http://nation.foxnews.com/sites/nati..._fx_dollar.jpg
St. Petersburg, Russia - China and Russia have decided to renounce the US dollar and resort to using their own currencies for bilateral trade, Premier Wen Jiabao and his Russian counterpart Vladimir Putin announced late on Tuesday.
"About trade settlement, we have decided to use our own currencies," Putin said at a joint news conference with Wen in St. Petersburg.
The two countries were accustomed to using other currencies, especially the dollar, for bilateral trade. Since the financial crisis, however, high-ranking officials on both sides began to explore other possibilities.
November 28th, 2010, 21:24
zenbudda
Re: Secret moves launched by China, Russia, Japan, France, Arab States to end the Dol
i'll be honest. if i were some other country and didn't like america printing too much money (devaluing the worth of the us dollars i have), i'd ditch the us dollar too. the tactic is sound and is VERY capitalistic approach to doing business. however, this does not do any good to the us economy. ron paul (and MANY MANY others) is right (regardless how many people lump him in with alex jones): our foreign policy over the past 40 years screwed us over. the moment other countries can rely on themselves without the use of american dollars, any of those countries whom we've bullied around are going to stick it up our asses. i still think the basic principals of america are very sound and lead to a healthy society. but if capitalistic power and greed cannot be contained in a sense that perpetuates "the republic" AND the rest of the world, the rest of the world will make it difficult for the republic (which it has). either way, i will defend what america "used to stand for".
November 29th, 2010, 18:38
vector7
Re: Secret moves launched by China, Russia, Japan, France, Arab States to end the Dol
BERLIN, Nov. 26 (Xinhua) -- Russian Prime Minister Vladimir Putin said on Friday he was confident for the euro and Russia and Europe may join single currency someday in the future during his visit to Germany.
The euro has shown its quality as a "stable world currency" even some eurozone countries are suffering debt crisis. Putin said at a forum of business leaders in Berlin.
He praised the measures taken by the European Central Bank to keep the stability of the currency and he was confident that the sovereign debt crisis will be overcome in the end.
Putin emphasized the importance of strengthening the cooperation between Russia and the European Union (EU), saying "a rapprochement between Russia and Europe is inevitable, if we want to be successful and competitive."
"Can we assume that Russia together with Europe will one day be in a single currency zone? I can assume that," he said.
Putin also criticized the dominance of U.S. dollar in the world economy, which makes it vulnerable.
In a later joint press conference with German Chancellor Angela Merkel, Putin reiterated his will to strengthen cooperation with the EU, saying closer economic cooperation is the first step toward a monetary union.
Merkel also said closer economic ties are the first steps and will be helpful for later adjustments on currency policies in the future.
Before the meeting with Merkel, local newspaper Sueddeutsche Zeitung said on Thursday that Putin called for establishing a free trade zone with the EU, which was doubted by Merkel, saying "I have to pour a bit of cold water on it" as "the recent steps taken by Russia are not in the same direction" on that day.
December 13th, 2010, 21:25
vector7
Re: Secret moves launched by China, Russia, Japan, France, Arab States to end the Dol
Sunday, December 05, 2010 3:33:27 PM by IANS ( Leave a comment )
Abu Dhabi, Dec 6 (IANS) The UAE is still looking forward to a unified currency for the six-nation Gulf Cooperation Council, Economy Minister Sultan al-Mansouri said.
The UAE, the second-largest Arab economy and the world’s third largest oil exporter, opted out last year of the GCC plans for monetary union, becoming the second country in the six-nation body to withdraw from the drive.
Oman was the first to drop out of the project, saying its economy is not ready yet.
However, Mansouri Sunday gave a glimpse of hope that the UAE could be back on the track of the monetary union talks, reports Xinhua.
“I look forward that one day there would be a unified currency for the people of the Gulf,” Mansouri said in an interview with Saudi Arabia’s Aleqtisadiah newspaper.
The minister’s statements came on the eve of the annual summit of the GCC leaders in Abu Dhabi.
“I think such issues must be raised and discussed at such summit, and there must be an evaluation of the dimension of the issue and how to reach a compromise for all sides,” the minister told the paper.
In May 2009, the UAE withdrew from the plans in protest of a decision to place the GCC central bank in Saudi Arabia, which the UAE had bid to host from 2004 to 2009.
