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China And Japan Ditch Dollar In Bi Lateral Trade
| Good [+1]Toggle ReplyLink» basdini replied on Fri Jan 6, 2012 @ 5:35am |
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[ www.dennistubbergen.com ] and [ www.financialsense.com ] not so much money about 345 billion a year but could be the beginning of bad times for the green back... |
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| Good [+1]Toggle ReplyLink» DynV replied on Mon Apr 2, 2012 @ 3:26pm |
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[ www.dennistubbergen.com ]
Another Nail in the US Dollar’s Coffin? Posted on December 29, 2011 by Dennis Tubbergen Last August, I made 5 forecasts for 2012, which I update in my 2012 Market Outlook Forecast. (You can get a complimentary copy by requesting it at [ www.investingapproach.com ] One of those forecasts was that alternatives would emerge to the US Dollar as the world reserve currency. While these alternative options have not emerged as quickly as I once thought they would, due in part I believe to the European debt woes, this process is continuing, albeit slowly. This from a recent Bloomberg article[1] (highlighting added): Japan and China will promote direct trading of the yen and yuan without using dollars and will encourage the development of a market for companies involved in the exchanges, the Japanese government said. Japan will also apply to buy Chinese bonds next year, allowing the investment of renminbi that leaves China during the transactions, the Japanese government said in a statement after a meeting between Prime Minister Yoshihiko Noda and Chinese Premier Wen Jiabao in Beijing yesterday. Encouraging direct yen-yuan settlement should reduce currency risks and trading costs, the Japanese and Chinese governments said. China is Japan’s biggest trading partner with 26.5 trillion yen ($340 billion) in two-way transactions last year, from 9.2 trillion yen a decade earlier. The pacts between the world’s second- and third-largest economies mirror attempts by fund managers to diversify as the two-year-old European debt crisis keeps global financial markets volatile. “Given the huge size of the trade volume between Asia’s two biggest economies, this agreement is much more significant than any other pacts China has signed with other nations,” said Ren Xianfang, a Beijing-based economist with IHS Global Insight Ltd. China also announced a 70 billion yuan ($11 billion) currency swap agreement with Thailand last week as part of a plan outlined in October to promote the use of the yuan in the Association of Southeast Asian Nations and establish free trade zones. Central banks from Thailand to Nigeria plan to start buying yuan assets as slowing global growth has capped interest rates in the U.S. and Europe. The move by China and Japan to strengthen market cooperation “benefits the ease of trade and investments between the two countries,” Chinese Foreign Ministry spokesman Hong Lei said today in Beijing. “It strengthens the region’s ability to protect against risks and deal with challenges.” As the policymakers and many of the politicians in the US continue to dance around the debt and deficit issues, pretending to debate and hold to core ‘principles’ (nothing more than a re-election charade in my opinion), the rest of the world is taking action. Bottom line is if the US policymakers are going to do nothing more than print money to address the deficit and debt issues facing the United States, the rest of the world will begin to take decisive action including finding alternatives to the US Dollar as the world reserve currency. This recent action by Japan and China is a significant blow to the US Dollar in my view. As the article states, these countries represent two of the world’s largest economies. Via this agreement, these two economies will no longer convert their currencies to US Dollars when trading with each other. Instead, they will simply trade directly. Mark my words, if China and Japan are making this agreement, I believe it won’t take long to see many ‘second tier’ economies to follow suit, eliminating their need to access US Dollars as well. These actions will gradually move the US Dollar from the world’s reserve currency to an even more troubled currency of the world’s largest debtor nation; a move that is entirely predictable when one studies history. Prior to the US Dollar being the world’s reserve currency, many international transactions took place using the British Pound Sterling. However, after World War II the US Dollar was made the world’s reserve currency. The US was the world’s largest creditor nation, a role that Great Britain once enjoyed. Today, all that has changed. The United States, in real dollar terms, is the world’s largest debtor nation while China is the world’s largest creditor nation, the role that the US once enjoyed. That, in my view, makes it likely that a gradual shift toward the Chinese Yuan as the world’s reserve currency will continue. Note: Renminbi is the formal term used to refer to Chinese currency. The Yuan is a unit of currency analogous to the dollar. The two terms referring to China’s currency are often used interchangeably with Yuan being then most commonly used term. [1] Fujioka, Toru. December 26, 2011. “China, Japan to Back Direct Trade of Currencies.” [ www.bloomberg.com ] [ www.financialsense.com ]
China, Japan Bypass U.S. Dollar in Pivotal Trade Agreement By Julian Phillips12/28/2011 The cutting out of the dollar in Japan / China trade may be a small start of only $345 billion in global trade, but it is a sea change decision in the global monetary system that markes the beginning of the end of the dollar's role as the sole global reserve currency. This move is irreversible and will lead to more and more currency exchange rate uncertainties. Gold will benefit! Japan and China will promote direct trading of yen and yuan without using dollars and will encourage the development of a market for companies involved in the exchanges, the Japanese government said over the holiday weekend. Japan will also apply to buy Chinese bonds next year, allowing the investment of Yuan that leaves China to Japan to remain in China, the Japanese government said. Encouraging direct yen- yuan settlement should reduce currency risks and trading costs. China also announced a 70 billion yuan ($11 billion) currency swap agreement with Thailand last week as part of a plan outlined in October to promote the use of the yuan in the Association of Southeast Asia Nations and establish free trade zones. Central banks from Thailand to Nigeria plan to start buying yuan assets as the global Yuan market continues to be developed quickly. Investing in Chinese debt has become easier for central banks as issuance of yuan-denominated