Is that a BRIC thru the window?

[don]

or are you just happy to see me . . .

China, EU sign $57bn currency swap agreement
October 10, 2013, 9:18 am



The currency agreement will be valid for three years

China’s central bank, the People’s Bank of China (PBC) on Thursday signed a three-year currency swap agreement worth 350 billion yuan ($57 billion) with the European Central Bank (ECB). “The swap arrangement has been established in the context of rapidly growing bilateral trade and investment between the euro area and China, as well as the need to ensure the stability of financial markets,” said a statement from the ECB.

The currency agreement will be available to all eurozone countries through their national central banks.

It will be valid for three years and will allow the ECB to access up to 350 billion yuan and the PBC to access up to 45 billion euros.

The ECB said from the eurosystem’s perspective it will serve as a backstop liquidity facility.

Trade between Europe and China has doubled since 2003 and is worth more than $1.3 billion a day.

The European Commission is set to negotiate on an “investment agreement” with China at a meeting in Luxembourg later this month.

This could pave the way for a Free Trade Agreement between the two biggest markets in the world.

The BRICS Post

[GRG55]

Re: Is that a BRIC thru the window?

or are you just happy to see me . . .

China, EU sign $57bn currency swap agreement
October 10, 2013, 9:18 am



The currency agreement will be valid for three years

China’s central bank, the People’s Bank of China (PBC) on Thursday signed a three-year currency swap agreement worth 350 billion yuan ($57 billion) with the European Central Bank (ECB). “The swap arrangement has been established in the context of rapidly growing bilateral trade and investment between the euro area and China, as well as the need to ensure the stability of financial markets,” said a statement from the ECB.

The currency agreement will be available to all eurozone countries through their national central banks.

It will be valid for three years and will allow the ECB to access up to 350 billion yuan and the PBC to access up to 45 billion euros.

The ECB said from the eurosystem’s perspective it will serve as a backstop liquidity facility.

Trade between Europe and China has doubled since 2003 and is worth more than $1.3 billion a day.

The European Commission is set to negotiate on an “investment agreement” with China at a meeting in Luxembourg later this month.

This could pave the way for a Free Trade Agreement between the two biggest markets in the world.

The BRICS Post

Well that's good for 43.8 days of trade ($57/$1.3). Then what?

More seriously, it would seem that over time China and a host of other nations are putting in place some contingency plans in the event of a US Dollar crisis...

[Forrest]

Re: Is that a BRIC thru the window?

I can't say I blame them, but it looks also a bit like China is simply preparing to live without a US dollar for the future, and setting up the first steps.

[don]

Re: Is that a BRIC thru the window?

hedging the bonar

[verdo]

Re: Is that a BRIC thru the window?

57 billion is a drop the bucket, but its certainly the start of something larger

[photon555]

Re: Is that a BRIC thru the window?

So the dollar dies, not with a bang, but with a long drawn out whimpering groan.

[don]

Re: Is that a BRIC thru the window?

So the dollar dies, not with a bang, but with a long drawn out whimpering groan.

There's been quite a few bangs so far . . .

[GRG55]

Re: Is that a BRIC thru the window?

I can't say I blame them, but it looks also a bit like China is simply preparing to live without a US dollar for the future, and setting up the first steps.

Nobody plans to live without the US Dollar. That is like trying to live without air.

But China and a number of bilateral partners, including Russia, Turkey, Brazil, the UAE and Australia, are storing away a little supplemental oxygen just in case the air supply gets cut off temporarily during a potential future US Dollar crisis.

These are all small agreements in that the amounts are a fraction of the annual bilateral trade flows between these pairs, and most of these agreements have 3 year limits on them. Seems more a political statement, and a bit of a "short term sick leave coverage insurance policy" than anything else. I doubt any of us will live long enough to see the "death" of the US Dollar...

From the FT:

January 18, 2012 4:15 pm

China signs currency swap deal with UAE

China and the United Arab Emirates signed a multibillion-dollar currency swap deal in the latest indication of the growing political and economic links between Beijing and countries in the oil-rich Gulf region.

The swap valued at RMB35bn ($5.5bn), the latest in a string of currency deals China has agreed with foreign nations, is effective for three years and will allow the central banks to draw on the local currency facility to ease bilateral trading...

...China has set up currency swap agreements with more than ten countries, though few have been drawn down, prompting some analysts to suggest that they are more politically-motivated statements than measures to significantly boost trade...

...Despite the economic downturn, bilateral trade between China and the UAE improved last year. Trade in the first 11 months of the year grew to $32bn, a 38 per cent increase compared to the first 11 months of last year, according to official statistics.

