Argentina recently made headlines with its announcement that it plans to pay for its imports from China in Yuan. Inevitably, gold commentators jumped to the spurious conclusion that this decision signals another step towards “de-dollarization.”
Let's be clear: this is not the case.
As much as we oppose the perversities of the US dollar system, and offer a way for individuals and institutions to get on their own personal gold standard, we also debunk clickbait articles that confuse more than they clarify.
We even wrote a field guide on How NOT to Think About Gold to inoculate readers against these catchy, but meaningless, headlines.
The dollar system is fatally flawed, and on shaky ground (see First Republic Bank’s failure as the most recent example), but that does not mean it will crash tomorrow. In the same way that California won’t be drifting into the Pacific Ocean tomorrow morning, despite its history of earthquakes.
We need to discuss actual solutions, not misleading articles.
Before we start, we should note that the headlines say that Argentina “plans” to do this.
We also “plan” to have Brent Johnson wear this outfit for his next Gold Exchange appearance. But that does not mean he is going to wear it!
The Unpopular Truth
The truth is that Argentina wants to pay in Yuan to slow the outflow of its dollar reserves. Since all currencies are dollar derivatives, losing your dollar reserves is akin to gutting the value of your currency.
Argentina is not attempting to de-dollarize, they are in fact desperately trying to hold on to their dollars by paying in any other currency they can.
This story is spun as a good thing for Argentina, and as threat to the dollar. When in reality, the dollar is holding. It is Argentina’s currency that is suffering.
But what if….
But what if this plan actually happens? What if Argentina does start to pay for imports with Yuan.
What happens then?
Absolutely nothing.
If a homeowner hires a neighborhood kid to mow their lawn in exchange for a box of ice cream sandwiches, the value of the service provided is not determined in ice cream sandwiches. The same goes for the yuan!
Everyone can see that the price of lawn-mowing service is not 12 ice cream sandwiches. The ice cream sandwich has not suddenly taken on any monetary characteristics. It is not a new unit of account. It is not a threat to dollar hegemony.
Swap out ice cream sandwiches for yuan (or ruble) and you can see why the reserve currency status of the dollar is not affected in the slightest.
The value of the service offered by the kid is determined in the prevailing market for labor, which is denominated in dollars. Similarly, the value of Chinese exports is determined in global markets, which use the dollar as their numeraire.
China can ask for payment in any commodity or currency it chooses, but in the end, it will receive the dollar value of its imports. It’s a dollar world, and we’re all living in it.*
The Only Hope for Argentina
Now what if Argentina actually wanted to switch to an honest monetary system, get out of debt at a discount, and de-dollarize without destroying its currency?
Something that isn’t another gold price-fixing scheme like the “any minute now” gold-backed ruble?
There is in fact a way to move forward to the gold standard.
And it’s gaining in popularity.
In the meantime, please take claims of supposed “de-dollarization” and soon-to-be-implemented “gold-backed currencies” with a rock of salt. And read our free field guide to learn how to spot other nothing-burgers masquerading as something-burgers.
Ciao!
© Monetary Metals 2023
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