China, the U.S., Special Drawing Rights and Master Sun's 36 Stratagems

Recently, China announced that it favours the reinstallation of the Special Drawing Rights as conceived originally by the Bretton Woods System.  In its capacity as the present day largest holder of US bonds, it is in their interest to ensure the security of their investments. But on closer look, there are perhaps some contradictions inherent in this strategy and yet at the same time there may well be a very well conceived and extremely effective strategy on their part, one which arises out of the ancient 36 stratagems.  Were the Special Drawing Rights to once again emerge, this time as a replacement for the USA dollar as the international reserve, this would inevitably place the USA as a debtor in the position of first having to purchase those Rights in order to repay the bonds to China.  This would spell disaster for the dollar, which may seem to be counterproductive at first glance on the part of the Chinese, but could well boast intriguing cunning on the part of the Chinese.

The USA possesses according to a recent article, approximately 8,700 tons of gold reserves and it is not entirely inconceivable that the Chinese could request repayment in this form rather than the Special Drawing Rights, which would be tantamount to impossible for the USA at the present moment.

If the USA were in fact to turn over the gold reserves to China in lieu of repayment, this would mean China would have a de facto or even de jure gold standard and as such, would be in possession of one of the most credible currencies in the world. China has indeed already made known its intention to increase its gold reserves by 4,000 tons from its present 600 tons, making this a distinctly plausible reality.

What are these 36 stratagems? Over the course of the of the past 2,500 years, the 36 stratagems attributed to Master Sun (possibly erroneously with one exception but that is beyond the scope of this article), have become part and parcel of Chinese, or even Asian culture in general and a very intrinsic aspect of their business dealings. Assuming this to be the case, it becomes relevant to take a closer look at which of the possible stratagems the Chinese may be invoking in this matter, if any.

There are perhaps four stratagems, which may be relevant to this particular scenario.

Strategem Nr. 15

To entice the tiger down from the mountains.

This could imply that should the special drawing rights be invigorated to replace the dollar as the international reserve, then the USA would be on a level playing field with all others and thereby easier to overcome psychologically as well as economically.

Strategem Nr. 19

To withdraw the wood from under the boiling pot.

Here the stratagem application could be interpreted as the boiling pot symbolizing the dollar as the international reserve currency, which is rendered inactive without the presence of the wood (by removing its function as the international reserve).

Strategem  Nr. 28

To entice onto the roof and then pull away the ladder.

Here the ladder could be construed as the dollar being removed as reserve currency, leaving the US stranded on the roof.

Strategem Nr. 30

The reversal of roles in which the guest becomes the host.

This one could be considered the most pertinent by virtue of the fact that the USA, being the one and only superpower economically and consequently politically, being now forced to assume the role once played by its primary present day creditor – China.

It may well be advisable to start considering this situation in the context of the 36 stratagems in order to come up with some appropriate counter-stratagems!

Elizabeth Brisden

April 3, 2009

The Daily Reckoning