“Here in the UAE, we believe that the Gulf states share the same destiny, whether economically, politically, or socially. We are one people,” he said.
Founded in 1981, the GCC groups Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE.
The six states together hold around 45 percent of the global oil reserves and produce 16 million barrels of crude oil daily.
December 13th, 2010, 21:25
vector7
Re: Secret moves launched by China, Russia, Japan, France, Arab States to end the Dol
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Why are the Chinese buying so much gold? In 2010 it has been demand out of China that has been one of the primary factors for the dramatic rise in the price of gold. Gold is up approximately 26 percent this year, and most analysts expect it to go even higher in 2011. So is China buying gold at a breathtaking pace because they view it as a good investment, or are there other factors at work here? Do the Chinese view gold as a hedge against inflation? Is China seeking to get out of U.S. Treasuries? Has gold simply become much more attractive than paper currencies such as the euro and the U.S. dollar? Or could China be preparing for the coming financial collapse that so many economists see coming? It is always difficult to tell exactly what China is up to, but one thing is for sure - they are buying gold like there is no tomorrow.
It recently was announced that China imported 209.7 metric tons of gold during the first ten months of 2010. That was five times more gold than China imported during the first ten months of 2009.
So what can account for such a dramatic increase?
Does China need all of that gold for domestic use?
Without a doubt gold is becoming much more popular in China, but it is not as if China does not produce a massive amount of gold on their own. In fact, since 2007 China has been the number one producer of gold in the entire world. They are certainly not suffering from a shortage of gold.
If that is the case, then what else could explain why China is buying gold so rapidly?
Well, there seem to be four primary theories for why China is buying up so much gold right now.
#1 A Hedge Against Inflation
Already we are starting to see some very serious inflation in China. In particular, food inflation threatens to spiral out of control. In an inflationary environment, gold is always a good investment.
#2 An Alternative To U.S. Treasuries
Over the past decade, China has invested very, very heavily in U.S. Treasuries. In fact, the U.S. government owes China nearly a trillion dollars at this point. However, over the last year or two China has dramatically slowed down their purchases of U.S. Treasuries and they have been actively seeking out alternative investments. Gold has always been a very safe investment, and with the world financial system so unstable right now it makes a lot of sense to invest in gold.
#3 A Lack Of Faith In Paper Currencies
Over the past decade, China has accumulated a gigantic pile of foreign exchange reserves, but lately paper currencies such as the euro and the U.S. dollar have become increasingly unstable. The European sovereign debt crisis threatens to collapse the euro at any moment. Quantitative easing 2 and the tax cut deal that Barack Obama and the Republicans are trying to push through Congress are causing the rest of the globe to lose a tremendous amount of faith in the U.S. dollar. In this type of environment, holding paper currencies has become much less attractive.
#4 Preparing For The Coming Financial Collapse
It doesn't take a genius to figure out that we are living in the greatest debt bubble in the history of the world and that at some point the world financial system is going to crash. When that happens, the safest place to be will be in precious metals and other commodities. The Chinese have been busy gobbling up gold, silver and many other commodities, and so whether they mean to or not, they are positioning themselves to weather the coming financial storm better than most other nations.
Once again, it is always hard to tell exactly what China is doing. Perhaps in six months or a year China will change course again. But right now China is gobbling up huge amounts of gold, and if this continues it is going to create a huge imbalance in global financial markets.
In fact, if all of this Chinese gold buying goes on long enough, it could blow out many of those who are holding significant short positions in gold.
But it is not just the Chinese government that has caught "gold fever" these days.
Chinese citizens are buying gold at a rate that has never been seen before.
On the Shanghai Gold Exchange, trading volume soared 43 percent during the first 10 months of 2010.
As the Chinese middle class has grown, gold has become much more popular. Amazingly, Chinese households have purchased almost half as much gold since mid-2007 as all the investors in the West combined.
This is yet another sign of how far China has come. China is not a minor
player on the world stage any longer. The truth is that China is now a major economic superpower.
*Back in 1998, the United States had 25 percent of the world’s high-tech export market and China had just 10 percent. Ten years later, the United States had less than 15 percent and China's share had soared to 20 percent.
