02 June, 2014

CUTTING OUT THE MIDDLEMAN



CUTTING OUT THE MIDDLEMAN

CNBC has this interesting article: What Russia-China relations mean for the dollar. 
Basically, the Chinese and Russians have cottoned on and said: “hey, why are we paying all this money to America to change our yuans to dollars to rubles, then back again? Lets cut out the middleman.”

Now it’s always painful for the middlemen to hear they are middlemen. All around the world, producers are constantly trying to cut out the middlemen and get straight to their consumers. Like religious devotees of yore, who yearned to get straight to God without intercession from priests and popes and other figures of religious authority, the Chinese and the Russians, it appears, have finally figured out the way to divinity.

Basically, just exchange yuans for rubles. How easy is that?

The large-than-life of the illusion of the indispensability of the dollar, compounded by lots of illusory sleight of hands in Wall Streeters, financial institutions, regulatory institutions and opinion making bodies assuring people they would die if they didn’t first turn their currency into dollars: all of this was once responsible for the dollar’s hegemony. But as I figured out myself, the dollar is really not that essential.

I was in Thailand, and needed to visit Burma. I went to the local bank and asked them for dollars to carry on my trip. I can’t remember now whether Burma only accepts dollars from tourists, or whether I’d read a Lonely Planet guide and assumed that the dollar was the default currency to carry. Anyways, the man at the bank frowned, displeased. I practically had to beg and assure him I was doing nothing illegal before he grudgingly gave me $1000 in nice crisp notes.

Now lets think about this. Why should a Nepali traveling in Thailand have to buy dollars to visit Burma? Shouldn’t Burma just have a system of accepting Thai bahts, since Thailand is a perfectly respectable and prosperous neighbor?

And more to the point: how much did it cost me to do this transaction? Did I just pay America an unnecessary fee just for that ten minute transaction—taking Thai bahts, changing it to dollars, and then changing it back to kyits? If I paid $10, or $20, for that privilege of holding on to greenbacks for the short duration of my airflight from Bangkok to Yangon, imagine how much the Chinese and Russians must be paying America, since their trade runs in the trillions? China is going to pay Russia 400 billion dollars in the next thirty years for gas. Can you see America watching this transaction gloomily—imagine, if they had played their cards carefully and continued to be friendly to China and Russia, they could just have sat on their fanny packs and harvested a cool billion just from turning yuans to dollars to rubles, and back again.

Clearly the time for American exceptionalism is past. The world is multipolar, with multiple power holders. China cannot follow the American path of monster hegemony in this new century. Vietnam can give China a run for its money on its own territory, so China has to be careful not to piss off its smaller Asian neighbors since in thirty years it doesn’t want to find itself in the same boat of isolationism in which the US now finds itself. 

The best system of financial exchange, of course, would be quick and bilateral exchange of currency between two countries, anywhere and anytime. This would cut out the need for any reserve currency-dollar, yuan or ruble. With these new technological advances at our fingertips, I don’t see why this is not possible.

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