“All warfare is based on deception.” – Sun Tzu
The world reserve currency (or anchor currency) is a big deal in international transactions. It is common in these sorts of transactions and serves as a foreign exchange reserve for countries of the world. Since World War II, the US dollar has been the primary world reserve currency. Currently, the US dollar comprises 64% of the world reserve currency. That is a large percentage and gives a lot of value to the US dollar as the currency used in international business and financial transactions.
Other world reserve currencies include the Euro, which comprises 20% and a handful of other currencies such as the Japanese yen, German mark, French and Swiss Franc, Pound Sterling, Australian and Canadian dollar, which make up the remaining percent.
However, the US dollar has special privileges because of its dominant usage worldwide. One of these privileges is that the United States can run higher trade deficits while postponing economic crisis. An example of this is the 1.4 trillion and 1.3 trillion debt we have to China and Japan, respectively. Still, most banks worldwide and private banks back their loans with the US dollar because of how dominant it is as a reserve currency and how stable it has been.
But, not everyone is happy about the current economic system that we live in. China has become the second largest world economy behind the United States and they know how to execute economic warfare.
Out of the list of world reserve currency holders, all are the United State’s allies and, moreover, key economic trading partners like Japan. But this is going to change on October 1, 2016. The Chinese Yuan will go into effect as a world reserve currency comprising 11%. This is a big deal because it is a crack in the current economic paradigm that we have been living in. China is making great economic strides to circumventing the United States,the IMF (international monetary fund and the world bank.
Earlier this year on January 16, 2016, the Asian Infrastructure Investment Bank or AIIB opened its doors. This bank has its headquarters in Beijing and currently has about half the money of the world bank. Though the United States lobbied arduously to prevent key allies like Australia and the United Kingdom from joining this bank. . . they did so anyway.
The bank now has 37 total remembers including many key countries the United States needs to continue using the US dollar. Germany, France, Brazil, India, Israel, Italy, Jordan, South Korea, Pakistan, Russia, Saudi Arabia, South Africa, Spain, and Turkey are some of the interesting members to this new bank and that will have some effect on the global economy one way or another.
Notably though, the United States, Canada and Japan have not joined as members.
We live in a confusing and tumultuous time in regards to American politics. But, ultimately, money is the real war and this economic warfare between the east (China and Russia) challenging the US and the US dollar’s dominance is the true battle our generation will have to face sooner or later.