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View Full Version : Economics China "Attacks The Dollar" - Moves To Further Cement Renminbi Reserve Currency Status


teedubya
03-03-2011, 01:29 PM
LMAO at the sheep still sleeping.

http://www.zerohedge.com/article/china-moves-making-renminbi-reserve-currency

In a surprising turn of events, today's biggest piece of news received a mere two paragraph blurb on Reuters, and was thoroughly ignored by the broader media. An announcement appeared shortly after midnight on the website of the People's Bank of China.

The statement, google translated as "Pragmatic and pioneering spirit to promote cross-border renminbi business cum on monitoring and analysis to a new level" is presented below:

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/von%20havenstein/CNYReserve_0.jpg

Reuters provides a simple translation and summary of the announcement: "China hopes to allow all exporters and importers to settle their cross-border trades in the yuan by this year, the central bank said on Wednesday, as part of plans to grow the currency's international role. In a statement on its website www.pbc.gov.cn, the central bank said it would respond to overseas demand for the yuan to be used as a reserve currency.

It added it would also allow the yuan to flow back into China more easily." To all those who claim that China is perfectly happy with the status quo, in which it is willing to peg the Renmibni to the Dollar in perpetuity, this may come as a rather unpleasant surprise, as it indicates that suddenly China is far more vocal about its intention to convert its currency to reserve status, and in the process make the dollar even more insignificant.

International Business Times (http://www.ibtimes.com/articles/117991/20110302/china-yuan-trade-reserve-currency.htm) provides further insight:

This is all part of China’s plan for the internationalization of its currency, which may, in the decades to come, threaten the global ‘market share’ of other currencies like the US dollar.

Previously, China also announced that bilateral trades with Russia and Malaysia will begin to be conducted with the yuan and the ruble and ringgit, respectively.

Other moves on the part of China to internationalize its currency include allowing foreign companies to issue yuan-denominated bonds and relaxing rules for foreign financial institutions to access the yuan.

Aside from the efforts of the Chinese government, fundamentals also point to the increasing international popularity of the Chinese currency.

China is already the leading trade partner with Australia and Japan. It’s also the leading or a large trade partner with many of its smaller neighbors. The purpose of having foreign currencies is to conduct foreign trade and investment, so the yuan is expected to become a more attractive currency for China’s trade partners, espeically as the government continues to relax restrictions.
The reason for this dramatic move may be found in what Stephen Roach wrote a few days ago in Project Syndicate:

In early March, China’s National People’s Congress will approve its 12th Five-Year Plan. This Plan is likely to go down in history as one of China’s boldest strategic initiatives.

In essence, it will change the character of China’s economic model – moving from the export- and investment-led structure of the past 30 years toward a pattern of growth that is driven increasingly by Chinese consumers. This shift will have profound implications for China, the rest of Asia, and the broader global economy.

Like the Fifth Five-Year Plan, which set the stage for the “reforms and opening up” of the late 1970’s, and the Ninth Five-Year Plan, which triggered the marketization of state-owned enterprises in the mid-1990’s, the upcoming Plan will force China to rethink the core value propositions of its economy. Premier Wen Jiabao laid the groundwork four years ago, when he first articulated the paradox of the “Four ‘Uns’” – an economy whose strength on the surface masked a structure that was increasingly “unstable, unbalanced, uncoordinated, and ultimately unsustainable.”

The Great Recession of 2008-2009 suggests that China can no longer afford to treat the Four Uns as theoretical conjecture. The post-crisis era is likely to be characterized by lasting aftershocks in the developed world – undermining the external demand upon which China has long relied. That leaves China’s government with little choice other than to turn to internal demand and tackle the Four Uns head on.

The 12th Five-Year Plan will do precisely that, focusing on major pro-consumption initiatives. China will begin to wean itself from the manufacturing model that has underpinned export- and investment-led growth. While the manufacturing approach served China well for 30 years, its dependence on capital-intensive, labor-saving productivity enhancement makes it incapable of absorbing the country’s massive labor surplus.

