Chop chop the dollar? Are we on the verge of USD abandonment?

[blazespinnaker]

http://ftalphaville.ft.com/blog/2009...op-the-dollar/

It seems to me that these CBs would be cutting off their noses to spite their faces, but perhaps Obama has pushed them to extreme measures.

With the markets dropping, but the long bond yield rising and the dollar dropping, some previous correlations are decoupling.

Before market drops meant a stronger dollar ... this could be a bad sign.

[Slimprofits]

Re: Chop chop the dollar? Are we on the verge of USD abandonment?

The FT reported on Tuesday that Brazil and China have come one step closer towards dropping the dollar in trade transactions in favour of their own currencies. Brazilian president Luiz Inácio Lula da Silva is currently visiting Beijing on a state visit.

The news follows a Reuters report on Saturday that Russia and Turkey have also discussed the possibility of switching to national currencies for the purpose of bilateral trade. As Reuters points out, Russia is Turkey’s largest trading partner, while Turkey is the fifth largest trading partner for Russia.

I think Iran and Turkey announced a deal last week about switching to national currencies for the purpose of bilateral trade.

[Slimprofits]

Re: Chop chop the dollar? Are we on the verge of USD abandonment?

http://www.bloomberg.com/apps/news?p...s_s&refer=news

May 22 (Bloomberg) -- Brazilian central bank President Henrique Meirelles’s warning yesterday against an “excess of euphoria” in the currency market may foreshadow bigger dollar purchases by policy makers to curb the real’s three-month rally, according to Standard Chartered Plc.

The central bank began buying dollars on May 8, initiating “step one” in its bid to temper the real’s advance to a seven- month high, said Mike Moran, a currency strategist at Standard Chartered, which gets most of its revenue from developing nations. Meirelles’s comments yesterday were “step two -- upgrade the level of verbal intervention.”

“And step three is clearly much more aggressive interventions,” Moran said in a phone interview from New York. He predicts the currency will gain to 1.9 per dollar by year-end from 2.0311 yesterday.

[Southernguy]

Re: Chop chop the dollar? Are we on the verge of USD abandonment?

Brazil may be buying dollars to avoid Real to valorize too much, other countries may be in the same mood. So, the fall of the dollar against other fiat Currencies may be limited.
But the demise of the dollar as reserve currency is accelerating.
Bilateral comerce in local currencies instead of the dollar implies less people, business and CB holding dollars. Why hold dollars (a Brazilian co., for example) if you buy from China with Reales which you exchange for renminbi?
The following article from NYT is very illustrative....
Dollar against commodities is dead.

This copy is for your personal, noncommercial use only. You can order presentation-ready copies for distribution to your colleagues, clients or customers here or use the "Reprints" tool that appears next to any article. Visit www.nytreprints.com for samples and additional information. Order a reprint of this article now.

