What is the renminbi? – March 2013
Posted by Ivo Cerckel on March 1st, 2013
Last updated Thursday 07 March 2013 10h50 GMT+8
Currency hegemony is the imposition of a currency, even gold (at a stated currency price, of course), on the population. Such an imposition is in fact precisely the opposite of allowing the parties to a sales contract to freely determine the contents of the contract.
Although article 4 of the 1999 Contract Law of the People’s Republic of China provides that “a party is entitled to enter into a contract voluntarily under the law and no entity or individual may unlawfully interfere with such right”,
the programme of the 14 March 2013 FT Standard Chartered Taiwan Economic Summit says that currently only a tiny amount of the USD 120 billion in trade between China and Taiwan is settled in renminbi.(1)
The programme continues by saying that a major opportunity for Taiwan may be generated by the further internationalisation of the said renminbi.
Notice immediately that the debate at the Summit concerns renminbi “internationalisation”, not renminbi “convertibility” – into pieces of scrap, a.k.a. USA dollars.
What is money? And what is [the renminbi as] a currency?
As Mencius (Meng-Tze) (372 – 289 B.C.), who studied with the great-grandson of Confucius (2) and became the foremost follower and greatest developer of the orthodox teaching of Confucius (3), taught: “wherever there are things and affairs, there must be their principles.” (4)
Aristotle (384 – 322 B.C.), who like the elder Plato (429 – 347 B.C.) was a contemporary of Mencius, saw “substance” as the root of the intelligibility of the world and went on to define the “substance” of a thing as its “essence” by which the thing is differentiated from other things due to its nature which “specifies” it. (5)
For “essence”, Aristotle gave the “what-it-was-to-be-that-thing” as definition. (5, again)
By using a phrase in this way in the grammatical role of a noun, this definition is as unnatural in Greek as it in English.
The definition suggests the idea of what something was all along going to, destined to, become. (6)
Could it be that money [as opposed to currency] is a good readily acceptable in exchange by everyone in a given geographical area and is sought for the purpose of being re-exchanged (7) and that gold was all along going to, destined to, become money?
Could it also be that when English speakers say that something has “currency”, they mean that it is in the state of being current; that it is in the state of being in general acceptance or … “recognition”?
Xinhua reported on 22 February 2013 that according to Peng Xingyun, a researcher and financial specialist at the Chinese Academy of Social Sciences, the developments in renminbi internationalisation may indicate a rising “recognition” of the currency worldwide. (8)
This seems to indicate that before the renminbi can be recognised as an “international” currency, it must be recognised as a “currency”.
Money must have an anchor, an anchor in reality, not in the mind. Not a nominal anchor, not an anchor in name only. Money cannot be itself the anchor if it has no reality. Money cannot be itself the anchor if it exists only in the (digital) mind. The reason why money needs an anchor is not to evoke, not to bring into the mind, the gold standard, but to anchor money by providing for a Wealth Asset that stands Beside Money, yet has no official connection to money, hereafter a WABM. Calling this process “anchoring” relates to the way that ships down anchor to keep themselves in a specific place to avoid drifting way.
The last remnant of the gold standard disappeared on 15 August 1971 when USA president Richard Nixon broke the 1944 Bretton Woods Agreement. This Agreement, which established the International Monetary Fund (IMF), said that the IMF’s only task was to maintain the Agreement. As the Agreement did no longer exist, the IMF should have been repealed in August 1971.
The Agreement linked the USA dollar at fixed parity to the price of gold and all other currencies to the said dollar. On 15 August 1971, Nixon broke the Agreement. Since then, the value of the USA dollar is determined by … nothing. The USA of course never (dare to make explicit that it) severed the link of the USA dollar to gold. Nay, after making sure that article IV, section 2, (b), of the IMF Articles of Agreement does prohibit members from linking their currencies to gold, the USA managed to give new tasks to the IMF so that it could be kept in existence.
Middle East oil producers could therefore obtain less gold than before with the USA dollars received for their oil. Out of love for gold, they were thus forced to increase their prices which caused the first oil crisis in 1973.
