One of the Most Important Financial Events Is Taking Place Before Our Very Eyes

Posted by Financial Sense

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One of the most significant financial events is taking place before our very eyes, and yet not many are paying attention to it, says Louis Gave, CEO of the well-respected GaveKal Research.

picture-691After the Lehman collapse in 2008, firms around the world suddenly canceled orders to China, causing Chinese exports to collapse by 30%. With the US dollar acting as the world’s reserve currency, greasing the gears of international trade, suddenly those dollars became scarce as the US banking system paralyzed credit around the globe. This led China to ask, “Why should badly managed banks in the US affect our trade with other countries?”

Not wanting to suffer the same consequences again, China has since responded by conducting trade agreements with its partners to trade not in the world’s reserve currency, the US dollar, but with its own currency: the renminbi. As a result, “In the past five years, China has moved from 0% renminbi and 100% US dollars to, now, 18% denominated in renminbi. That’s a massive, massive change,” says Gave.

“The internationalization of the renminbi, the creation of the RMB bond market, is one of the most important financial developments of the past decade,” he says.

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