---

May 21, 2009
China Grows More Picky About Debt

By KEITH BRADSHER
HONG KONG — Leaders in both Washington and Beijing have been fretting openly about the mutual dependence — some would say codependence — created by China’s vast holdings of United States bonds. But beyond the talk, the relationship is already changing with surprising speed.
China is growing more picky about which American debt it is willing to finance, and is changing laws to make it easier for Chinese companies to invest abroad the billions of dollars they take in each year by exporting to America. For its part, the United States is becoming relatively less dependent on Chinese financing.
China has actually bought Treasury bonds at an accelerating pace over the last year — notwithstanding Chinese officials’ complaints about American profligacy. But the borrowing needs of the United States government have grown even faster. So China represents a rapidly shrinking share of overall purchases of Treasury securities. “China’s demand for Treasuries has increased over the past year, but it hasn’t increased at anything like the pace of the Treasury’s sale of new Treasury bonds,” said Brad W. Setser, a specialist in Chinese financial flows at the Council on Foreign Relations.
Americans and investors elsewhere are buying Treasuries instead. They are saving more and have been shifting out of other investments — including equities until the past two months — and into Treasuries.
China bought less than a sixth of the Treasuries issued in the 12 months through March. Less than two years ago, by contrast, Chinese purchases of Treasuries, which included purchases in the secondary market as well as newly issued securities, briefly exceeded the entire borrowing needs of the United States.
Financial statistics released by both countries in recent days show that China paradoxically stepped up its lending to the American government over the winter even as it virtually stopped putting fresh money into dollars.
This combination is possible because China has been exchanging one dollar-denominated asset for another — selling the debt of government-sponsored enterprises like Fannie Mae and Freddie Mac in a hurry to buy Treasuries. While this has been clear for months, new data shows that China is also trading long-term Treasuries for short-term notes, highlighting Beijing’s concerns that inflation will erode the dollar’s value in the long run as America amasses record debt.
So China’s rising purchases of Treasuries do not represent the confident bet on America’s future that they might seem to be on the surface. For instance, China does not appear to be dumping euros or yen to buy Treasuries, economists said.
That said, recent Chinese and American data suggest that an astounding 82 percent of China’s $2 trillion in foreign reserves is in dollars, according to calculations by Standard Chartered.
The development has caught the attention of the leaders of both countries.
“The long-term deficit and debt that we have accumulated is unsustainable — we can’t keep on just borrowing from China,” President Obama said last Thursday.
Wen Jiabao, prime minister of China, also has expressed concern.
“We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried,” Mr. Wen said earlier this year.
China now earns more than $50 billion a year in interest from the United States, Mr. Setser at the Council on Foreign Relations calculated.
China’s leaders were able to buy more Treasuries in recent months without buying more dollars because they have abruptly turned their back on the market for securities issued by government-sponsored enterprises.
China was the world’s biggest buyer of these securities a year ago, splashing out more than $10 billion a month.
But in the 12 months through March, it actually had net sales of $7 billion, and ramped up purchases of Treasuries instead.
China has also changed which Treasuries it buys. It has done so in ways calculated to reduce its exposure to inflation or other problems in the United States. As recently as a year ago, China actively bought long-dated bonds, seeking the extra yield they could bring compared to Treasury securities with short maturities, of which China bought virtually none.
But in each month since November, China has been buying more Treasury bills, with a maturity of a year or less, than Treasuries with longer maturities. This gives China the option of cashing out its positions in a hurry, by not rolling over its investments into new Treasury bills as they come due should inflation in the United States start rising and make Treasury securities less attractive.
The big question now for policy makers and economists alike lies in whether the Chinese government’s purchases of American securities will rise or fall in the coming months.
Two big forces are at work — but they are pushing Chinese investments in opposite directions and might cancel each other out.
The first big shift is that Chinese foreign exchange reserves might start growing again, after shrinking early this year.
A senior Chinese economic policy maker, Xu Lin, expressed concern here on Monday that the reserves might grow faster if speculators started pushing more foreign exchange into China in the months ahead.
China is strongly opposed to any significant appreciation or depreciation of its currency, Mr. Xu said at a press conference. But if international investors conclude that the Chinese economy has stabilized ahead of economies elsewhere, they may start pumping more money into the Chinese economy, he said.
To keep its currency at the same level, the Chinese government buys foreign currency flowing into the country in excess of China’s needs. If overseas demand for Chinese exports recovers, then China’s trade surplus could start widening again as well. This would also tend to fatten Chinese reserves.
But the countervailing trend is that the Chinese government is trying to foster channels for foreign currency to be pumped out of the country without the involvement of the central bank. The government has been buying a wider range of assets and encouraging the private sector to invest more money overseas.
“That’s part of a strategic move by the authorities to diversify,” said Wensheng Peng, the head of China research at Barclays Capital. “The reserves growth should accelerate because of inflows, but it will not be as large as what we observed in 2007 and the first half of 2008.”
The State Administration of Foreign Exchange, which is part of the central bank, issued draft regulations on Monday that would make it considerably easier for private companies to raise dollars in China to spend on overseas investments — a step that would lessen the need for the Chinese government to buy up those dollars.
This spring China has also been stepping up its purchases of commodities, which are usually bought in dollars. Iron ore has been piling up on Chinese docks, government stockpiles of crude oil and grain are being expanded and stockpiles are being started for products like gasoline, diesel and sugar.
After six years of silence, China unexpectedly disclosed last month that it had been gradually buying gold from domestic producers. The country’s reserves had climbed from 600 tons in 2003 to 1,054 tons, worth $31.8 billion at prices late Wednesday.
The disclosure, which produced a frisson of excitement in gold markets, may have been aimed at reassuring a domestic audience that the Chinese government was not putting all the nation’s savings into American dollars. But the actual investment was tiny compared with China’s foreign exchange reserves — and showed that China was accumulating gold at a much slower rate than foreign currency.
A person in periodic contact with China’s central bank, who insisted on anonymity to preserve his access, said that a Chinese central banker complained to him last year that “we have so much money and there’s so little gold, we can’t buy much without driving up the price.”