*Nobel economist Robert W. Fogel of the University of Chicago is projecting that the Chinese economy will be three times larger than the U.S. economy by the year 2040 if current trends continue.
So what about the United States?
Well, the truth is that Americans have become so dumbed-down that only about 70 percent of them can even find China on a map.
How sad is that?
On the global chessboard, China seems to constantly be four or five moves ahead of the United States these days.
So if China is busy buying gold at a feverish pace perhaps it is because they know exactly what they are doing.
January 7th, 2011, 05:42
Ryan Ruck
Re: Secret moves launched by China, Russia, Japan, France, Arab States to end the Dol
The World Bank issued its first yuan-denominated bond, raising $76 million and trying to promote the use of the Chinese currency in international markets at a time when China's stake in the institution is about to increase.
The World Bank said in a statement on Wednesday the International Bank for Reconstruction and Development, its low-interest lending arm, had priced the two-year paper at 0.95 percent, representing the lowest yield so far on same-maturity dim sum bonds -- the nickname for yuan-denominated bonds issued in Hong Kong.
The offshore yuan market in Hong Kong has seen explosive growth in less than a year, with renminbi deposits in the former British colony surging more than 150 percent in the six months to October 2010. Global companies and institutions such as the Asian Development Bank, McDonald's Corp and Caterpillar have all issued yuan bonds.
The World Bank's 500 million yuan bond issue arrived when China's shareholding in the World Bank is about to increase, potentially making China the third-largest stakeholder in the lender after the United States and Japan.
"This is a landmark transaction for the World Bank as it is the first World Bank issuance in RMB, and signals the strong interest of the World Bank in supporting the development of the RMB market," Doris Herrera-Pol, Global Head of Capital Markets at the World Bank, said in a statement.
"It is a privilege for us to have this opportunity that establishes the institution as a premier issuer in the fastest growing capital market in the world."
HSBC was the lead manager for the deal, which will settle on Jan. 14.
January 11th, 2011, 20:22
vector7
Re: Secret moves launched by China, Russia, Japan, France, Arab States to end the Dol
French President Nicolas Sarkozy visited his US counterpart Barack Obama on Monday. The world economy was high on the agenda - including Sarkozy's aim of reducing the influence of the US dollar.
France is hosting this year's G8 and G20 summits, and French President Nicolas Sarkozy has started to campaign for a change to the way the US dollar plays a central role in the global economy.
In his New Year's Eve address to his country, Sarkozy said France would look to change a system which no longer reflects our modern global society.
"The system put in place in 1945 is for a world that doesn't exist anymore," the French president told the nation.
He suggested that the current model which uses the US dollar as the primary reserve currency was "unstable" and "makes part of the world dependent on American monetary policy."
Sarkozy's plan is to update everything to what he regards as the new reality of a more multi-polar world and the rise of new powers like India, Brazil and China.
'Dangerous' to rely on dollar
Sarkozy is not the only Frenchman who wants to reduce the world's reliance on the dollar. Philippe Dessertine from Paris' High Finance Institute recently described using the dollar as the only reserve currency as "very dangerous."
Recent actions by the US Federal Reserve to stimulate the economy through quantative easing – where dollars are printed to buy US government bonds in order to increase the money supply – have been criticized internationally.
"The Federal Reserve's latest actions favor the US but have consequences for the rest of the world," Dessertine said. "Emerging countries and Europe really want to change that."
Devalued dollars flood developing countries, which push their currencies up, quashing their exports and potential for job creation.
Dollar is king… for now
Dessertine and other economists say the dollar will remain king for now, so long as the world economy does not go into recession. But if things get worse, the US will have to work with other nations to reduce the dollar's influence.
Other options would be to have several reserve currencies, or a basket of currencies to act as reserves.
The hardest part of Sarkozy's plan is convincing the US to give up the dollar's dominant position.
"With respect to international financial regulation, trying to stabilize currency rates and commodity prices… These are not going to be areas where the United States, and indeed Obama, are most receptive," said Nicholas Dungan, a US-based advisor with the French Institute of International and Strategic Relations.
So far Sarkozy has secured the backing of the leaders of India and China.
He will now be hoping he will succeed at least in getting world leaders to talk about a new monetary system at this year's global summits in France. He will be hoping President Obama will also be prepared to join in these discussions.