Instead, under the new Plan, China will adopt a more labor-intensive services model. It will, one hopes, provide a detailed blueprint for the development of large-scale transactions-intensive industries such as wholesale and retail trade, domestic transport and supply-chain logistics, health care, and leisure and hospitality.
Obviously, a reserve currency would be not only extremely useful, but quite critical in achieving the goal of China's conversion to an inwardly focused, middle-class reliant society. And even that would not guarantee a smooth transition. However, should China really be on a path to a step function in its evolution, the shocks to the system will be massive. Roach puts this diplomatically as follows:

But there is a catch: in shifting to a more consumption-led dynamic, China will reduce its surplus saving and have less left over to fund the ongoing saving deficits of countries like the US. The possibility of such an asymmetrical global rebalancing – with China taking the lead and the developed world dragging its feet – could be the key unintended consequence of China’s 12th Five-Year Plan.
A less diplomatic version implies that the relationship between China and the US would suffer a seismic shift in which the game theoretical model of Mutual Assured Destruction, and symbiotic monetary and fiscal policies, would no longer exist, allowing China to pursue its fate completely independent of any economic shocks that the increasingly distressed United States may be going through.

And confirming that the PBoC announcement is far more serious than the amount of airtime allotted to it by the mainstream media, is the just released article in Spiegel "China Attacked the Dollar" (google translated):

The Chinese central bank surprised with a spectacular announcement: The would-be superpower wants to handle their entire future foreign trade in yuan, not in dollars. Beijing shakes America's claim to represent the key currency - with serious consequences for the U.S..

The announcement was inconspicuous , but it has the potential, to permanently change the balance of power on the world currency market: China strengthens the international role of the yuan. All exporters and importers will, this year, be allowed to settle their business with their foreign partners in Yuan, the central bank said on Wednesday in Beijing.

This will respond to the growing importance of the yuan as a global reserve currency. "The market demand for cross-border use of the yuan rises," said the central bank. The PBoC had previously tested this plan by allowing 67 000 enterprises in 20 provinces to run their business abroad in yuan. The trade volume amounted to the equivalent of €56 billion.

Now the amount of yuan to be extended, it should be handled much more business in Chinese currency - and less in the U.S. Chinese companies trade at present often in dollars, they are thus dependent on the decisions of the U.S. Federal Reserve to pay on it in a rising oil price and will have pay higher transaction fees than necessary. That should change now.

Currently, the People's Republic can hardly take yuan out of the country and even that is monitored within the boundary of all legitimate capital flows. Chinese exporters have to change a large part of their euro, yen or dollars at a fixed rate revenue in yuan. Foreign companies wishing to do business in China must do so in Yuan, they can exchange their money in the People's Republic. Tourists are allowed a maximum of 20,000 yuan and exporting. Yuan an international market can not occur - and not on supply and demand-based exchange rate.
Needless to say, should the yuan be seen increasingly as a reserve currency, all of this, and virtually everything else is about to change.

The only question is whether or not the Yuan will cement its status at the top of the currency pyramid by allowing the backing of the currency with individual or a basket of commodities. If that were to happen, it would be the last nail in the coffin of the already terminally ill dollar.

The Mad Crapper
03-03-2011, 01:35 PM
I'm not scared. We got Obama bucks!

:banghead::doh!::drool::bong::Elvis:TinkyWinky:whackit::o)

http://www.thenewsurvivalist.com/img/ObamaDollarFull.gif

Calcountry
03-03-2011, 02:00 PM
What was I saying in the other thread?

fan4ever
03-03-2011, 02:14 PM
Tough to play hardball with the country that owns all your debt...

Calcountry
03-03-2011, 02:22 PM
Tough to play hardball with the country that owns all your debt...Well, we are playing hardball with them simply by QEI and QEII, trillion dollar deficits, Obamacare we cannot pay for, etc.