[BadJuju]

Re: Chop chop the dollar? Are we on the verge of USD abandonment?

I am simply hoping it maintains itself, at least to a certain extent, until the end of September. I get a beefy check in late August that I would like to turn into gold and silver bullion.

[Southernguy]

Re: Chop chop the dollar? Are we on the verge of USD abandonment?

good luck...

[don]

Re: Chop chop the dollar? Are we on the verge of USD abandonment?

Brazil may be buying dollars to avoid Real to valorize too much, other countries may be in the same mood. So, the fall of the dollar against other fiat Currencies may be limited.
But the demise of the dollar as reserve currency is accelerating.
Bilateral comerce in local currencies instead of the dollar implies less people, business and CB holding dollars. Why hold dollars (a Brazilian co., for example) if you buy from China with Reales which you exchange for renminbi?
The following article from NYT is very illustrative....
Dollar against commodities is dead.

This copy is for your personal, noncommercial use only. You can order presentation-ready copies for distribution to your colleagues, clients or customers here or use the "Reprints" tool that appears next to any article. Visit www.nytreprints.com for samples and additional information. Order a reprint of this article now.

---

May 21, 2009
China Grows More Picky About Debt

By KEITH BRADSHER
HONG KONG — Leaders in both Washington and Beijing have been fretting openly about the mutual dependence — some would say codependence — created by China’s vast holdings of United States bonds. But beyond the talk, the relationship is already changing with surprising speed.
China is growing more picky about which American debt it is willing to finance, and is changing laws to make it easier for Chinese companies to invest abroad the billions of dollars they take in each year by exporting to America. For its part, the United States is becoming relatively less dependent on Chinese financing.
China has actually bought Treasury bonds at an accelerating pace over the last year — notwithstanding Chinese officials’ complaints about American profligacy. But the borrowing needs of the United States government have grown even faster. So China represents a rapidly shrinking share of overall purchases of Treasury securities. “China’s demand for Treasuries has increased over the past year, but it hasn’t increased at anything like the pace of the Treasury’s sale of new Treasury bonds,” said Brad W. Setser, a specialist in Chinese financial flows at the Council on Foreign Relations.
Americans and investors elsewhere are buying Treasuries instead. They are saving more and have been shifting out of other investments — including equities until the past two months — and into Treasuries.
China bought less than a sixth of the Treasuries issued in the 12 months through March. Less than two years ago, by contrast, Chinese purchases of Treasuries, which included purchases in the secondary market as well as newly issued securities, briefly exceeded the entire borrowing needs of the United States.
Financial statistics released by both countries in recent days show that China paradoxically stepped up its lending to the American government over the winter even as it virtually stopped putting fresh money into dollars.
This combination is possible because China has been exchanging one dollar-denominated asset for another — selling the debt of government-sponsored enterprises like Fannie Mae and Freddie Mac in a hurry to buy Treasuries. While this has been clear for months, new data shows that China is also trading long-term Treasuries for short-term notes, highlighting Beijing’s concerns that inflation will erode the dollar’s value in the long run as America amasses record debt.
So China’s rising purchases of Treasuries do not represent the confident bet on America’s future that they might seem to be on the surface. For instance, China does not appear to be dumping euros or yen to buy Treasuries, economists said.
That said, recent Chinese and American data suggest that an astounding 82 percent of China’s $2 trillion in foreign reserves is in dollars, according to calculations by Standard Chartered.
The development has caught the attention of the leaders of both countries.
“The long-term deficit and debt that we have accumulated is unsustainable — we can’t keep on just borrowing from China,” President Obama said last Thursday.
Wen Jiabao, prime minister of China, also has expressed concern.
“We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried,” Mr. Wen said earlier this year.
China now earns more than $50 billion a year in interest from the United States, Mr. Setser at the Council on Foreign Relations calculated.
