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I thought the loss of dollar reserve status was going to happen by dollar dumping, but it looks like first, anyway, it will come from using other currencies and gold in international trade. Perhaps the dollar dumping will come a bit later?
It's all about the Triffin Dilemma, Exhorbitant Privilege, and the US's largest export: Inflation.
The global architecture of trade and finance is broken, held only together by temporary measures to keep the world's largest banks from imploding. Meanwhile, the world knows this and a new system is evolving. New bilateral trade agreements denominated in other currencies replacing the dollar, and an increase in gold reserves for when the system reaches critical mass and breaks down.
Immediate dollar dumping is too politically and economically disruptive. It's also difficult to accomplish because the nation dumping the dollar witnesses a huge rise in its currency - and no one wants that. You also have to find someone that wants your dollars. Rather, an incremental approach of slowly eschewing dollars in future transactions is how this is playing out.
"The BOK and 10 other central banks in East Asia and the Pacific are jointly buying local-currency denominated government and government-backed debt in the region through the Asian Bond Fund II set up in 2005, he said."
South Korea, Thailand and Japan are buying Yuan bonds with their central bank reserves.
I was with Mark Hart of Corriente Advisors yesterday who has a fund set up shorting China. He was saying that all these Chinese corporations that do import/export as well as other multinationals are piling into the Yuan to earn positive carry. If they buy US Dollar they earn maybe 1 to 3% but if they buy the Yuan they earn 3.42% plus the appreciation in RMB vis-a-vis the dollar.
He thinks this is suicide because if the Yuan were to depreciate from its current about 6.4 to the dollar to 6.7 the delta adjusted options would explode.
But I guess lets see what happens. It seems everyone has a one way bet on the Yuan, that usually is not a good thing.
Probably so, but I don't view it as a certainty since he doesn't appear to be a rigid and corrupt as Gingrich,
nor as dense (to be kind) as Santorum. Ron Paul has no chance, just like Kucinich has no chance.
If either one was nominated they might well be assasinated.
The main thing is not the speculative question: how shall my currency-asset fare?
The main question is: if I trade (buy from China, Iran, other oil countries) what currency do I need to buy them from?
So, why stack dollars up if I shall need renminbi when I have to buy something?
Or to put it differently, why hold reserves in dollars if the exchange currency is no longer the dollar?
Brazil-Rusia, Brazil-Argentina, Argentina, Venezuela, Brazil, Rusia and Brazil are other countries beninning to trade in their respective currencies.
This, from UAE is really startling, they´re supposed to be a US staunch ally.
"The BOK and 10 other central banks in East Asia and the Pacific are jointly buying local-currency denominated government and government-backed debt in the region through the Asian Bond Fund II set up in 2005, he said."
South Korea, Thailand and Japan are buying Yuan bonds with their central bank reserves.
I was with Mark Hart of Corriente Advisors yesterday who has a fund set up shorting China. He was saying that all these Chinese corporations that do import/export as well as other multinationals are piling into the Yuan to earn positive carry. If they buy US Dollar they earn maybe 1 to 3% but if they buy the Yuan they earn 3.42% plus the appreciation in RMB vis-a-vis the dollar.
He thinks this is suicide because if the Yuan were to depreciate from its current about 6.4 to the dollar to 6.7 the delta adjusted options would explode.
But I guess lets see what happens. It seems everyone has a one way bet on the Yuan, that usually is not a good thing.
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