While no one seemed to be watching, the money supply of China snuck past the U.S. Dollar, the Japanese Yen, and the Euro to become the most valuable money supply in the world. According to each central banks’ official statistics, it reached first place in September, 2011. The Chinese money supply reached US$12.3 trillion, followed by the Eurozone at US$11.8, then Japan at US$10.4 trillion. Is this good news or bad news?
While the U.S. dollar and Euro are taking a beating in international financial markets, China and Japan have quietly gotten into a much worse monetary situation. The Yen seems to be extremely overvalued. Over the last few years it has been appreciating despite massive government debt and low interest rates supporting it. China seems to be a case of hot money driving up asset prices. If most of that new money is foreign currency, it will at some point leave the country and deflate one of the largest asset bubbles in history. If most of that new money is Renminbi, it will have to devalue sharply against other major currencies.
Either way, China seems to be doomed in the very near future. The U.S. dollar has a few more years before it reaches its intrinsic value, which is also zero.