That is destroying the value of thier holdings in dollars and is forcing the move.

chiefsnorth
03-03-2011, 02:25 PM
Tough to play hardball with the country that owns all your debt...

Don't you realize that our problems cn be remedied by just borrowing more, printing more, and spending faster?

Those people who said you wouldn't recognize this country or its standing in the world after Obama's term(s) ended are starting to look pretty right about that.

InChiefsHell
03-03-2011, 02:25 PM
This is going to be very very bad. We can blame Obama, but this has been on the cooker for a long time...China just needed America to be the weakest it's ever been...I guarantee you they LOOOOVE Obama over there...

KILLER_CLOWN
03-03-2011, 02:32 PM
We can all thank HW Bush, Clinton, W Bush, and Now Obama for this.

The Mad Crapper
03-03-2011, 02:33 PM
http://floppingaces.net/wp-content/uploads/2011/03/ObamaDeficit.jpg

RedNeckRaider
03-03-2011, 02:43 PM
This is going to be very very bad. We can blame Obama, but this has been on the cooker for a long time...China just needed America to be the weakest it's ever been...I guarantee you they LOOOOVE Obama over there...

They love our one party two name system. Remacrats and dupublicans~

Calcountry
03-03-2011, 02:52 PM
This is going to be very very bad. We can blame Obama, but this has been on the cooker for a long time...China just needed America to be the weakest it's ever been...I guarantee you they LOOOOVE Obama over there...Don't think that Alli ahhk bar isn't waiting to stick one in the wrong place now that we are all bent over. That will make BEP happy, at least them damn dirty neo cons will finally get theirs.

The Mad Crapper
03-03-2011, 03:18 PM
One financial professional has determined that the interest on the national debt accrues at the rate of $41 million an hour. That's $690,000 a minute, and $11,500 per second! Remember, that's just the interest, not the principal!

Don't try this at home, kids! You'll go to jail!

Stewie
03-03-2011, 03:20 PM
We can all thank HW Bush, Clinton, W Bush, and Now Obama for this.

But mostly LBJ. That administration was the one that started the, "I don't like these numbers. Come back to me with something satisfactory."

The real question is will the US peg the dollar to the Yuan? China has been positioning themselves for a long time to be here. They actually have a plan... versus paying teachers and city administrators $100K+ per year based on trivial politics. I'm sure China just laughs and laughs at that. They've beat us at our own game.

Stewie
03-03-2011, 03:24 PM
And it's the Yuan, not the Renminbi. Renminbi is equal to saying "currency."

FD
03-03-2011, 04:10 PM
The Yuan is at least a decade away from something close to full convertibility. Frankly, them moving in this direction benefits us a great deal with respect to the current account.

KC native
03-03-2011, 08:45 PM
Zero Hedge occasionally has good shit but this is far from it.

The Chinese are fucked. Read it again, FUCKED. The is no way in hell the rest of the world converts to Yuan as a reserve currency. China still has many things that prevent this. One of the biggies is how the government just buys bad debt from the banks and buries it so their banks look healthy. Second, they are far from being a democratic society. The government's ability to shut everything down if they want to adds huge political instability wrt economic scenarios.

Also, their position in our debt is so large that they have screwed themselves. They can't sell off without killing the value of their remaining reserves and they have no viable alternatives to the $. China is more at our mercy than a lot people think.

KC native
03-03-2011, 08:46 PM
If anything supplants the US $ as the reserve currency of the world, it will be a basket of currencies (which is actually what the Chinese want).

teedubya
03-03-2011, 10:22 PM
And it's the Yuan, not the Renminbi. Renminbi is equal to saying "currency."

That was the title, man. You are right. I have been converting dollars to yuan since they were 8-1. I have several thousand in Yuan, as I saw this awhile ago. I don't like having a lot of paper currency though, so I mostly deal in precious metals right now, along with silver mining stocks that I've been in since 2008.

