The Secret Behind The Success of China’s “Trade Invoicing”

While the creation of a new reserve currency is being discussed by the BRICS, the City of London still has delusions about avoiding a collapse of the dollar system. Columnist Gillian Tett, however, in her March 30 article in the Financial Times, is forced to acknowledge that China’s “trade invoicing” system is working quite well and has positioned the yuan before the euro in international exchanges.

Ironically Tett contends, the banking crisis has strengthened the dollar through a dollar-swap increased demand (not quite true: the dollar has fallen about 7% against its index for two consecutive quarters, and 7% against the yuan, which is not included in the dollar index.)

But, assuming that she is right, the use of yuan is backed by real merchandise — trade. “Contrary to conventional wisdom, lack of capital account openness may not fully prevent the RMB (yuan) from playing a stronger role as an international and reserve currency”, she writes. “After all, a $200 billion offshore RMB market has already emerged — and the currency is being ‘use[d] in invoicing and settling China’s foreign trade and payments’ and ‘a global network of clearing and payments.’ ”

Importantly, Tett is not discussing the prospect of a new commodity-based trade currency, but that of a new role of the yuan as a reserve currency. But she must admit that, contrary to free-market dogmas, the use of a national currency as a reserve currency is possible in a regime of capital controls.

The secrets behind the success of China’s “trade invoicing” were revealed by Lyndon LaRouche, in his 2000 paper On a Basket of Hard Commodities: Trade without Currency, which showed that the basis for the U.S. dollar’s 1940s-1960s international reserve-currency status was high productivity and rapid investment in technology and hard-commodity production. China’s economy has those characteristics now. The way is open for new international credit agreements among the major BRICS economies, and the buildup of the BRICS New Development Bank, for example, into a real international development bank for industrialization and great projects of infrastructure in the developing countries.

Moreover, the way would then be open for the United States to join those new credit agreements and put the dollar to work producing productive employment for the American people in rebuilding the world. Europe, by the same token, could join in the same dynamic.

Such a policy offers the one solid basis for lasting peace agreements and mutual development, instead of the current war policy of NATO and its London and Brussels think-tanks, which is driving us toward a nuclear world war.

In that spirit, the Schiller Institute has proposed a new international security and development architecture based on the interests of all nations, which is gaining traction among larger and larger social and political circles around the world. It will be at the center of the SI’s April 15-16 online conference, “Without the Development of All Nations, There Can Be No Lasting Peace for the Planet” (cf. above).