I was sitting around the other day trying to decide what to do with all of my worthless dollars. I’m constantly bombarded with messages telling me how the buck will buckle, leaving my Franklins and Jacksons worthless. Guess I’ve got to do something with this worthless heap of cotton fiber.
Let’s see… should I build a bonfire, sending the notes up in smoke, or unceremoniously bag them up as trash? Better yet, I could relive my elementary school days in the 1970s and create one of those cool-at-the-moment-but-awful-in-retrospect decoupage art pieces. Now that’s an option!
Or how about this… instead of taking all the greenback haters at their word, I could take a peek at the real world, where the dollar has gained ground against the yen and the euro over the last couple of years. From this perspective, my choice to hold on to my dollars looks pretty smart.
But now there’s yet another challenge to U.S. dollar hegemony — the Chinese yuan.
Recently the Chinese started the Asian Infrastructure Investment Bank (AIIB), a competitor to the U.S.-led World Bank.
They aren’t going it alone. The Chinese have signed up 40-odd other countries to join it as founding members. The list of participants includes long-term U.S. allies like the United Kingdom and Germany. Clearly this is the beginning of the end of the U.S. dollar. this perspective?
China’s main reason for starting the bank, according to them, is to rebalance the voting power of a development bank that lends in Asia to better represent Asian countries.
The World Bank lends to many emerging Asian nations, who then fund the bank through loan repayments. But most of the voting power remains in Western hands, plus Japan, because they’re the countries that have guaranteed the loans.
Voting rights are supposed to reflect economic clout, but the current alignment appears to miss the mark.
China’s economy is the second largest on the planet at $9.2 trillion. That’s only a little more than half of U.S. GDP at $17.4 trillion, but it is well above Japan at $4.9 trillion and Germany at $3.6 trillion. Compare that to the voting shares at the World Bank where the U.S. controls 16.28%, Japan 7.54%, Germany 4.42%, and China at 4.87%.