Author: Eleanor Beardsley (cb)
Editor: Ben Knight
January 12th, 2011, 18:04
vector7
Re: Secret moves launched by China, Russia, Japan, France, Arab States to end the Dol
The Bank of China, one of the country’s main state-owned lenders, is now allowing American firms to trade in renminbi, another step in China’s effort to position the the renminbi on the world stage.
In July, China started a renminbi settlement system for cross-border trade in Hong Kong, but it placed limits on how much currency could be exchanged.
Currency trading in the renminbi was already possible at other banks, but the move by a state-owned lender signals a shift in official policy.
The Chinese central bank bowed to international pressure last summer and agreed to make its currency more flexible; the renminbi is now allowed to move as much as 0.5 percent each day. At the same time, the country is cautiously pursuing a strategy of making the renminbi into an international exchange currency.
“China sees the global financial system as too U.S.-centric and dollar dependent,”’ said Robert Minikin, senior currency strategist at Standard Chartered in Hong Kong. “That created issues during the financial crisis.”
Now, he said, the country is trying to take a step away from that dependence. “Conditions are in place for sustained yuan appreciation against the U.S. dollar,’’ he said, predicting that it would increase by 6 percent this year, to 6.20 renminbi per dollar.
With a forecast for high inflation in the expanding Chinese economy, an appreciating currency could help the country dampen so-called imported inflation by making foreign goods less expensive.
With the Bank of China move, China is promoting the renminbi to Americans at a time when loose monetary policy on the part of the United States Federal Reserve has some concerned that the dollar’s value will continue to decline.
The Bank of China said in an announcement on the Web site of its New York branch that trading firms and individuals could now open accounts in renminbi, buying the currency from and selling it to the bank.
While the limits on personal accounts are $4,000 a day and $20,000 a year worth of renminbi, and those accounts are largely for the purposes of exchange and remittance, the bank is also soliciting business from trading firms.
China’s decision to keep the renminbi effectively pegged against the dollar at an exchange rate that favors its exports has long been a source of contention between Washington and Beijing. China’s trade surplus with the United States was $181 billion last year, a 26 percent increase from the previous year, The imbalance is likely to put further pressure on the exchange rate.
That said, the renminbi hit a new high of 6.6128 against the dollar on Wednesday, an auspicious prelude to a visit to Washington next week by China’s president, Hu Jintao.
Separately, the city of Shanghai said it was creating a new investment window, allowing qualified private equity firms to buy renminbi and invest in mainland companies. Reuters reported that the pilot project could grow to be worth $3 billion.
January 14th, 2011, 23:42
vector7
Re: Secret moves launched by China, Russia, Japan, France, Arab States to end the Dol
Only a mere twelve days into the New Year (2011) and China have already set the wheels in motion to use their most powerful weapon, the Yuan, in order to combat inflation.
This may well be the first decision of many that will result in the Yuan being phased in as the new world reserve currency.
A stronger exchange rate will be the tool that China use in order to tame their inflationary problems at present. The biggest increases being felt as a result of inflation at this time are; the Chinese housing market, which was most dramatically affected in the southern industrial hub of Guangzhou, where home prices soared by 38 percent in the past year.
Another sector heavily affected was Chinese groceries, with the cost of some foods increasing by 50 percent.
In an attempt to address the loose lending policies being adopted by Chinese banks, Chinas government have ordered their banks to increase the amount of money that each bank holds in reserves with a reduction in the availability of lending.
The strengthening Yuan will essentially result in two ways; 1, their imports will become substantially cheaper. 2, their exports will be more expensive.
This is a move that the US have not wanted the Chinese to take as most of the consumer goods that are stocking up US stores are Chinese-made products and the longer the Chinese allowed their currency to be held at a relatively low level (compared to its purchasing power potential) the longer the shopaholics’ in America could continue to buy their products at a price that they could afford (or a level that they could get credit for)
So, with the world outside China continually devaluing their currencies and China increasing theirs who is going to pick up the export market? And how do they intend to do this?
Before hand, the countries that were importing goods from China were benefiting from a manipulated Yuan price which gave the illusion of cheap imports. But now, that is not an option. The only way that I can see that will enable countries to bridge the export gap will be, further devaluation of their paper currency, which as any respecting economist knows is only an extremely short-term solution (if it can even be called that) and will only result in long-term high inflation for that economy.