China doesn’t declare its gold purchases, but it is an open secret that its People’s Bank is buying on every dip, as they have to do merely to keep the proportion stable at 2 percent of their USA dollar 3.3 trillion reserves, said a London newspaper on 21 February 2013. (9)
The old “fixed” gold-standard could not change human nature which dictates that no ruler can withstand the pressure to print more receipts than he has gold in reserve. (10)
The old “fixed” gold-standard was faced with the problem of matching the amount of gold in the treasury to the “fix”. To make the money stronger, one had to bring in gold, as it took twice as many ounces to back a currency “in circulation” at USD 10 as it did at USD 20. The reverse is true when lowering the money value to USD 40. Then, one half the gold backing had to be removed as only half was now needed to back the USA dollar. (11)
Its chief weakness was however that it could be repealed by the politicians. (10, again)
Since, on the one hand, a monetary system must have an anchor, but since, on the other hand, a fixed gold-standard, is affected by many weaknesses, the only way a monetary system can work is if anyone, anywhere, be able to exchange the currency for gold, not at a fixed rate, but at a floating rate.
This is “Freegold”, the free exchangeability “at will” of a (any?) currency into gold. I say free exchangeability “at will” into gold. I don’t say free exchangeability “on demand” into gold, as “on demand” would imply that somebody – most likely the issuer of the currency – can be forced to exchange his gold for currency.
On 01 January 1999 a fresh form of currency, the euro, was introduced.
In his 09 May 2002 Acceptance speech of the International Charlemagne Prize of Aachen for 2002, European Central Bank (ECB) president, the late Dr Willem F. Duisenberg said:
“The euro probably more than any other currency, represents the mutual confidence at the heart of our community. It is the first currency that has not only severed its link to gold, but also its link to the nation-state.” (12)
Dr Duisenberg was here saying that the euro, the new medium of exchange, is to co-exist with Freegold, as a store of value. Freegold will be a gold-based currency valuation system where the currency is not tied to a fixed amount of gold. This will entail a free-floating price of gold whereby gold will not be money, but a physical wealth consolidator, a WABM into which you can transform your wealth in order to maintain its purchasing power and to prevent it from vanishing into thin air.
Remember that a WABM has no official connection to money.
By the same token, Duisenberg challenged USA-dollar hegemony, confirming to the planet that not only had the currency of which the ECB is the guardian severed the link to the nation-state but that the ECB was also prepared to utilise gold as a “currency without a country” to act as a reserve for interventions if required — a breakthrough. (13)
The euro has a gold component and a paper component and puts a “firewall” between both so that gold’s valuation as a wealth-preserving asset cannot be pulled lower by the inevitable inflation of the paper component of circulating currencies. It is the (quarterly) marking to market (MTM) of the gold reserves of the Eurosystem (the European System of Central Banks) not to the model of USD 42.2 like the USA (originally, in 1944, when Bretton Woods came into force, USD 35), by the Eurosystem which provides that wall. Gold is an item not related to euro monetary policy operations.
By trading behind the MTM firewall, not behind a fiat-monetary firewall, the euro is trying to achieve Freegold and return gold to its status as a WABM, an asset itself, not a claim on assets.
Remember that a WABM has no official connection to money and that a WABM is a Wealth Asset that stands Beside Money.
Once Freegold will have been achieved, the gold reserves in the strong-rooms of the Eurosystem will fulfil the same role as the Mona Lisa in the Louvre museum in Paris, a wealth reserve, a WABM, in the strong-room (the Louvre) of a monetary union.
That’s a model which the People’s Bank of China could be following.
Whether the Bank is following the model, I don’t know.
If money needs an anchor, so does contract law.
Freedom of contract became the “anchor” of modern contract law after the French Civil Code was adopted in 1804. (14)
Article 1134 of the said Code provides that the agreement entered into between parties is the law governing the relationship between the parties […].
Does Chinese contract law allow for the inclusion in an international trade contract of a clause stipulating that payment shall be made in Another currency than the USA dollar – the currency imposed by trade usages?
I said at the outset that article 4 of the 1999 Contract Law of (the People’s Republic of) China (CLC) provides that “a party is entitled to enter into a contract voluntarily under the law and no entity or individual may unlawfully interfere with such right”.