bonds in Hong Kong more than tripled to 112 billion yuan ($18 billion) this year, and institutions were granted quotas to invest onshore. Japan will start to buy “a small amount” of China’s bonds, a Japanese government official said, on condition of anonymity because of the ministry’s policy, without elaborating. Yes, it is small, but the systems are now in place. Expansion of these is happening and has the potential to burgeon! China is Japan’s biggest trading partner with $340 billion in two-way transactions last year. The pacts between the world’s second- and third-largest economies mirror attempts by fund managers to diversify as global, financial markets remain volatile and decaying. It marks a major leap forward of the internationalization of the Chinese currency, a step that has been developing for the last few years, from tiny beginnings. It signals that the Chinese banking system has developed to the stage where they can handle international transactions of note. The development of the banking system is clearly far advanced, so expect the enlargement of the international Yuan market to pause, as this leap in size settles in and any teething problems eliminated. - The next step after that is to go completely global! First Step of Many, Chinese Trade Bloc the Initial Target, not the Deposing of the Dollar It would be wrong to see these moves as purposely attacking the dollar. China’s motive is as simple as the world has seen new world power gain strength. We’re witnessing the post-initial steps of the growth of a Chinese empire, encompassing its Asian trading partners and bringing them into a new Asian Yuan currency bloc. Initially, Chinese economic development has focused on internal growth spreading from the South and Eastern parts of China into the hinterland north and west of the country as the nation slowly but steadily lifts itself out of poverty. Financially, China isolated its currency from global influence as its banking system was so underdeveloped. But with government pressure and the capabilities the Chinese people banking is now racing to catch up. The Chinese government wants Chinese banking and trade to succeed and throws its full weight behind these developments. This has resulted in far quicker-than-anticipated entry into the global financial world. Careful to ensure that China benefits fully from these developments and not foreign businesses, China is sucking knowledge and wealth out of the developed world in its quest to fully develop its 1.3 billion people. It’s naive on the part of the developed world –whether it is Europe or the States—to think that China will assist them with their debt and banking problems unless it ties directly into the development of China. This is a financial war, involving, not lives but livelihoods, and China is winning every step of the way. The financial world may belittle the present moves as still very small in money terms in a global context, but structurally the move should make the developed financial world jump to attention. Consequences: Developed World Losing Power and Heads into Worse Crisis The reason why the developed world has seen the debt and banking crisis wreak such havoc, so far, is that its growth has diminished to the point where it ‘s having difficulty employing their young. With such reduced cash flows, the size of debt burdens becomes overwhelming. When the developed world enjoyed strong growth, the present debt burdens were manageable. But not any more! The central banks of the developed world have had to create new money to fill the holes left by the dropping value of financial assets and try to hold such money printing at those levels or see inflation take off; there will, however, come a time when the developed world will have to pay more interest to raise loans as trust in their currencies diminishes. Should this happen, their debt mountain will be completely unsustainable, not only in Europe but in the United States as well. Should interest rates rise –and the Fed will not let that happen by choice—because of falling foreign investment in the dollar, then Treasury and other Fixed interest markets in the developed world would be in danger of collapsing. US Dollar as the Sole, Global Reserve Currency to End! Of considerably more importance is the impact on global foreign exchanges and the role of the U.S. dollar as the world’s sole global reserve currency. For more than two years now Gold, Silver Forecaster have been predicting that the day would come when Chinese exporters/importers would offer and bid prices for goods in the Chinese Yuan. Well it has arrived, albeit confined to Asian trade at the moment. As of now, $350 billion in global trade will disappear, replaced by Yuan/Yen trade. Where will these dollars go? Over time they will be sold off and head home through a falling exchange rate. That’s why we’ll see the Yuan appreciate, but only initially, as the Chinese ensure that demand is met by foreign sales of Yuan for non-U.S. currencies. As time passes the process of the internationalization of the Yuan will primarily be at the expense of the dollar. At some point in this process, the rise of the Yuan and the fall of the dollar from its throne will become visible on foreign exchanges and in the financial picture inside the U.S.A. and Europe. At best, we’ll see the Yuan join the world’s current leading currencies in global trade, but rising in the future to potentially the prime global, reserve currency at worst. But this process could take more than five years or less if the Chinese government pushes it hard. The consequential pressures on the global currency system, which presently is dependent on the U.S. dollar for its credibility, will undermine the entire global monetary system. When control of the monetary system was entirely in the hands of the developed world, both sides of the Atlantic, gold could be side-lined. But with this new Chinese empire, the new currency bloc has divergent interests from the developed world. The developed world is seeing the beginning of its loss of control over gold! Asia, as well as emerging nations worldwide, have seen the importance of gold in their reserves and continue to press for an increase in their holdings –almost preparing for the day when global cooperation is reduced by trade wars, protectionism and the like. The spectre of a world split into two financial and trading parts is now in front of us. While this is still in the future, it’s a visible probability. In such a financial climate, consistent with its history, gold being independent of national obligations and links must return to the system in one form or another. But how? |
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China And Japan Ditch Dollar In Bi Lateral Trade
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