This currency policy decision by the Chinese government will help to add to the increasing confidence in the Yuan as a world reserve currency contender to replace the failure that is, the US Dollar.
Aside from the measures taken to combat inflation in China, there have been many other recent events that all point to the strengthening of the Yuan and the growing popularity of the currency.
In the last week, the World Bank issued their very first Yuan bonds; they will release the amount of 500 million Yuan, which is around $70 million in US Dollars. The bank has said that, these actions are an act of confidence in the Renminbi and will give investors around the globe the opportunity to diversify and help the exposure of the Yuan in global markets. The bonds will be offered from January 14th, 2010 and will mature after two years in 2013.
In July of last year (2010) China began allowing cross-border exchange with the renminbi, however, there were caps on exactly how much currency was allowed to be exchanged. That was the closest China had come to allowing the renminbi to be a top currency on a global scale, until now.
Today marks the beginning of the renminbi being allowed to be traded in the U.S, China have identified that the global economy has become too reliant on the Dollar and wants to provide an opportunity to move away from that.
China have already implemented strategies that will allow for sustained appreciation for the Yuan against the US Dollar, a prediction in the rate of appreciation was projected at 6% in 2011 by Robert Minikin, who is a currency strategist at Standard Chartered based in Hong Kong.
The reason that there hasn’t been a replacement of the US Dollar as the world reserve currency as of yet is the fact that there was no currency that was ready to take on that mantle, however, given the performance of the Yuan in the last two years, it has shown its power and reliance as a solid currency, not only that, but China have also helped their cause by not relying on a paper, fiat currency but actually using the strengthening Yuan in which to buy up gold and other major assets, something that every single country in the so-called ‘advanced’ world has not done.
All of these factors are now helping to shape the Yuan into tomorrow’s new world reserve currency and once this transformation occurs, it really will spell the end for the down but not yet out, Dollar.
January 17th, 2011, 17:53
vector7
Re: Secret moves launched by China, Russia, Japan, France, Arab States to end the Dol
http://www.france24.com/en/files/ima...157014-1-0.jpg A Chinese bank clerk uses a machine to count stacks of one-hundred yuan notes. China's President Hu Jintao said Sunday the international currency system was "a product of the past," but it would be a long time before the yuan is accepted as an international currency.
AFP - China's President Hu Jintao said Sunday the international currency system was "a product of the past," but it would be a long time before the yuan is accepted as an international currency.
Hu's comments, which came ahead of a state visit to Washington on Wednesday, reflected the continuing tensions over the dollar's role as the major reserve currency in the aftermath of the US financial crisis in 2008.
"The current international currency system is the product of the past," Hu said in written answers to questions posed by The Wall Street Journal and the Washington Post.
Highlighting the dollar's importance to global trade, Hu implicitly criticized the Federal Reserve's recent decision to pump 600 billion dollars into the US economy, a move criticized as weakening the dollar at the expense of other countries' exports.
"The monetary policy of the United States has a major impact on global liquidity and capital flows and therefore, the liquidity of the US dollar should be kept at a reasonable and stable level," Hu said.
China's own currency, the yuan or renminbi (RMB), is also expected to be a bone of contention in Hu's talks with Obama, with the United States complaining that it is artificially overvalued to boost Chinese exports.
Asked about the view that appreciation of the yuan would curb inflation in China, Hu suggested that was too simplistic a formula.
"Changes in exchange rate are a result of multiple factors, including the balance of international payment and market supply and demand," he said.
"In this sense, inflation can hardly be the main factor in determining the exchange rate policy," he said.
At the same time, Hu signalled no imminent move away from the dollar as a reserve currency, saying it would be a long time before the yuan, or renminbi (RMB), is widely accepted as an international currency.
"China has made important contribution to the world economy in terms of total economic output and trade, and the RMB has played a role in the world economic development," he said.
"But making the RMB an international currency will be a fairly long process."
Nevertheless, Hu noted that China has launched pilot programs using the yuan, or renminbi, in settlements of international trade and investment transactions.
"They fit in well with market demand as evidenced by the rapidly expanding scale of these transactions," he said.
January 24th, 2011, 17:50
vector7
Re: Secret moves launched by China, Russia, Japan, France, Arab States to end the Dol
The World Bank has issued its first yuan-denominated bond in a move that will help China as it tries to increase the use of its currency in global markets.