Dr Junwei Fu of the Beijing Institute of Technology School of Law says that it is often believed by Chinese academic circles that “contract voluntariness” of the CLC is the same as “freedom of contract”. (15)
In order to understand what the Chinese legislator meant with this article 4, the drafting history or drafting process of this article 4 may contain some indications – as to the meaning. And this history or process reveals that “freedom of contract” which was stated as a general principle in a 1995 bill which finally led to the 1999 CLC was already revised in a 1997 bill and was finally rejected and replaced in the final 1998 bill by “contract voluntariness”, says Dr Fu. (16)
This seems to indicate that “contract voluntariness” is NOT the same as “freedom of contract”.
While European “freedom of contract” acknowledges, among other things, the freedom to choose the other contractual party and to conclude and determine the contents of a contract (17), Chinese “contract voluntariness” is much narrower and essentially limited to the autonomy to enter into a contract. (18)
Conversely, the exceptions to European “freedom of contract” are much narrower than the exceptions to Chinese “contract voluntariness”.
When European legal systems say that contracts must respect “public order” and “good morals”, those two concepts are always defined in a narrow way in order to respect the will and freedom of the parties. (19)
In China due to the influence of Confucianism and a historically planned economy, it is necessary for the state to exercise intervention measures to ensure that contracts are not disturbing the “socio-economic order”. (20)
“Disturbance of the “socio-economic order” or disruption of the State economic plan by any organisation or individual is prohibited”, says article 7 of the amendment to the Constitution of the People’s Republic of China (Adopted at the First Session of the Eighth National People’s Congress and promulgated for implementation by the Announcement of the National People’s Congress on March 29, 1993).
Is the USA dollar regime a constitutive part of the Chinese socio-economic order?
Chinese law of contracts consists of default rules and mandatory rules. The first ones can be excluded by the parties whereas mandatory rules are widely accepted to be a limitation to the freedom of contract since contractual parties cannot avoid them in the agreement. (21)
Since China has signed “numerous” international treaties impacting the parties concluding the contract, the mandatory rules in those international treaties cannot be violated by the individuals. These treaties are given priority over national law. (22)
China has signed the 1980 Vienna Convention on the International Sale of Goods.
This Convention is not mandatory in character and article 6 provides that parties may exclude its application altogether. (23)
Trade usages and trade terms play however an important role in international commercial law, and for a convention to be successful it needs to be sympathetic them. [… At the negotiations leading to Vienna Convention,] Socialist countries were wary of trade usages since they preferred the contract to be secure and certain so that the parties are not taken by surprise, especially where local usages are adopted. […] This does not mean that Socialist countries did not recognise trade usages. By and large they do, provided they are widely “recognised” – that is, internationally well-known – clear and certain. (24)
Does payment in USA dollar, not in Zimbabwe dollar, the official currency of Zimbabwe from 1980 to 12 April 2009, make the contract secure and certain?
Payment in USA dollar is deemed to be payment in a known – should I say “recognised”? – “hard” currency, which currency is not subject to surprises – such as being reduced to its intrinsic value, the paper it is printed on and the green ink, of course – that’s the way to test whether the USA dollar is a “hard” currency.
And what about the payment for the shipping of the goods to and from Taiwan and China? Also in USA dollars?
In international law concerning carriage of goods by sea, there are standard forms of contract which include “freight clauses”, that is, additional clauses which will normally make provision for the currency in which the freight is to be paid. In a period of fluctuating exchange-rates [such as in 2013] this is a matter of particular importance to the ship-owner, especially where the expenses of the voyage are likely to be incurred in a different currency. (25)
Will the carrier also have to accept USA dollars?
This becomes hilarious.
Moreover, if Taiwan and China do a good job of manufacturing and run a balance of trade surplus they are receiving more USA dollars than they are spending.
What can or should they do with those excess USA dollars they are receiving in their trade exchanges with the planet?
If Taiwan and China allow those USA dollars to flow back into the world markets (actively buying Taiwan dollars c.q., renminbi with those USA dollars) this would raise the NTD c.q. RMB exchange-rate and penalise the international pricing structure of their goods. Their goods would cost more and slow down their exports.
Yet, since Taiwan’s and China’s currency management is strong (like that of euroland) and their people (read that economy) work better than their foreign competitors (including those from euroland) the exchange-rate system shouldn’t hurt the price of Taiwan’s and China’s goods. But, it does.
