# China moving away from the USD? End of US Dollar?



## Dowdy (2 January 2011)

I got this email from one of my suppliers clearly stating their concerns about the weak US dollar....also showing their interest in trading in other currencies. 




> Dear David,
> 
> Unfortunately, all Asian countries still can not avoid their dollars to be increased
> after large numbers of US dollars flowing into Asian market this month.
> ...






> Will you trade in other currencies in order to avoid trading in USD?






> Hi David ,
> 
> Yes, you are right, maybe we will consider to use Australian dollar
> next time if USD still is not stable.
> ...






If this trend continues to other companies then it means two things...


1. The idea that a high AUD/USD will mean cheaper goods is absolutely false
2. The eventual end of the USD


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## Whiskers (2 January 2011)

Dowdy said:


> If this trend continues to other companies then it means two things...
> 
> 
> 1. The idea that a high AUD/USD will mean cheaper goods is absolutely false
> 2. The eventual end of the USD




Quite true.

I've heard where China has been disposing of USD's for awhile and accumulating/trading in others especially the Euro... not to mention accumulating precious metals.

I've been expecting the USD to have a bit of a resurgance for some time... but maybe the factor that I tend to forget, the different tax/accounting years, especially China, Japan and the US may be a reason.

I think the recent USD weakness has been excessively 'manipulated' for domestic US economic and political reasons, but as I have previously explained in other threads, it will hurt them via dearer imports if they keep it up for too long. 

Maybe the end of the calender year and accounting/tax period will mark a significant change.

But as you correctly point out, with the USD being less of an international curency, there are some interesting revaluations coming ahead.


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## tothemax6 (12 January 2011)

Moving away into what? Euro? Pound?
These have just as much chance of sinking in value. How much gold can china really buy? They would have to bid the price of it through the sky to discharge any significant amount of their USD.

China's problem is that they won't become free market _enough_, and are following the course of mercantilism and currency-pegging, in spite of all the historical proof of its damaging effects. Maybe when they get their blowout and crash from the inflation & bubble that results from their policies, will they then do things properly.


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## doctorj (12 January 2011)

tothemax6 said:


> Moving away into what? Euro? Pound?



This is exactly the issue.  Whilst we've seen some governments diversify their reserves partially away from the USD (Russia began allocating a small percentage to AUD about a year ago), USD is still the dominant currency in reserves and trade.  What could replace it?  There are only a handful of currencies that are worth talking about in this sense - EUR, GBP, Yen.  In the EU, Euro is obviously dominant and the countries along the eastern border increasingly use EUR (even Russia which historically has used USD as hard currency internally has begun using EUR to some extent).  But in countries without a natural exposure in EUR because of their geography, EUR makes less sense because of the lack of fiscal union between the issuing countries.  Yen may be an option, but given the currency is heavily managed, it's difficult.  GBP has some merits, but has been particularly volatile in the last 3 years.  USD get it by default...


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