by Bill White
Switzerland’s National Bank and the People’s Bank of China have
reached an agreement to swap their respective currencies, meaning the trade
between Swiss banking customers and China will no longer have to be
mediated by banking systems depending on the Federal Reserve or European
Central Bank (ECB).
This agreement is that latest of nearly two dozen which
China has made with central banks, including he ECB, the Bank of England, and
the Australian Central Bank, which allow for trade between the nations to use
China’s currency, the yuan.
Before the agreements, someone with large amounts of
national; currency, like the Swiss franc, would have to route transactions
through a bank in a third-party nation, or the People’s Bank of China itself,
to obtain Yuan, or to exchange yuan for heir national currency. Now Swiss
companies can exchange up to 150 billion yuan (21 billion Swiss francs) through
the Swiss banking system.
These agreements by China are part of a strategy to
limit American world influence and help present an alternative to the U.S.-led
Bretton Woods system. Before 2009, when China began this push, most
currency transactions went through the Federal Reserve, with the International
Monetary Fund providing loans to support national currencies. Among other
things this meant the U.S.,
could isolate nations by denying them access to the Federal Reserve system to
clear international transactions, a tactic recently used against Iran.
new regime, countries could continue trade the China,
and theoretically with nations in China’s
exchange network, even if access to the U.S. banking system was terminated.
This news comes a week after China,
Russia, Brazil, India
and South Africa
announced the launch of a new development bank and currency reserve designed to
provide small nations with an alternative to the World Bank/IMF system. China has pledged to Venezuela
this week $40 billion in loans and economic aid to shore up the Venezuelan
economy, loans Venezuela
is repaying with 100,000 barrels of oil worth about $9.3 million on the
international market a day.
In the past, the United
States has been able to starve small nations like Venezuela or Argentina of dollars, and cause
substantial harm to their economies. Such nations have had to import heavily
dollar-denominated contracts and have
also, in the case of Argentina,
exported dollars as interest payments on their bonds. Their domestic economies’
dollar-dependence has thus driven down exchange rates. A yuan alternative for
such nations, back by a steady supply of yuan from China,
would transfer nations’ economic dependence from the U.S.
Nations are only financially independent when they print
their own currency, giving it value by accepting it for taxes and demanding its
acceptance by foreigners. The alternative, which exists in most nations and the
has a federal bank print currency only to fund loans, giving it value by
accepting it as interest. The former system is debt free because the nation
spends money into existence. The latter creates a never-ending debt cycle
because money only comes into existence when it is lent. When too many debts
come due, the system collapses—which is why never-ending inflation, which
planners hope will expand the money supply faster than payment is demanding,
characterizes modern economies.