I think I have 12,000 in yuan. It may or may not be a bad move, but it's worth more than I spent on it, so far so good, I guess. If it becomes the reserve currency, it's a win. I spent like 1,250 US, so it's not that big of an investment, that I've made.

Where is Donger at right now, btw?

LMAO

teedubya
03-04-2011, 01:44 AM
http://www.gainspainscapital.com/images/stories/gpc%203-4-11.gif
This is insane...

As you can see, the US Dollar has taken out its multi-year trendline. The markets have noted this. Indeed, you can sense the coming inflationary collapse as inflation hedges explode higher across the board:

http://www.gainspainscapital.com/images/stories/prices%20rising.gif

Mr. Flopnuts
03-04-2011, 05:22 AM
There's a lot of "nutjobs" that have been talking about this for a long time. A lot longer than Obama's been in office. 1 party, 2 names. The republidemocrooks.

InChiefsHell
03-07-2011, 06:03 AM
It seems Glenn Beck may NOT be a nutcase...he's been on this for 2 years...

The Mad Crapper
03-07-2011, 06:25 AM
China challenges US predominance in Asia-Pacific
(AP) 4 hours ago

WASHINGTON (AP) When China launched threatening war games off Taiwan 15 years ago on the eve of an election on the self-governing island, the U.S. deployed two aircraft carriers, and China quickly backed down.

Things don't seem so one-sided any more.

China's military has been on a spending spree at a time that the debt-ridden U.S. government is looking to cut defense costs. On Friday, China announced a 12.7 percent hike for this year, the latest in a string of double-digit increases.

That trend has triggered worries in Congress and among security analysts about whether the United States can maintain its decades-long military predominance in the economically crucial Asia-Pacific.

While the U.S. military has been drained by 10 years of costly conflicts in Afghanistan and Iraq, China has developed air, naval and missile capabilities that could undercut U.S. superiority in China's backyard.

China is still decades away from building a military as strong as the United States. It has not fought a major conflict since a border war with Vietnam in 1979 and is not a Soviet-style rival threatening American soil.

But the shift raises questions about whether the U.S. can meet its commitment to maintain a strong presence in the Asia-Pacific for decades a matter not just of global prestige but also seen as critical for safeguarding shipping lanes vital for world trade and protecting allies.

China already has an innate geographical advantage in any conflict in the west Pacific. One expert posits that with its military buildup, China could conquer Taiwan by the end of the decade even if the U.S. military intervenes.

China regards Taiwan as part of its territory. Relations between the two, long seen as a potential flash point, have warmed in the past two years. But China's assertion of territorial claims in the South China Sea, which it has declared as a "core interest" essentially something it could go to war over has spooked its neighbors and fortified their support for a strong U.S. presence in the region. Even former enemy Vietnam is forging military ties with the U.S.

Last week, the Philippines deployed two warplanes after a ship searching for oil complained it was harassed by two Chinese patrol boats in the South China Sea. Japan scrambled F-15 fighter jets after Chinese surveillance and anti-submarine aircraft flew near disputed islands in the East China Sea.

"As China's military has gotten more capable and China has behaved more aggressively, a number of countries are looking at the U.S. as a hedge to make sure they can maintain independence, security and stability," said Abraham Denmark, director of the Asia-Pacific Security Program at the Center for a New American Security.

But those allies question whether the U.S. can retain its freedom to operate in the region, and whether its economy highly indebted to China and struggling to recover from a recession can sustain its high level of military spending, said Bonnie Glaser, a China expert at the Center of Strategic and International Studies think tank.

The U.S. Pacific Command has 325,000 personnel, five aircraft carrier strike groups, 180 ships and nearly 2,000 aircraft. Tens of thousands of forces stay on China's doorstep at long-established bases in South Korea and Japan.