China’s leaders were able to buy more Treasuries in recent months without buying more dollars because they have abruptly turned their back on the market for securities issued by government-sponsored enterprises.
China was the world’s biggest buyer of these securities a year ago, splashing out more than $10 billion a month.
But in the 12 months through March, it actually had net sales of $7 billion, and ramped up purchases of Treasuries instead.
China has also changed which Treasuries it buys. It has done so in ways calculated to reduce its exposure to inflation or other problems in the United States. As recently as a year ago, China actively bought long-dated bonds, seeking the extra yield they could bring compared to Treasury securities with short maturities, of which China bought virtually none.
But in each month since November, China has been buying more Treasury bills, with a maturity of a year or less, than Treasuries with longer maturities. This gives China the option of cashing out its positions in a hurry, by not rolling over its investments into new Treasury bills as they come due should inflation in the United States start rising and make Treasury securities less attractive.
The big question now for policy makers and economists alike lies in whether the Chinese government’s purchases of American securities will rise or fall in the coming months.
Two big forces are at work — but they are pushing Chinese investments in opposite directions and might cancel each other out.
The first big shift is that Chinese foreign exchange reserves might start growing again, after shrinking early this year.
A senior Chinese economic policy maker, Xu Lin, expressed concern here on Monday that the reserves might grow faster if speculators started pushing more foreign exchange into China in the months ahead.
China is strongly opposed to any significant appreciation or depreciation of its currency, Mr. Xu said at a press conference. But if international investors conclude that the Chinese economy has stabilized ahead of economies elsewhere, they may start pumping more money into the Chinese economy, he said.
To keep its currency at the same level, the Chinese government buys foreign currency flowing into the country in excess of China’s needs. If overseas demand for Chinese exports recovers, then China’s trade surplus could start widening again as well. This would also tend to fatten Chinese reserves.
But the countervailing trend is that the Chinese government is trying to foster channels for foreign currency to be pumped out of the country without the involvement of the central bank. The government has been buying a wider range of assets and encouraging the private sector to invest more money overseas.
“That’s part of a strategic move by the authorities to diversify,” said Wensheng Peng, the head of China research at Barclays Capital. “The reserves growth should accelerate because of inflows, but it will not be as large as what we observed in 2007 and the first half of 2008.”
The State Administration of Foreign Exchange, which is part of the central bank, issued draft regulations on Monday that would make it considerably easier for private companies to raise dollars in China to spend on overseas investments — a step that would lessen the need for the Chinese government to buy up those dollars.
This spring China has also been stepping up its purchases of commodities, which are usually bought in dollars. Iron ore has been piling up on Chinese docks, government stockpiles of crude oil and grain are being expanded and stockpiles are being started for products like gasoline, diesel and sugar.
After six years of silence, China unexpectedly disclosed last month that it had been gradually buying gold from domestic producers. The country’s reserves had climbed from 600 tons in 2003 to 1,054 tons, worth $31.8 billion at prices late Wednesday.
The disclosure, which produced a frisson of excitement in gold markets, may have been aimed at reassuring a domestic audience that the Chinese government was not putting all the nation’s savings into American dollars. But the actual investment was tiny compared with China’s foreign exchange reserves — and showed that China was accumulating gold at a much slower rate than foreign currency.
A person in periodic contact with China’s central bank, who insisted on anonymity to preserve his access, said that a Chinese central banker complained to him last year that “we have so much money and there’s so little gold, we can’t buy much without driving up the price.”

All of which increases the chances of war.

[BadJuju]

Re: Chop chop the dollar? Are we on the verge of USD abandonment?

good luck...

Is that directed towards me? Ah, in the very least, I hope that inflation will be mild by that time. I would like to buy a lot of crap. :P

[jtabeb]

Re: Chop chop the dollar? Are we on the verge of USD abandonment?

