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@profplum99 @GreekFire23 @hendry_hugh @scientificecon 1/ China has a debt problem. W/finite rsvs & a non-convertible ccy, this means if China has a current acct deficit, it'll have a late-90s SE Asia ccy crisis (aka CNY crash & social unrest. China runs curr acct deficits in 2 places primarily:

1. Tourism
2. Commodity imports
@profplum99 @GreekFire23 @hendry_hugh @scientificecon 2/ Rising energy imports in particular mean as China imports more oil at higher USD prices, it's curr acct will fall closer to deficit & CNY ccy crisis = bad

China has 4 options to stave this off:

1/ Stop growing
2/ Produce more oil
3/ Buy more oil abroad
4/ Print CNY for oil
@profplum99 @GreekFire23 @hendry_hugh @scientificecon 3/ #1 isn't an option politically; #2 isn't geologically; #3 is what China's been doing w/their USDs for yrs; #4 began in 3q14 & is now accelerating meaningfully:
reuters.com/article/us-chi…
@profplum99 @GreekFire23 @hendry_hugh @scientificecon 4/ Problem is no one wants to hold CNY; but lots of people want Chinese goods:
@profplum99 @GreekFire23 @hendry_hugh @scientificecon 5/ And now that the Americans are producing so much of their own oil, the world's oil exporters desperately need the world's biggest oil importer (China) - we've been told that even the Saudis will "do whatever we must to keep our biggest client happy":
@profplum99 @GreekFire23 @hendry_hugh @scientificecon 6/ And so CNY oil is becoming a thing as free markets (*gasp*!) mean the biggest importer can increasingly dictate terms, including currency, in which to price its oil imports, to stave off a CNY currency crisis that would otherwise occur.
@profplum99 @GreekFire23 @hendry_hugh @scientificecon 7/ This leaves the problem of "what to do w/the CNY that are piling up at oil exporting nations?"

The answer is "Buy Chinese goods"
reuters.com/article/us-hua…
@profplum99 @GreekFire23 @hendry_hugh @scientificecon 9/ And lastly, the final part of the answer is "settle anything left over in physical gold", as CNY gold prices are hitting new all-time-highs, which means gold in CNY terms is increasing the CNY purchasing power of oil exporters to China willing to sell in CNY terms. AKA win/win
@profplum99 @GreekFire23 @hendry_hugh @scientificecon 10/ Finally, the TLDR version:

China is using their clout in global physical oil & gold markets to make CNY partially convertible on a limited basis thru oil & gold markets.

If the US wants CNY fully convertible, it need only allow gold to rise to proper USD levels.
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