Jun

9

Marc Chandler notes that Chinese companies have been using the dollar as an invoicing currency for exports to Europe: "Consider Hangzhou Natutex Apparel Corp, which produces outdoor fabrics. Europe is the destination of the bulk of its exports, according to press reports. In 2009, an estimate 50% of its sales were invoiced in euros. Reports suggest that it has been cut back to 5%. Several local governments in China have told exporters to be cautious about settling trade contracts in euros and encouraged that if necessary, sign short-term contracts only. This follows a period of time when some of the same governments were encouraging diversification away from the dollar as the invoice vehicle. Local press reports suggests that around three-quarters of China's exports are invoiced in dollars. Shishi Daily, an official newspaper for the export base in the Fujian province recently reported that its exporters have fared well because they followed the government's advice and moved away from using the euro for invoicing purposes."

This is an illustration of how the classical gold standard allowed bilateral trade between companies to adjust pricing. As it would have been under the classical gold standard, China's own legal tender currency has a fixed valuation relative to an external standard; yet its exporters are able to adjust their pricing based on the changes in the overall terms of trade. The adjustment is made by choosing another invoicing currency, but the adjustment could have been made using a pure discount– as would have happened under the classical gold standard.

What the classical gold standard allowed was the very diversity of pricing that is now impossible under a centralized system where government liabilities and bank reserves are an identity. Darwin would not have approved.


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