China has over the past three years started to promote the use of the renminbi in international trade, seeking to reduce its reliance on the US dollar. However, so far, transactions in Chinese currency have been limited, partly because China retains strict limits on flows of the currency across its borders...

[don]

Re: Is that a BRIC thru the window?

China's Official Press Agency Calls For New Reserve Currency, And New World Order

We assume it is a coincidence that on the day in which we demonstrate China's relentless appetite for gold, driven by what we and many others believe is the country's desire to have a call option on a gold-backed reserve currency when the time comes, just posted in China's official press agency, Xinhua, is an op-ed by writer Liu Chang in which he decries the "US fiscal failure which warrants a de-Americanized world" and flatly states that the world should consider a new reserve currency "that is to be created to replace the dominant U.S. dollar, so that the international community could permanently stay away from the spillover of the intensifying domestic political turmoil in the United States."

Of course, if China were serious, and if the world were to voluntarily engage in such a (r)evolutionary reserve currency transition, then all Magic Money Tree theories that the only thing better than near infinite debt is beyond infinite debt, would promptly be relegated to the historic dust heap of idiotic theories where they belong.
Some of China's (which as a reminder is the single largest offshore holder of US Treasury paper, and the second largest of all only second naturally to the Federal Reserve whose $85 billion in monthly monetizing "flow" is what is keeping rates from exploding higher) thoughts as captured in the Xinhua Op-ed:

• Reform of the world’s financial system should include the introduction of a new internatonal reserve currency to replace the U.S. dollar
• The international community could thus permanently stay away from the spillover of intensifying domestic political turmoil in the U.S.
• Fiscal impasse in the U.S. is a good time for “befuddled world” to start considering building a “de-Americanized world”
• Impasse has left many nations’ dollar assets in jeopardy and the international community agonized
• Other cornerstones should be laid to underpin a de-Americanized world, including respect for sovereignty, recognizing authority of UN in handling global hotspot issues and giving developing and emerging market economies more say in major international financial institutions
• Purpose of such changes is not to “completely toss the United States aside,” rather to encourage Washington to play a much more constructive role in addressing global affairs

Of course, if and when the day comes that the USD is no longer the reserve currency, kiss America's superpower, or any power, status, which is now based purely on the USD's reserve currency status, and the ability to fund half the US budget deficit with debt promptly monetized by the Fed, goodbye.

Finally, as a reminder...


From Xinhua:

U.S. fiscal failure warrants a de-Americanized world

As U.S. politicians of both political parties are still shuffling back and forth between the White House and the Capitol Hill without striking a viable deal to bring normality to the body politic they brag about, it is perhaps a good time for the befuddled world to start considering building a de-Americanized world.

Emerging from the bloodshed of the Second World War as the world's most powerful nation, the United States has since then been trying to build a global empire by imposing a postwar world order, fueling recovery in Europe, and encouraging regime-change in nations that it deems hardly Washington-friendly.

With its seemingly unrivaled economic and military might, the United States has declared that it has vital national interests to protect in nearly every corner of the globe, and been habituated to meddling in the business of other countries and regions far away from its shores.

Meanwhile, the U.S. government has gone to all lengths to appear before the world as the one that claims the moral high ground, yet covertly doing things that are as audacious as torturing prisoners of war, slaying civilians in drone attacks, and spying on world leaders.

Under what is known as the Pax-Americana, we fail to see a world where the United States is helping to defuse violence and conflicts, reduce poor and displaced population, and bring about real, lasting peace.

Moreover, instead of honoring its duties as a responsible leading power, a self-serving Washington has abused its superpower status and introduced even more chaos into the world by shifting financial risks overseas, instigating regional tensions amid territorial disputes, and fighting unwarranted wars under the cover of outright lies.

As a result, the world is still crawling its way out of an economic disaster thanks to the voracious Wall Street elites, while bombings and killings have become virtually daily routines in Iraq years after Washington claimed it has liberated its people from tyrannical rule.

Most recently, the cyclical stagnation in Washington for a viable bipartisan solution over a federal budget and an approval for raising debt ceiling has again left many nations' tremendous dollar assets in jeopardy and the international community highly agonized.

Such alarming days when the destinies of others are in the hands of a hypocritical nation have to be terminated, and a new world order should be put in place, according to which all nations, big or small, poor or rich, can have their key interests respected and protected on an equal footing.

To that end, several corner stones should be laid to underpin a de-Americanized world.

