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U.S. Dollar Setting Up to Disappoint: Look at the Yuan to See Why Lombardi Letter 2018-06-04 13:05:29 It's important that investors pay close attention to what’s happening with the Chinese yuan to figure out the direction on the U.S. dollar. The Chinese currency could undermine the value of the dollar, and dollar's value could plummet. Analysis and Predictions 2018,International Markets,U.S. Dollar,U.S. Economy https://www.lombardiletter.com/wp-content/uploads/2018/06/iStock-928696036-150x150.jpg

U.S. Dollar Setting Up to Disappoint: Look at the Yuan to See Why

U.S. Dollar - By |
Dollar and Yuan

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Yuan Dominance Could Send U.S. Dollar Tumbling

Not too long ago, Jamie Dimon, the CEO of JPMorgan Chase & Co. (NYSE:JPM) said that the Chinese yuan could rival the U.S. dollar in in 20–30 years.

Why this long? “It’s not comparable if it’s not convertible,” said Dimon (Source: “Dimon Says China’s Yuan May Rival Dollar’s Role in 20 Years,” Bloomberg, May 7, 2018.)

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This timeline may be way too long, however. The yuan is gaining popularity very quickly, and it could really undermine the value of the dollar. The greenback could lose a lot of value in the coming years. Beware, if you hold assets in U.S. dollars.

African Countries Adding Chinese Yuan as Reserve Currency

Consider this: 14 African countries could be using the Chinese yuan as a reserve currency.

Caleb Fundanga, the executive director of the Macroeconomic and Financial Management Institute of Eastern and Southern Africa (MEFMI),  said, “The general conclusion is that we should use the yuan more because its time has come. We are doing more business (with China) so it’s natural that we use the currency of the country with which we are trading.” (Source: “Interview: African economy needs more usage of Chinese yuan: financial expert,” Xinhua, June 2, 2018.)

MEFMI is a regionally owned institute with clients including central banks, ministries of finance, other related government ministries, and financial institutions in Angola, Botswana, Burundi, Kenya, Lesotho, Malawi, Mozambique, Namibia, Rwanda, Swaziland, Tanzania, Uganda, Zambia, and Zimbabwe. (Source: “Aims & Objectives,” Macroeconomic and Financial Management Institute of Eastern and Southern Africa , last accessed June 4, 2018.)

Asian Development Bank Says Something Very Interesting About Trade Tension Between U.S. and Major Economic Hubs

Noritaka Akamatsu, a senior advisor at the Asian Development Bank (ADB), said something interesting: “We at ADB are also paying close attention to the internationalization of the renminbi, particularly at this very time of trade tension.” (Source: “Trade conflict offers China opportunity for yuan globalization: ADB,” Asia Times, June 2, 2018.)

The ADB, which could be considered a rival of the International Monetary Fund (IMF), is seeing the recent trade tensions between the U.S. and the major economic hubs an opportunity to make the Chinese currency more affluent across the globe.

Watch Out if You Hold U.S. Dollars

Dear reader, I have said this before in these pages: if you want to know where the U.S. dollar is headed, you have to watch what’s happening with the yuan.

As it stands, the Chinese currency is gaining a lot of popularity across the globe. It continues to make solid strides to become a major global currency. This could impact the value of the U.S. dollar severely.

Jamie Dimon said the Chinese yuan isn’t really convertible yet. It’s true, but you have to consider how fast China is moving to change that.

I will not be shocked if, in the next decade, the Chinese yuan is quoted side by side with the U.S. dollar in major financial news. And, just like how the U.S. dollar is recognized globally, the yuan could be too.

In the midst of all this, it’s important that investors holding U.S. dollar-denominated assets pay close attention to gold prices. The yellow precious metal has a long history of preserving wealth in times when there’s currency depreciation and uncertainty.

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