On Thursday Reuters reported that “China’s central bank has asked major state-owned banks to be prepared to sell dollars for the local unit in offshore markets as it steps up efforts to stem the yuan’s descent, four sources with knowledge of the matter said.”
The average person may not think anything of this story and probably skipped over it after seeing the headline but it is critical that you know what’s coming. This is going to have a major impact on the dollar and it’s only going to get worse over the coming months and years.
The yuan, along with almost every other currency, is currently collapsing due to interest rate hikes in the U.S. A weakening yuan helps Chinese exporters because it makes their goods cheaper abroad but it also encourages capital to flow out of the Chinese economy. China’s current economic condition isn’t good and this only makes the problem worse.
Dumping the dollar in exchange for more yuan could help provide a floor for their currency.
So how does this affect Americans?
This is going to have a significant impact on Americans. And it isn’t just China doing it.
Due to the sanctions, Russia has been backed into a corner and they are moving away from the dollar. Japan is now dumping dollars to prop up their currency. Saudi Arabia is signaling that they are likely going to start selling oil to China in exchange for the yuan instead of the dollar.
The only reason that America is in the shape that it’s in (and that is that are currency has been the strongest currency in the world) is because other nations put trust in the dollar. Since 1944 the dollar has been the world reserve currency.
(I went into detail about what our world reserve currency status means back in July. You can find that article here: https://levimikula.com/china-japan-begin-dumping-u-s-treasuries-what-that-means-for-your-dollar/)
There is a very good chance that over the next few years, the dollar will be abandoned for either the Yuan or a basket of currencies. When that happens, trillions of more dollars will flood the U.S. economy, making inflation significantly worse.
What can you do to prepare?
The best things that you could do are
- Convert some of your assets to gold or silver. The dollar is going to continue to drop in value so you need to back your dollars with something that has value.
- Stock up on essential items like food. Higher inflation means the cost of everything is going to continue to skyrocket, and your raises are not going to keep up with inflation.
- Pay down down debt as fast as possible, especially anything with a variable interest rate. Higher inflation means higher interest rates, and potentially much higher interest rates. There is already talk about the Federal reserve raising rates to 6% by March to control the inflation that we already have, and that doesn’t include any other crisis, like the world backing away from the dollar.