nt, well thought out post. I have had spent some time and brain cycles on this on a few occasions over the last year.
China (and other nations who hold large dollar reserves) are somewhat between a rock and a hard place.
I wrote some time ago that it is in their best interest to diversify out of dollars, and indeed they have publicly stated that is their goal on a handful of occasions, but the question is, where do they stick the money and how fast can they do it without causing others to run on the dollar.
I think the Arabs and China are watching each other closely for signs that either of them are "bugging out" on the USD.
Arabs have been planning for a long time to sever the dollar peg, indeed have been advised to do so by numerous high level authorities on the economy, have been busily putting the infrastructure in place to do so, and have a strong opportunity to back Dinars with gold.
China also has a strong position in savings and resources, but has to reduce their dollars in their portfolio to take such a drastic step or face a massive loss of wealth overnight. Most of China's dollar reserves (around $1.3T if I am not mistaken) are in US Treasuries. If they try and unwind those positions that could be catastrophic for the US (as well as their own portfolio if it causes a run on the dollar).
Europe of course is pushing for the "New World Order" of finance, but they are forgetting that China and the Arabs hold the purse strings. Kind of like a business telling a bank it borrowed money from "Yes, I know we owe you money and have no clear idea how we are going to repay it, but we are coming up with a new plan as to how you will provide us money, just stand by until we tell you". Sorry, dont think the creditors (China and Arabs) are going to buy it. The arrogance of that still causes me to do a double take.
So that leaves us with the Arabs. I think they realize the dollar is going to go down in smoke and flames. There are signs they have been actively preparing for it for some time.
If they choose to form a monetary union, with dinars backed in gold, and require oil purchased to be settled in those dinars (effectivey requiring oil to be paid for in gold), it would be a master strategic move on their part.
I am making no wagers as to the likely hood of that scenario, but if I was an Arab, it would sure be on my mind.
AI