China's defense spending is still dwarfed by the United States. Even if China really invests twice as much in its military as its official $91.5 billion budget, which some analysts believe, that is still only about a quarter of U.S. spending. It has no aircraft carriers and lags the U.S. in defense technology. Some of its most vaunted recent military advances will take years to reach operation.

For example, China test flew its stealth fighter in January, months earlier than U.S. intelligence expected, but U.S. Defense Secretary Robert Gates says China will still only have a couple of hundred of these "fifth-generation" jets by 2025, when the United States should have 1,500.

But China's growing array of aircraft, naval and submarine vessels, ballistic and cruise missiles, anti-satellite and cyber war capabilities already enable it to project power beyond its shores. It plans new submarines, larger naval destroyers and transport aircraft that could expand that reach further.

Roger Cliff, a respected defense researcher who recently testified before a congressional hearing on China, says many of the missiles and strike aircraft have a range of about 900 miles, which put them within attacking distance of virtually all U.S. air and naval bases in the region. They include the DF-21D missile which is designed to target aircraft carriers. It employs technology that no other U.S. rival has mastered. It does not appear to have been tested yet against a maneuvering target at sea.

Cliff said if trends continue, China should have sufficient missiles and precision bombs by the end of the decade to render inoperable for a week or more all airfields on Taiwan and U.S. air bases in Okinawa, Japan, and possibly others farther away. He said there are between 40 and 50 Chinese air bases within 500 miles of Taiwan, each generally hosting a squadron of 24 aircraft, which could overwhelm superior U.S. aircraft through sheer numbers. If China acquired amphibious landing vehicles, he forecast it could conquer Taiwan.

If U.S. military planners are worried about that possibility, they aren't showing it. They say plans to cap defense spending within five years won't derail modernization plans. Pacific Command chief Adm. Robert Willard said last month that while the U.S. carefully watches China's growing military capabilities and urges greater openness from China about them the United States does not need to change its strategy.

China maintains it does not have offensive intentions, and analysts say that military action in the region would hurt its export-driven economy which could threaten what its government prizes above all else domestic stability. The U.S. military presence may also benefit China as it restrains neighbors like South Korea and Japan from seeking nuclear weapons.

As U.S. and Chinese forces increasingly rub up against each other in the west Pacific, the U.S. says it wants to promote military ties with China to prevent a chance skirmish and for China to develop as a "responsible major power." To date, China has been reluctant to engage meaningfully after the recent restoration of military ties that were cut over U.S. arms sales to Taiwan.

"This is not the Cold War with two rival camps facing each other," said Michael Schiffer, U.S. deputy assistant secretary of defense for East Asia. "We are seeking a military-military relationship that is broad and deep enough to manage our differences while expanding on areas of common interest."

Copyright 2011 The Associated Press. All rights reserved.

http://www.google.com/hostednews/ap/article/ALeqM5hnUv-N8JCohkv-8N5SlBcGCajVvQ?docId=52e48ce5457e4ddabdcd8e2781245a8d

http://3.bp.blogspot.com/_BjW1avGcuos/S8O5m27mQnI/AAAAAAAACJk/af---aFswVM/s640/capt.52d493edeb0243ef84cbfc87f58f4b6a-52d493edeb0243ef84cbfc87f58f4b6a-0.jpg
Friggin' moron