For starters, all nations need to hew to the basic principles of the international law, including respect for sovereignty, and keeping hands off domestic affairs of others.

Furthermore, the authority of the United Nations in handling global hotspot issues has to be recognized. That means no one has the right to wage any form of military action against others without a UN mandate.

Apart from that, the world's financial system also has to embrace some substantial reforms.

The developing and emerging market economies need to have more say in major international financial institutions including the World Bank and the International Monetary Fund, so that they could better reflect the transformations of the global economic and political landscape.

What may also be included as a key part of an effective reform is the introduction of a new international reserve currency that is to be created to replace the dominant U.S. dollar, so that the international community could permanently stay away from the spillover of the intensifying domestic political turmoil in the United States.

Of course, the purpose of promoting these changes is not to completely toss the United States aside, which is also impossible. Rather, it is to encourage Washington to play a much more constructive role in addressing global affairs.

And among all options, it is suggested that the beltway politicians first begin with ending the pernicious impasse.

[GRG55]

Re: Is that a BRIC thru the window?

China's Official Press Agency Calls For New Reserve Currency, And New World Order

We assume it is a coincidence that on the day in which we demonstrate China's relentless appetite for gold, driven by what we and many others believe is the country's desire to have a call option on a gold-backed reserve currency when the time comes, just posted in China's official press agency, Xinhua, is an op-ed by writer Liu Chang in which he decries the "US fiscal failure which warrants a de-Americanized world" and flatly states that the world should consider a new reserve currency "that is to be created to replace the dominant U.S. dollar, so that the international community could permanently stay away from the spillover of the intensifying domestic political turmoil in the United States."

Of course, if China were serious, and if the world were to voluntarily engage in such a (r)evolutionary reserve currency transition, then all Magic Money Tree theories that the only thing better than near infinite debt is beyond infinite debt, would promptly be relegated to the historic dust heap of idiotic theories where they belong.
Some of China's (which as a reminder is the single largest offshore holder of US Treasury paper, and the second largest of all only second naturally to the Federal Reserve whose $85 billion in monthly monetizing "flow" is what is keeping rates from exploding higher) thoughts as captured in the Xinhua Op-ed:

• Reform of the world’s financial system should include the introduction of a new internatonal reserve currency to replace the U.S. dollar
• The international community could thus permanently stay away from the spillover of intensifying domestic political turmoil in the U.S.
• Fiscal impasse in the U.S. is a good time for “befuddled world” to start considering building a “de-Americanized world”
• Impasse has left many nations’ dollar assets in jeopardy and the international community agonized
• Other cornerstones should be laid to underpin a de-Americanized world, including respect for sovereignty, recognizing authority of UN in handling global hotspot issues and giving developing and emerging market economies more say in major international financial institutions
• Purpose of such changes is not to “completely toss the United States aside,” rather to encourage Washington to play a much more constructive role in addressing global affairs

Of course, if and when the day comes that the USD is no longer the reserve currency, kiss America's superpower, or any power, status, which is now based purely on the USD's reserve currency status, and the ability to fund half the US budget deficit with debt promptly monetized by the Fed, goodbye.

Finally, as a reminder...


From Xinhua:

U.S. fiscal failure warrants a de-Americanized world

As U.S. politicians of both political parties are still shuffling back and forth between the White House and the Capitol Hill without striking a viable deal to bring normality to the body politic they brag about, it is perhaps a good time for the befuddled world to start considering building a de-Americanized world.

Emerging from the bloodshed of the Second World War as the world's most powerful nation, the United States has since then been trying to build a global empire by imposing a postwar world order, fueling recovery in Europe, and encouraging regime-change in nations that it deems hardly Washington-friendly.

With its seemingly unrivaled economic and military might, the United States has declared that it has vital national interests to protect in nearly every corner of the globe, and been habituated to meddling in the business of other countries and regions far away from its shores.

Meanwhile, the U.S. government has gone to all lengths to appear before the world as the one that claims the moral high ground, yet covertly doing things that are as audacious as torturing prisoners of war, slaying civilians in drone attacks, and spying on world leaders.

Under what is known as the Pax-Americana, we fail to see a world where the United States is helping to defuse violence and conflicts, reduce poor and displaced population, and bring about real, lasting peace.

Moreover, instead of honoring its duties as a responsible leading power, a self-serving Washington has abused its superpower status and introduced even more chaos into the world by shifting financial risks overseas, instigating regional tensions amid territorial disputes, and fighting unwarranted wars under the cover of outright lies.