All of which increases the chances of war.

NO, china has already hedged their currency risk by using their USTs as collateral for commodities purchases. No war, they are happy with what they got. (notice how the sino-russian oil supply deal was done in UST, not roubles or renmenbi).

China is waving a false flag, they ALREADY have exited their dollar holdings. (they mortgaged their dollar holdings against commodities).

Don't be mislead, China is out of the dollar. Just wonder what happens when the rest of the world figures out that china don't need no stinkin dollars anymore. Should be VERY interesting!

[Southernguy]

Re: Chop chop the dollar? Are we on the verge of USD abandonment?

NO, china has already hedged their currency risk by using their USTs as collateral for commodities purchases. No war, they are happy with what they got. (notice how the sino-russian oil supply deal was done in UST, not roubles or renmenbi).

China is waving a false flag, they ALREADY have exited their dollar holdings. (they mortgaged their dollar holdings against commodities).

Don't be mislead, China is out of the dollar. Just wonder what happens when the rest of the world figures out that china don't need no stinkin dollars anymore. Should be VERY interesting!

Please; Where do you get that information from?

[ThePythonicCow]

Re: Chop chop the dollar? Are we on the verge of USD abandonment?

Are we on the verge of USD abandonment?

My prediction, based on no particular reason nor documented expertise nor past illustrious history of accurate predictions, is that these events are the warm-ups for the USD losing its special position as the worlds reserve currency. The USD won't be abandoned entirely, but will become one of equals. We aren't quite on the verge yet; first we need another sharp downdraft, to sufficiently embolden other nations to take more drastic steps toward forming alternative currency arrangements. Related issues involving at least geography, politics, energy, military, security, prestige, corruption and commerce complicate the picture.

[Mega]

Re: Chop chop the dollar? Are we on the verge of USD abandonment?

Agreed, something akin to the Fall of Saigon..............you know.....helecopters getting throw off sides of aircralf carries.
Mike

[ThePythonicCow]

Re: Chop chop the dollar? Are we on the verge of USD abandonment?

NO, china has already hedged their currency risk by using their USTs as collateral for commodities purchases.

I've read the same thing (forget where - sorry) and give this claim credence.

What I can't figure out is who got left holding the US debt risk. Did China take out huge loans against its portfolio of Treasuries and use those dollars to buy commodities? In that case, whoever made those loans is sweating bullets, hoping Treasuries don't collapse. Or did China directly purchase the commodities and production with its Treasury hoard? In which case, we'd have already seen the transfer of the ownership of the Treasuries, unless the Banksters decided not to tell us peons yet.

If forced to bet on what's going on here, I'd try to sneak out the backdoor unnoticed. Failing that, I'd bet that the Banksters extended loans against China's treasuries so that the Chinese could purchase commodities and producers thereof. Probably the Banksters figured their servants at the Fed and Treasury would keep Treasury rates low, as per the request of the Banksters. If that's what's going down, so far, so good. Unfortunately it seems to be forcing the Fed into Quantitative Easing -- buying up Treasuries no one else wants to keep their price high. That's like using hand grenades to fight a fire in an explosives factory.

For those of us with a dark sense of humor, this could get very entertaining. (Aside to various unnamed agencies -- I really have no flippin clue what I'm talking about )

[ThePythonicCow]

Re: Chop chop the dollar? Are we on the verge of USD abandonment?

NO, china has already hedged their currency risk by using their USTs as collateral for commodities purchases. No war, they are happy with what they got.

No Chinese provoked war. They are happy with what they got and besides do not have the strongest military in the world.

But the United States won't be happy, and the United States does have a bigtime military.

I give war a good chance, possibly triggered by a false flag operation, that once again arouses the United States to major violence.

It will be a test of the Chinese skill whether they can keep the United States from going to war with some third party, likely in the southern half of Asia.

[metalman]

Re: Chop chop the dollar? Are we on the verge of USD abandonment?

NO, china has already hedged their currency risk by using their USTs as collateral for commodities purchases.

that's an appealing rumor ej started, not a confirmed fact so far as i know. you know otherwise? did i miss the post where he provided evidence?