The Mad Crapper
03-09-2011, 03:02 PM
And many thought Bill Gross was only posturing when he said he is getting the hell out of dodge. Based on still to be publicly reported data by Pimco's flagship Total Return Fund, the world's largest bond fund, in the month of January, has taken its bond holdings to zero (and -14% on a Duration Weighted Exposure basis). The offset, not surprisingly, is cash. After sporting $28.6 billion in "government related" securities, TRF dropped to $0.0, while its cash holdings surged from $11.9 billion to a whopping $54.5 billion (based on total TRF holdings of $236.9 billion as of February 28). This is the most cash the flagship fund has ever held, and the lowest amount in Treasury holdings since January 2009 before it was made clear that the Fed was going to adjust QE1 to include Treasurys in addition to Mortgage Backed Securities. PIMCO's Treasury holdings peaked in June 2010 at $147.4 billion and have declined consistently ever since. And while we expected that the spike in MBS holdings (at times on margin) was indicative of an expectation that QE3 would monetize mortgage backed securities, the ongoing decline in that asset class now leads us to believe that Bill Gross is now convinced there will be no QE3 at all, at least based on his just putting his money where his monthly pen is! And if Bill Gross, the most connected person to the upcoming actions by the Fed, believes there is no more quantitative easing, it is really time to get the hell out of dodge in all security classes - bonds, and most certainly, equities.

http://www.zerohedge.com/article/exclusive-bill-gross-dumps-all-treasuries-brings-total-government-related-holdings-zero-flee#comments

teedubya
03-09-2011, 04:29 PM
And many thought Bill Gross was only posturing when he said he is getting the hell out of dodge. Based on still to be publicly reported data by Pimco's flagship Total Return Fund, the world's largest bond fund, in the month of January, has taken its bond holdings to zero (and -14% on a Duration Weighted Exposure basis). The offset, not surprisingly, is cash. After sporting $28.6 billion in "government related" securities, TRF dropped to $0.0, while its cash holdings surged from $11.9 billion to a whopping $54.5 billion (based on total TRF holdings of $236.9 billion as of February 28). This is the most cash the flagship fund has ever held, and the lowest amount in Treasury holdings since January 2009 before it was made clear that the Fed was going to adjust QE1 to include Treasurys in addition to Mortgage Backed Securities. PIMCO's Treasury holdings peaked in June 2010 at $147.4 billion and have declined consistently ever since. And while we expected that the spike in MBS holdings (at times on margin) was indicative of an expectation that QE3 would monetize mortgage backed securities, the ongoing decline in that asset class now leads us to believe that Bill Gross is now convinced there will be no QE3 at all, at least based on his just putting his money where his monthly pen is! And if Bill Gross, the most connected person to the upcoming actions by the Fed, believes there is no more quantitative easing, it is really time to get the hell out of dodge in all security classes - bonds, and most certainly, equities.

http://www.zerohedge.com/article/exclusive-bill-gross-dumps-all-treasuries-brings-total-government-related-holdings-zero-flee#comments
LMAO /Donger

KC native
03-09-2011, 08:59 PM
And many thought Bill Gross was only posturing when he said he is getting the hell out of dodge. Based on still to be publicly reported data by Pimco's flagship Total Return Fund, the world's largest bond fund, in the month of January, has taken its bond holdings to zero (and -14% on a Duration Weighted Exposure basis). The offset, not surprisingly, is cash. After sporting $28.6 billion in "government related" securities, TRF dropped to $0.0, while its cash holdings surged from $11.9 billion to a whopping $54.5 billion (based on total TRF holdings of $236.9 billion as of February 28). This is the most cash the flagship fund has ever held, and the lowest amount in Treasury holdings since January 2009 before it was made clear that the Fed was going to adjust QE1 to include Treasurys in addition to Mortgage Backed Securities. PIMCO's Treasury holdings peaked in June 2010 at $147.4 billion and have declined consistently ever since. And while we expected that the spike in MBS holdings (at times on margin) was indicative of an expectation that QE3 would monetize mortgage backed securities, the ongoing decline in that asset class now leads us to believe that Bill Gross is now convinced there will be no QE3 at all, at least based on his just putting his money where his monthly pen is! And if Bill Gross, the most connected person to the upcoming actions by the Fed, believes there is no more quantitative easing, it is really time to get the hell out of dodge in all security classes - bonds, and most certainly, equities.

http://www.zerohedge.com/article/exclusive-bill-gross-dumps-all-treasuries-brings-total-government-related-holdings-zero-flee#comments

Bill Gross is right. There won't be QE3. Interest rates are finally feeling upward pressure and right now there isn't enough yield in treasuries for the Total Return Fund. Once QE2 goes away and rates climb, he will be back into treasuries.