You see, selling these extra USA dollars today has the effect of hurting a competitive producer that has good money management.
The only alternative for Taiwan and China is to save those USA dollars, thereby supporting the USA dollar regime. (26)
Is that the way (the original 1944 or) the post-1971 Bretton Woods regime was supposed to work?
Or is that the result of machinations by the USA dollar regime?
See also my
Posted by Ivo Cerckel on August 8th, 2012
FT Standard Chartered Taiwan Economic Summit 14 March 2013
4:05 pm – 5:05 pm
Moderator: Gideon Rachman, Chief Foreign Affairs Commentator, Financial Times
Panel Discussion: Financial Market Innovation – Taiwan as the next offshore Renminbi Centre and the impact on Taiwan’s businesses
Currently only a tiny amount of the U.S.$120 billion in trade between China and Taiwan is settled in renminbi.
Alfredo P. Co, “The Blooming of a Hundred Flowers -Philosophy of Ancient China”, Manila University of Santo Tomas, 1992, p. 303
Dr Charles McGruder, professor of philosophy, Mt. San Antonio College, Los Angeles, California, USA, “Mencius”, handout (to students), without date,
Mencius, “Book of Mencius”, Book VI, Chapter 1, point 6
Aristotle, “Metaphysics”, Book VII, Chapter 4
Hugh Lawson-Tancred. “Introduction”, in: Aristotle, “Metaphysics”, Penguin Books, 1998, updated bibliography 2004, xi, p. xxx
George Reisman, “Capitalism – A Treatise on Economics”, Ottawa, Illinois, USA, Jameson books, 1998, 3rd ed., p. 142
Currency expands its reach
English.news.cn 2013-02-22 10:28:09
By Wang Xiaotian in Beijing and Cecily Liu in London
Gold’s Death Cross is a buy signal for China
By Ambrose Evans-Pritchard
Last updated: February 21st, 2013
Roland Leuschel and Claus Vogt, “Das Greenspan Dossier, Wie die US-Notenbank das Weltwährungssystem gefährdet. Oder: Inflation um jeden Preis”, finanzbuchverlag.de, 2006, 3rd ed., pp. 300 and 304
ANOTHER (THOUGHTS!) ID#60253:
The Management of Gold, A Simple Tool for the 90s
Foundational Gold Trail Commentary
The Inside Story on the Gold-for-Oil Deal that could Rock the World’s Financial Centers
– Page Three –
Mar ’98 – Apr ’98
Date: Sat Mar 07 1998 13:08
International Charlemagne Prize of Aachen for 2002
Acceptance speech by Dr Willem F. Duisenberg,
President of the European Central Bank,
Aachen, 9 May 2002
FOA (05/08/01; 09:59:55MT – USAgold.com msg#70)
A Tree in the Making #02
(The Gold Trail:- The Message of an Evolving Market – Walking the Gold Trail Using the “Thoughts! ” of ANOTHER. “Nearing the Great Divide…?”, the Fourth Archive for “Walking the Gold Trail”
Junwei Fu, “Modern European and Chinese Contract Law: A Comparative Study of Party Autonomy”, Alphen aan den Rijn (The Netherlands), Wolters Kluwer – Law and Business, Kluwer Law International, 2011, p. 134
Fu, op. cit., p. 40
Fu, op. cit., p. 41
Fu, op. cit., p. 67
Fu, op. cit., p. 40
Fu, op. cit., p. 47
Fu, op. cit., p. 41
Fu, op. cit., p. 152
Fu, op. cit., p. 151
Indira Carr, “International Trade Law”, London & New York, Routledge-Cavendish, 2010, 4th ed., p. 68
Carr, op. cit., p. 70
John F. Wilson, “Carriage of Goods by Sea”, Pearson Education, 2010, 7th ed., p. 50
FOA (09/16/00; 15:11:26MD – usagold.com msg#38)
After six miles we arrive at the burial tree!
(The Gold Trail:- The Message of an Evolving Market – Walking the Gold Trail Using the “Thoughts! ” of ANOTHER, “The Long and Winding Road…” the Second Archive for “Walking the Gold Trail”