The Washington-based lender said Tuesday it would raise 500 million yuan (76 million US dollars) from the two-year bond issue on Hong Kong's yuan-denominated bond market.
The move will "further deepen the market and permit investors to diversify their currency holdings and expand renminbi exposure", the World Bank said in a statement, using the official name for the Chinese unit.
Last month, China said its second yuan-denominated bond issue in Hong Kong had initially raised five billion yuan, with plans for another three billion yuan to be sold.
The move followed Beijing's first yuan-denominated bond issue in Hong Kong in September last year, worth about six billion yuan.
It also comes after heavy equipment maker Caterpillar and fast-food giant McDonald's each issued yuan-denominated bonds in Hong Kong, the first such sales by non-financial foreign firms in the city.
The semi-autonomous Chinese territory is acting as a test bed for the internationalisation of China's currency.
Beijing is seeking to broaden the use of the yuan in the financial hub after approving its use to settle cross-border trade in 2009.
Despite the global success of Chinese exporters, the yuan plays only a minor international role because it cannot be freely exchanged for other currencies. And official controls make it difficult to move the yuan in and out of China.
Top leaders in Beijing want to see the yuan adopted as a global reserve currency to reflect China's growing economic and political clout.
Allowing the yuan to be used more widely overseas also helps China reduce the amount of US dollars flowing into the country, which is adding to its already world-beating foreign exchange stockpile and fanning inflation.
January 26th, 2011, 23:28
vector7
Re: Secret moves launched by China, Russia, Japan, France, Arab States to end the Dol
In January, Chinese President Hu Jintao was wined and dined with a lavish state banquet at the White House and other official ceremonies usually reserved for America’s closest friends and allies. Why? One must be very polite when entertaining your banker—even if you don’t like him and he doesn’t like you.
Yet there is another more ominous but closely related reason.
For years, China has warned America that its support for the dollar was not unconditional. The warnings fell on deaf ears. Confident that China was virtually forced to lend money to America, Washington embraced a borrow-and-spend policy that would have destroyed any other currency.
Then last year, when it became clear that America could not borrow enough money to pay the bills—it crossed the Rubicon, declaring that the laws of paper money no longer applied to the mighty dollar: America would just print whatever money it needed to pay the bills. Federal Reserve Chairman Benjamin Bernanke declared he would start by conjuring $900 billion—75 percent of America’s borrowing needs—out of thin air.
The world was shocked that America would so abuse the world’s reserve currency. France, Germany, Russia and China were outraged.
But Americans wagered that the world is too caught in the dollar trap to do anything about it.
So far, this strategy has worked out pretty well for America. With several European countries falling apart, the dollar has firmed up, and safe-haven money has continued to flow into America. But signs are, that is beginning to change.
Europe’s Sugar Daddy
As the Washington Post wrote, “[S]trange things are happening in Europe—none stranger than the emergence of China as the Continent’s sugar daddy” (January 16).
Wait—wasn’t China America’s “sugar daddy”? Well, just follow the yen. In July 2009, China held $939 billion worth of U.S. treasury debt. More than a year later China’s holdings have fallen to $895 billion. This is big news—and surely isn’t lost on Washington. For more than a year, America’s most important creditor has stopped lending new money to America. Instead, China is investing its money, and its confidence, in Europe.
Today, Europe matters more to China than any place in the world. With 400 million First World consumers and the world’s largest economy, the European Union is by far China’s biggest export market.
It is a reciprocal relationship, too. China now directly holds over $900 billion worth of eurozone national debt. In Greece, China is investing billions more as it attempts to build the Mediterranean port city of Piraeus into the “Rotterdam of the south,” and create a modern-day silk road linking Chinese factories with consumers across Europe and North Africa.
Most importantly, China has thrown its weight behind the euro.
In a recent trip to Europe, Vice Premier Li Keqiang did nothing less than transform Europe’s economic picture. Just as commentators were predicting the collapse of the eurozone, Li—a favorite to become China’s next prime minister—appeared to throw China’s $2.85 trillion worth of foreign exchange reserves into Europe’s breach, promising to be a committed and responsible long-term investor in Europe. icbc bank, China’s largest lender, quickly followed suit, announcing its intention to move full force into the eurozone. It will open its first-ever branches in France, Spain, Italy, Belgium and the Netherlands. It has already opened offices in Frankfurt and Luxembourg.