The Mad Crapper
03-10-2011, 02:09 PM
The world's largest bond fund has moved out almost entirely from US debt and into that of emerging markets and corporations, Pimco's Bill Gross told CNBC.



Speaking a day after news broke that Pacific Investment Management Company had dumped its Treasurys holdings from its $236.9 billion Total Return fund, the Newport Beach, Calif.-based firm's managing director said it would return once yields grew more attractive.

"It's not a question of dissing the United States or questioning the credit of the United States, but simply a maturity reflection," Gross said. Treasurys are "mispriced relative to the inflationary environment and the growth we see ahead and there are better alternatives in order to capture yield."

Gross primarily based his evaluation on the reduction in yields caused by the Federal Reserve's buying of close to $2 trillion in Treasurys, with more slated before the second leg of the program-often called QE 2-comes to an end.

"When a trillion and a half dollars worth of annualized purchasing power disappears I simply question as to who will buy them and at what yield," he said. "We're suggesting at these yields it might be problematic."

Instead, the firm has moved its money to other debt until the rate structure changes.

"Those would be corporate bonds, those would be a smattering of high yield bonds and a growing proportion of emerging market debt which yields in the 5 to 6 percent category," he said. "Are these bonds as safe as Treasurys? No, they are not triple-A types of investments but they're not overvalued based on quantitative easing procedures that we've seen over the past 12 months.

"So we've moved into Brazil and Mexico and moved money, yes, at the margin into Spain, which has a better balance sheet than the United States."

He said the Total Return fund has returned about 5 percent, whereas a Treasurys portfolio would yield about 2 percent.

http://finance.yahoo.com/news/Gross-Why-Pimco-Dumped-cnbc-1332516878.html?x=0&sec=topStories&pos=4&asset=&ccode=

teedubya
03-16-2011, 08:11 PM
http://www.telegraph.co.uk/finance/economics/5050407/US-backing-for-world-currency-stuns-markets.html

US backing for world currency stuns markets
US Treasury Secretary Tim Geithner shocked global markets by revealing that Washington is "quite open" to Chinese proposals for the gradual development of a global reserve currency run by the International Monetary Fund.
This video is not encoded to playback on this device.
Link to this video
By Ambrose Evans-Pritchard 6:05PM GMT 25 Mar 2009
24 Comments
The dollar plunged instantly against the euro, yen, and sterling as the comments flashed across trading screens. David Bloom, currency chief at HSBC, said the apparent policy shift amounts to an earthquake in geo-finance.
"The mere fact that the US Treasury Secretary is even entertaining thoughts that the dollar may cease being the anchor of the global monetary system has caused consternation," he said.
Mr Geithner later qualified his remarks, insisting that the dollar would remain the "world's dominant reserve currency ... for a long period of time" but the seeds of doubt have been sown.
The markets appear baffled by the confused statements emanating from Washington. President Barack Obama told a new conference hours earlier that there was no threat to the reserve status of the dollar.
"I don't believe that there is a need for a global currency. The reason the dollar is strong right now is because investors consider the United States the strongest economy in the world with the most stable political system in the world," he said.
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The Chinese proposal, outlined this week by central bank governor Zhou Xiaochuan, calls for a "super-sovereign reserve currency" under IMF management, turning the Fund into a sort of world central bank.
The idea is that the IMF should activate its dormant powers to issue Special Drawing Rights. These SDRs would expand their role over time, becoming a "widely-accepted means of payments".
Mr Bloom said that any switch towards use of SDRs has direct implications for the currency markets. At the moment, 65pc of the world's $6.8 trillion stash of foreign reserves is held in dollars. But the dollar makes up just 42pc of the basket weighting of SDRs. So any SDR purchase under current rules must favour the euro, yen and sterling.
Beijing has the backing of Russia and a clutch of emerging powers in Asia and Latin America. Economists have toyed with such schemes before but the issue has vaulted to the top of the political agenda as creditor states around the world takes fright at the extreme measures now being adopted by the Federal Reserve, especially the decision to buy US government debt directly with printed money.
Mr Bloom said the US is discovering that the sensitivities of creditors cannot be ignored. "China holds almost 30pc of the world's entire reserves. What they say matters," he said.
Mr Geithner's friendly comments about the SDR plan seem intended to soothe Chinese feelings after a spat in January over alleged currency manipulation by Beijing, but he will now have to explain his own categorical assurance to Congress on Tuesday that he would not countenance any moves towards a world currency.

