Thursday, 15 March 2012

The €uro Will NOT Crash: the Chinese View

In the business of international relations and more importantly, the agitation for global dominance, national and regional CURRENCIES have become INSTRUMENTS of WARFARE on one hand and (to use Nixon's phrase) PEACEFUL COMPETITION on the other. From the removal of the gold exchange standard in August 1971 through the Asian currencies meltdown from July 1997, the movement of speculative and non-speculative capital has continued to determine the general prosperity of nations. As noted in the classic, The Alchemy of Finance, speculative capital basically moves in search of the highest total return. I infer that speculative capital movements will form part of the foundations for an "inquiry into the nature and causes of the debt of nations". 

In moving in the direction of bailing out the Eurozone, however, Chinese speculative capital has a longer-term view of the concept of highest total return. A mediating currency is a diplomatic imperative in the unfolding drama between the US dollar and the Chinese renminbi. Factoring in the fact that Chinese holdings of US government and corporate debt continue to go through a coordinated series of devaluation, the inflation-wary, German-led Eurozone will become for China the new DEBT frontier in years to come. Sovereign debt will become one of the hottest commodities over the next couple of decades and so speculative capital will continue to play a crucial role in global resource allocation. The European Union surpassed the United States last year as China's largest trading partner. Discounting the fact that ten of the twenty-seven EU countries do not use the common currency, with Germany, France and the Netherlands constituting a substantial weighting for the Eurozone area, we safely conclude that the survival of the Euro is in the best interest of China. 

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