Li’s support is already paying dividends in Europe. With interest rates coming down from recent highs and successful debt auctions, Spain and Portugal got a welcome taste of what several billion euros’ worth of Chinese “sugar” can do.
Of course, it doesn’t come free. Li publicized China’s desire that the EU relax restrictions on high-tech exports to China and develop trade relations. In addition, China wants access to Europe’s defense companies.
Europe seems all too willing to do business. The EU’s Foreign Minister Catherine Ashton called for abolishing Europe’s arms embargo with China. Reportedly, American officials, who have to deal with a rapidly growing Chinese military presence in the Pacific, are furious.
What Will Replace the Dollar?
It was what Hu Jintao told the Wall Street Journal just prior to his arrival in Washington, however, that should have all Americans preparing for one massive sugar crash. He said the dollar should no longer be the world’s reserve currency. It is a “product of the past,” he said. It is time for a more fair and balanced system.
What does China think should replace the dollar? Hu himself said it wouldn’t be the yuan. What does that leave? Follow the sugar.
“The euro will overcome the region’s deficit crisis,” assured Song Zhe, China’s ambassador to Europe, back in December. The cementing of the euro’s status will “promote the building of a diversified global currency system,” he said.
Remember: When anyone talks about “diversifying” the global currency system, by definition it means ditching the current system—which is the dollar.
And China isn’t alone in shifting support to the eurozone. Japan has also announced that it will step up its efforts to back Europe by purchasing eurozone debt. According to Reuters, Japan will purchase 20 percent of soon-to-be-issued Eurobonds. The Eurobonds would be jointly issued and backed by all members of the eurozone—creating a new debt market that will directly compete with U.S. treasuries. Where will Japan get the money? As America’s second most important lender, it has a whole stack of treasuries it would probably love to “diversify” out of.
If the world wants out of the U.S. dollar, there is only one viable paper alternative: Europe.
According to Li Daokui, an academic member of the Chinese central bank’s monetary policy committee, Americans only have months to prepare—while Europe works to get its act together. “For now, market attention is still on Europe and for the coming 6 to 12 months, it will not shift to the United States,” said Li on December 8. “But we should be clear in our minds that the fiscal situation in the United States is much worse than in Europe.
In one or two years, when the European debt situation stabilizes, attention of financial markets will definitely shift to the United States. At that time, U.S. treasury bonds and the dollar will experience considerable declines.”
Strange things are happening in Europe. Now you know why. The international monetary system set up at Bretton Woods in 1944 is on the verge of breaking down, and the dollar will soon be fighting for its survival as the world’s reserve currency.
February 13th, 2011, 23:37
vector7
Re: Secret moves launched by China, Russia, Japan, France, Arab States to end the Dol
Now that it has passed Japan to become the world’s second-largest economy after the United States, China is considering the next step as a world power: making its money a global currency.
Richard Lavin, a group president at Caterpillar, said his company’s $150 million Hong Kong offering last November was less expensive than taking out a loan in China or raising the money in dollars and then converting those dollars into renminbi. The bonds were issued to help finance Caterpillar’s equipment leasing business in China.
“This was a successful issue,” Mr. Lavin said. “Before, we were funding our operations by bringing in dollars and changing them to RMB.”
Meanwhile, in Russia, Vietnam and Thailand, some cross-border trades with China can now be settled in renminbi, so that trading partners do not have to convert in and out of dollars. One pilot program lets Russian companies like Sportmaster, a retail chain based in Moscow, buy or sell goods using Chinese currency.
And in New York, the Chinese government has permitted an overseas branch of Bank of China to accept deposits in renminbi. That enables depositors outside China to bet on a currency that is widely expected to appreciate against the dollar over the next few years.
“This is all encouraging the internationalization of the renminbi,” Kelvin Lau, an economist at Standard Chartered Bank who is based in Hong Kong, said of Beijing’s recent moves. “They want to make the Chinese currency a popular currency.”
At Thursday’s exchange rates, renminbi were trading just below 6.59 to the United States dollar — a level that many experts say values the Chinese currency artificially low, as a result of Beijing’s intervention efforts. Five years ago, the renmimbi was trading at slightly more than 8 to the dollar — more than 20 percent higher than now.
