The word “fettered” is quite an archaic term that refers to a restraint system used in animal husbandy. Back before livestock were raised in confinement (like they are grown today) and when they roamed pastures and outdoor areas their human caretaker was faced with the task of being able to track and retrieve the animal when necessary. Before the invention of barbed wire, “fetters” were used to hobble the animal and reduce the area it could travel over.
Almost three and a half years ago I wrote this blog post about how China’s economy had grown and was about to surpass the US economy and that it did so despite being “fettered” by its currency (the Yuan) not being the world’s reserve currency (like the US Federal Reserve (a.k.a. “dollar”) is.
The “fetters” are now being removed, in a way, from the Chinese economy and it is about to be allowed to roam freely. What I am referring to is the recent gold-backed oil futures contracts being offered by the Chinese that will also be priced in Yuan (instead of being priced in “dollars”).
This is incredibly historic news! It is the world’s first “gold backed currency” (that I am aware of) since the US defaulted on its Bretton Woods’ commitments that backed the US Dollar with gold until 1972. But, more importantly, it pretty much means the Chinese are abandoning their peg of the Yuan to the U.S. dollar! Remember Trump loudly accusing China of “currency manipulation”? The charge ( a false one IMHO) was referring to China’s central bank creating money (from thin air) to maintain the yuan’s value in relation to the US dollar on world currency markets. This meant that, when the US created money out of thin air (sic. “Quantitative easing”), they did too. So it seems they only “manipulated” their currency if/when the US had already manipulated the dollar.
It would be impossible and foolish for China to attempt a dual peg to both gold and the US dollar at the same time because increasing the number of Yuan in circulation (to keep up with US inflation) would mean they would be on the hook for yet more gold! As soon as the holders got suspicious whether there was enough gold to back the currency a bank run would result (just like France demanded their gold from the US in 1972 causing the collapse of the US gold backed dollar).
But China may also have struck at the very heart of the Federal Reserve Note and it may be a deadly strike. When the “dollar” stopped being backed by gold the US (through Henry Kissinger and Richard Nixon) struck a “deal” with O.P.E.C. to create what is now known as “The Petro Dollar”. In exchange for OPEC only accepting US Federal Reserve Notes for their oil, the U.S. government pledged to defend the O.P.E.C. countries (mostly dominated by Saudi Arabia).
China could have attempted the launch of a gold-backed currency in a number of ways but they tied the new currency to oil futures. This is a direct attack on the Petro Dollar! Now, purchasing countries of oil using these futures contracts can buy them with Chinese Yuan (instead of U.S> Federal Reserve Nots/dollars) while, at the same time, have a sort of guarantee from the Chinese that they won’t hyperinflate them into oblivion ( a guarantee sorely lacking from the Federal Reserve and the U.S. government).
Another very important signal China is sending by this de-coupling from the U.S. dollar (especially as it relates to Bitcoin) is that they may very well be embracing the idea of maintaining a deflationary currency! Gold-backed Yuan will increase in value when the gold they are backed by goes up in price. Prices of other goods and services will, in turn, go down in price (hence the Yuan will be a deflationary currency). This will mean Bitcoin will no longer be the world’s only deflationary currency!