As a result, the world is still crawling its way out of an economic disaster thanks to the voracious Wall Street elites, while bombings and killings have become virtually daily routines in Iraq years after Washington claimed it has liberated its people from tyrannical rule.

Most recently, the cyclical stagnation in Washington for a viable bipartisan solution over a federal budget and an approval for raising debt ceiling has again left many nations' tremendous dollar assets in jeopardy and the international community highly agonized.

Such alarming days when the destinies of others are in the hands of a hypocritical nation have to be terminated, and a new world order should be put in place, according to which all nations, big or small, poor or rich, can have their key interests respected and protected on an equal footing.

To that end, several corner stones should be laid to underpin a de-Americanized world.

For starters, all nations need to hew to the basic principles of the international law, including respect for sovereignty, and keeping hands off domestic affairs of others.

Furthermore, the authority of the United Nations in handling global hotspot issues has to be recognized. That means no one has the right to wage any form of military action against others without a UN mandate.

Apart from that, the world's financial system also has to embrace some substantial reforms.

The developing and emerging market economies need to have more say in major international financial institutions including the World Bank and the International Monetary Fund, so that they could better reflect the transformations of the global economic and political landscape.

What may also be included as a key part of an effective reform is the introduction of a new international reserve currency that is to be created to replace the dominant U.S. dollar, so that the international community could permanently stay away from the spillover of the intensifying domestic political turmoil in the United States.

Of course, the purpose of promoting these changes is not to completely toss the United States aside, which is also impossible. Rather, it is to encourage Washington to play a much more constructive role in addressing global affairs.

And among all options, it is suggested that the beltway politicians first begin with ending the pernicious impasse.

New world order, eh?

"hypocritical nation"...as if the USA is alone in this regard?

Washington to play "a more constructive role in addressing global affairs". Altruism is a much overrated commodity...and one shouldn't be so naive as to expect the Chinese to offer any of that either.

a "de-Americanized world"?

I'd be damn careful about what one wished for. As imperfect as this world is right now, the last thing I would wish upon it is a replacement of the USA with the Chinese (or the Russians). I have had my taste of that.

The USA might be using drones, but at least DHS isn't shooting US citizens in public on their own soil (at least not yet).

The Tiananmen Square protests of 1989, also known as the June Fourth Incident in Chinese, were student-led popular demonstrations in Beijing which took place in the spring of 1989 and received broad support from city residents, exposing deep splits within China's political leadership. The protests were forcibly suppressed by hardline leaders who ordered the military to enforce martial law in the country's capital.

The crackdown that initiated on June 3–4 became known as the Tiananmen Square Massacre or the June 4 Massacre as troops with assault rifles and tanks inflicted thousands of casualties on unarmed civilians trying to block the military’s advance on Tiananmen Square in the heart of Beijing, which student demonstrators had occupied for seven weeks. The scale of military mobilization and the resulting bloodshed were unprecedented in the history of Beijing, a city with a rich tradition of popular protests in the 20th century.

The Chinese government condemned the protests as a "counterrevolutionary riot", and has prohibited all forms of discussion or remembrance of the events since. Due to the lack of information from China, many aspects of the events remain unknown or unconfirmed. Estimates of the death toll range from several hundred to the thousands.

The protests were triggered in April 1989 by the death of former Communist Party General Secretary, Hu Yaobang, a liberal reformer, who was deposed after losing a power struggle with hardliners over the direction of political and economic reform. University students who marched and gathered in Tiananmen Square to mourn Hu also voiced grievances against inflation, limited career prospects, and corruption of the party elite. They called for government accountability, freedom of the press, freedom of speech, and the restoration of workers' control over industry. At the height of the protests, about a million people assembled in the Square.

The government initially took a conciliatory stance toward the protesters. The student-led hunger strike galvanized support for the demonstrators around the country and the protests spread to 400 cities by mid-May. Ultimately, China's paramount leader Deng Xiaoping and other party elders resolved to use force. Party authorities declared martial law on May 20, and mobilized as many as 300,000 troops to Beijing.

In the aftermath of the crackdown, the government conducted widespread arrests of protesters and their supporters, cracked down on other protests around China, expelled foreign journalists and strictly controlled coverage of the events in the domestic press. The police and internal security forces were strengthened. Officials deemed sympathetic to the protests were demoted orpurged. Zhao Ziyang was ousted in a party leadership reshuffle and replaced with Jiang Zemin. Political reforms were largely halted and economic reforms did not resume until Deng Xiaoping's 1992 southern tour...