petegz28
03-16-2011, 08:28 PM
The Yuan is at least a decade away from something close to full convertibility. Frankly, them moving in this direction benefits us a great deal with respect to the current account.

Yeah, China dumping US$'s from their reservers helps us out so much. Could you please explain how?

petegz28
03-16-2011, 08:29 PM
Bill Gross is right. There won't be QE3. Interest rates are finally feeling upward pressure and right now there isn't enough yield in treasuries for the Total Return Fund. Once QE2 goes away and rates climb, he will be back into treasuries.

Doubtful. Gross is focusing on non-$ denominated assets. Or in his case debts.

petegz28
03-16-2011, 08:33 PM
Time has come for Congress to decide WTF this country is going to be for the next century. Are we going to go back to being the place to do business with a strong $ and economic policies are or we going to continues to sell out to China, export jobs and become a welfare state?

petegz28
03-16-2011, 08:36 PM
http://www.gainspainscapital.com/images/stories/gpc%203-4-11.gif
This is insane...

As you can see, the US Dollar has taken out its multi-year trendline. The markets have noted this. Indeed, you can sense the coming inflationary collapse as inflation hedges explode higher across the board:

http://www.gainspainscapital.com/images/stories/prices%20rising.gif

Your chart of the USD is very telling. Bush had a weak $ strategy, contrary to the rhetoric we heard, we got brief upswings from the Greek and Spain crisis and the Euro getting shaved. But the mere fact is, as you can see, it was all range bound trading and we are breaking out back to the downside.

teedubya
03-17-2011, 01:59 AM
Your chart of the USD is very telling. Bush had a weak $ strategy, contrary to the rhetoric we heard, we got brief upswings from the Greek and Spain crisis and the Euro getting shaved. But the mere fact is, as you can see, it was all range bound trading and we are breaking out back to the downside.

No No No... don't listen to me. I don't know what I'm talking about. I'm a "kook". o:-)

Count Zarth
03-17-2011, 02:10 AM
2059

The Anchorage Front Line is established, as the United States increases its military presence in Alaska to protect its oil interests. The Anchorage Front Line causes tensions in the United States and Canada, as the United States attempts to pressure Canada into allowing American military units to guard the Alaskan pipeline.

2066

Winter: In the winter of 2066, China invades Alaska. The Anchorage Front Line becomes a true battleground.

2073

September 15 : As China becomes increasingly aggressive with their use of biological weapons, the United States government felt that a countermeasure was needed. The Pan-Immunity Virion Project (PVP) is officially formed and plans are made to begin experiments at the West-Tek research facility in Southern California.

2077

January 10: Alaska is reclaimed, and the Anchorage Front Line is again held by the Americans.

March: Prepared for a nuclear or biological attack from China, the president and the Enclave retreat to remote sections around the globe and make contingency plans for continuing the war.

October 23: Great War: Bombs are launched; China fired the first nuclear weapon. Air raid sirens sound, but very few people go into vaults, thinking it is a false alarm. The Vaults are sealed and the world is plunged into nuclear winter.