Beyond mere bragging rights, China has economic motives for trying to go global with the renminbi. Analysts say the moves, if successful, could strengthen China’s influence in overseas financial markets and begin to erode the dollar’s dominance. Beijing could also eventually reap the rewards, like cheaper debt financing, that come with being recognized as a world reserve currency.
Global investors eager to bet on China’s growth story, meanwhile, could find that looser controls on the renminbi make it easier to invest directly in bonds and other assets denominated in renminbi.
And importers and exporters could reduce their currency-fluctuation risks by settling China-related trade deals in renminbi rather than dollars or euros.
Robert A. Mundell, a Nobel laureate economist whose research is credited with helping develop the euro, says the renminbi’s rise is all but inevitable.
“The RMB is likely to become a reserve currency in the future, even if the government of China does nothing about it,” Professor Mundell said in an e-mail response to questions. He noted that the renminbi was already a regional currency in Southeast Asia, where China had become the dominant trading partner of many countries.
If China does eventually open its capital market by eliminating currency exchange controls, he said, “the progress of the RMB as an international currency will be assured.”
But analysts caution that right now the renminbi is far from ready to mount a serious challenge to the United States dollar as the world’s leading reserve currency. For one thing, China needs to assure investors that its political system is stable and that its economy still has plenty of growth ahead. For all its rapid growth over the last 30 years, China remains relatively poor compared with the United States, the Europe Union or Japan.
As an influence on global financial markets, the renminbi is “still a distant, distant, distant fourth,” said Albert Keidel, a China specialist at the Public Policy Institute at Georgetown University in Washington. “People are going to start holding more renminbi, but it will be at least a decade or two for it to become a leading world reserve currency.”
China is the world’s largest exporter and one of the biggest destinations for foreign direct investment, but the Chinese government still maintains strict control over its currency and banking system and the flow of money in and out of the country.
Economists say these restrictions allow Beijing to manage — some say manipulate — the renminbi exchange rate, keeping the currency undervalued enough to bolster exports. The policies also restrict the amount of capital that can enter the country — or exit in the event of a sudden downturn.
China has been reluctant to make its currency fully convertible because its banks and financial system are still immature. What is more, allowing money to flow in and out of the country with few restrictions would effectively mean surrendering control over vital aspects of the state-run banking system.
But analysts say Beijing may eventually be forced to change its approach because its self-imposed financial restrictions leave the door to international markets only half open for China, undermining its global ambitions.
China’s tight management of exchange rates also leads to complex market distortions that analysts say force Beijing to accumulate huge foreign exchange reserves — much of them in the form of American Treasury bonds. As long as China continues tightly linking the renminbi to the dollar, analysts say, the People’s Bank of China is effectively outsourcing the nation’s monetary policy to the United States Federal Reserve. And as the value of the dollar has dropped in recent years, Beijing has begun complaining that the United States’ soaring budget deficits are eroding the value of China’s huge dollar-denominated holdings.
Eswar S. Prasad, a professor of economics at Cornell University and the former head of the International Monetary Fund’s China division, says these concerns are pushing China to step up its own efforts to reduce its reliance on the dollar and internationalize its own currency.
“This is a striking change,” Professor Prasad said. “But this is all conditional on whether they can reform their own financial markets. They know that if they open and their financial markets are not ready, it could lead to a disaster.”
If Beijing is not willing to take the steps necessary for making the renminbi fully convertible, many analysts doubt whether China can internationalize its currency in the coming years.
“They’re in uncharted territory,” says Nicholas R. Lardy, an economist and China specialist at the Peterson Institute for International Economics in Washington. “But this is how China does everything. They experiment around the edges. You might look back 10 years from now and say it was the opening wedge in a transformation. Or it could be a flop.”
February 14th, 2011, 06:13
samizdat
Re: Secret moves launched by China, Russia, Japan, France, Arab States to end the Dol
Rounding off the digits, I read that @70 billion are traded on stocks each day, while 70 trillion are traded in currency markets. hmmmm. ?
Why dont the big $$ folk invest in productive projects such as eolic energy, agro-industry in latin America, and factories - US & latin America at decent wages?
