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Analysis: China's currency foray augurs geopolitical strains

(Reuters) - "It's our currency and your problem," U.S. Treasury Secretary John Connally famously said of the dollar in 1971.

More than 40 years later, China is doing something about it.

Fed up with what it sees as Washington's malign neglect of the dollar, China is busily promoting the cross-border use of its own currency, the yuan, also known as the renminbi, in trade and investment.

The aim is both narrowly commercial - to reduce transaction costs for Chinese exporters and importers - and sweepingly strategic.

Displacing the dollar, Beijing says, will reduce volatility in oil and commodity prices and belatedly erode the ‘exorbitant privilege' the United States enjoys as the issuer of the reserve currency at the heart of a post-war international financial architecture it now sees as hopelessly outmoded.

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That ‘exorbitant privilege' is the primary reason we have trouble avoiding trade deficits and the loss of manufacturing.

Like recreational drugs: fun in the short run, deadly in the long run.

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It's China causing the exhorbitant privelege by buying USD to keep the Yuan down.

Their rhetoric is so transparent.

Does anyone really think they want their Yuan propped up to uneconomic levels till they can't export any more?
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New Zealand signed on in 2011, it was big news here of course. So I have known about what China is doing. I think it is a "good idea" for them of course, and probably a good idea for the rest of the world as well.

The impact on the US economy is bound to be severe as they gain traction.
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