presents a clever solution to China’s “Dollar problem.”
Except for two constraints, China would swap its whole $2 trillion portfolio of US Treasury securities for food, energy and mineral producing capacity:
1) No-one will buy their Treasuries, and
2) No-one will sell them the farmland, oil fields and mines.
I recently spent a couple of weeks in Australia, and the business question I heard most frequently was: When will the world dump the dollar as a reserve currency? It’s easy for the Aussies to talk about this, because that thrice-blessed land is bursting with food, energy and mineral resources. The best way to answer their question is with another question: When are you going to put Australia up for auction? China would buy the whole continent in a heartbeat. China’s foreign exchange reserves amount to $1 million for each of Australia’s 21 million inhabitants. They are roughly a third larger than the total market capitalisation of the Australian stock exchange. Australia, of course, isn’t selling. China is stuck with its Treasuries and the world is stuck with the dollar, for the foreseeable future.
Read his whole post for a long and thoughtful discussion on gold and the dollar.