 tons. Official Gold Reserves of Chinese Central Bank Gold reserves are about 600 tons of gold.
China has become the world’s 3rd largest consumer of gold – up from a 100 tons to 350 tons. The Shanghai Gold Exchange has made it easier for individuals to invest in gold. They have reduced the transaction size from 1 kg to 100 gm.
8. Possible Chinese Strategy
China’s investment in US$3 billion in Blackstone Private Equity /hedge fund, was the first by any country. This gives China an inside track to the world’s largest hedge fund and private equity player. The Blackstone Fund on the other, gets access to the world’s largest liquid reserve – more than 1 trillion dollars of the Chinese Government’s monetary reserves.
China is setting up a US$200 billion sovereign fund that will invest in range of markets and instruments. With this institutional framework, for China to increase their monetary reserves by a 1000-2000 tonnes is well within realm of possibility.
9. The 2ndlook alternative (Oct.3, 2008, update)
Chinese assets …
In any new world financial reform proposal, the Chinese voice will be very important. After all they are the world’s largest creditor nation! They have US$2 trillion worth of IOUs with them. Of course, the composition of these US$2 trillion Chinese reserves is a state secret.
The Chinese will not agree to any ‘hare-brained’ scheme by ‘tin-pot’ dictators, who are sitting on some raw materials – and think that the future belongs to them. The world has so many of this variety, that it does not require me to be specific.
The Chinese need to acquire some big ticket assets – maybe, some big US companies, for about US$1.5 trillion and bring down their reserves to US$0.5 trillion. This will reduce US outstanding debt, create demand for US stocks, lift the Dow Jones, and create value for the dollar. As I see it this is the only way that the Chinese can cash in their chips. The House will not let them take it away any other way.
10. What does this mean for others
China, the largest creditor nation in the world, carries a big stick. They are not democratically accountable and transparency is not required from them. Hence, a significant conversion from dollar holdings to gold is feasible, can be done quietly (hence, at an economic price) and with trade power they have, a strong negotiating position is a given.
And that is an opportunity others may not get!
In the last 150 years, strong monetary gold reserves have been a feature of Western monetary systems (acquired mostly, by dubious means like slavery, genocide). China’s moves, if any, will diversify global monetary reserve systems away from the dollar and the West and spread the weightage in a more equitable manner – giving rise to speculation about a renminbi bloc.
And that is something that is good for global monetary system.
What should India do …
Oil Dollar Tango
Two years ago …
This post had estimated that the Chinese could possibly (and they have) increase their monetary gold reserves. On April 24th, 2009, Bloomberg reported that China had increased
its (gold) reserves by 454 tons to 1,054 tons through domestic purchases and refining scrap metal, Hu Xiaolian, head of the State Administration of Foreign Exchange, said in an interview with the Xinhua News Agency today. China, the world’s biggest gold producer, has increased its holdings before, Hu said in the interview carried on the administration Web Site. They rose from 394 tons to 500 tons in 2001 and to 600 tons in 2003. The U.S. has the world’s biggest gold holdings at 8,134 tons, followed by Germany with 3,413 tons, World Gold Council data show. France has 2,487 tons and Italy 2,452 tons, while the IMF has 3,217 tons, according to the council.
Another report, from Market Watch, a WSJ web publication added,
The increase makes China the world’s fifth-largest holder of gold, just ahead of Switzerland, and among the six nations plus the International Monetary Fund that have reserves of more than 1,000 metric tons. Although Hu did not elaborate on where China had sourced the additional bullion, her comments were interpreted as meaning they came from domestic sources and may included refining of scrap metal. Traders also say the gold was accumulated systematically over a number of years. Last year China ranked as the world’s largest gold producer with 12.2% of world output, equivalent to 288 metric tons. The U.S. ranked second with a 9.9% share, or 234 metric tons.
What are the future plans of the Chinese? A report quotes an analyst
China should increase its gold reserve from 600 tons to about 2,500 tons in a short term and to 3,000 tons in a long term to cope with the versatile exchange rate risks, said Teng Tai, an economist of China Galaxy Securities Company.
Of course, this really does not mean much – except that it may keep gold prices on boil. Whether a currency is backed by a 5% or a 10% gold reserve may not mean much, in this era of rampant use of “a technology, called a printing press” as an economic tool – not just by the US of A. For long term economic stability, gold needs to be in the hands of individuals – and not Governments.
2ndlook 
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