[don]

Re: Is that a BRIC thru the window?

a key line in this bit of agitprop:

Of course, the purpose of promoting these changes is not to completely toss the United States aside, which is also impossible. Rather, it is to encourage Washington to play a much more constructive role in addressing global affairs.

Impossible? Absolutely, so slip it in at the end.

and . . . Constructive Role? Translation - share your power with ambitious others.

Right.

[coolhand]

Re: Is that a BRIC thru the window?

China's human rights record is very poor.

With that said, ironically, the role they are according to gold in the system they appear to want to set up can easily replace the USD/UST settlement system.

It has been estimated that China has as much as 6,000 tons, & we know they have imported 2,000 tons in just the last 24 months in addition to their "official" 1,000 tons.

If we say they own 6,000 tons & China announces the following on a Sunday afternoon, a few hours before the opening of trading in Asia:

“In light of the United States government’s inability to come to an acceptable political decision regarding its fiscal policies even after other major industrialized nations have had to make similar difficult decisions in recent years [EU, China], the PBOC has come to the conclusion that it is no longer in China’s best economic interest to peg its currency to that of a nation with so much internal political strife.”

”As a result, effective immediately, the Chinese yuan will no longer be pegged to the US dollar. We have already opened significant swap lines with all major trade partners to engage in trade in yuan, and in order to provide safety & stability to the purchasing power of our trading partners’ trading surpluses acquired through trade with China and priced in yuan, the PBOC will be making a market in gold priced in yuan. That price will be available for quotation at the opening of trading tonight.”


That price will, at the current Y6.2 to $1 or so rate, imply a $10,000-$50,000/oz price of gold. Just like that, it’s done.

At $20,000, the rumored 6,000 tons of gold China has would be worth $3.8T, or basically on par with USD-denominated reserve assets they hold now. Do they care if they hold $3.8T of USTs or $3.8T of gold? The oil & food exporters of the world don’t care, & if anything, would rather hold gold given what the dollar has done v. oil & v. food for 40 yrs, but in particular in the past 10 yrs.


EU loves it b/c they mark their gold to market every quarter, & the #1 asset on the ECB’s balance sheet is gold (a fact that goes unnoticed by most EU-bashers.)

EU debt crisis over (gold fully collateralizes sovereign debt). US reserve monopoly over. Oil prices & food prices in US are limit up for days on end. Oil prices in China collapse as oil is now priced in yuan that oil exporters can exchange for physical gold whose price floats (manipulated by PBOC in the same way that the Fed manipulates UST prices) & therefore Chinese consumption skyrockets.

The "small" swap lines mentioned earlier in this link are only intended to provide liquidity until trade is settled...they aren't meant to settle up the kind of one-way trade the world has grown accustomed to in the Bretton Woods II arrangement b/t China & US (they send stuff, we send IOUs). How much of a swap line does EU need when China sends electronics & EU sends BMWs? Not as much as they would with the US.

The world is changing...and changes occur little by little, & then all at once, to paraphrase Hemingway...ask the USSR

[coolhand]

Re: Is that a BRIC thru the window?

a key line in this bit of agitprop:

Of course, the purpose of promoting these changes is not to completely toss the United States aside, which is also impossible. Rather, it is to encourage Washington to play a much more constructive role in addressing global affairs.

Impossible? Absolutely, so slip it in at the end.

and . . . Constructive Role? Translation - share your power with ambitious others.

Right.

China has a very poor human rights record. US' human rights record in enforcing its currency monopoly ain't exactly enviable either...watch the beginning of "Argo."

However, if China succeeds in leading towards a gold settlement, "bancor" model (Keynesian, ironically!), then China will succeed in a big step towards the democratization of economic production & the ending of the socialist welfare state...

[shiny!]

Re: Is that a BRIC thru the window?

That price will, at the current Y6.2 to $1 or so rate, imply a $10,000-$50,000/oz price of gold. Just like that, it’s done.

At $20,000, the rumored 6,000 tons of gold China has would be worth $3.8T, or basically on par with USD-denominated reserve assets they hold now. Do they care if they hold $3.8T of USTs or $3.8T of gold? The oil & food exporters of the world don’t care, & if anything, would rather hold gold given what the dollar has done v. oil & v. food for 40 yrs, but in particular in the past 10 yrs.


EU loves it b/c they mark their gold to market every quarter, & the #1 asset on the ECB’s balance sheet is gold (a fact that goes unnoticed by most EU-bashers.)

EU debt crisis over (gold fully collateralizes sovereign debt). US reserve monopoly over. Oil prices & food prices in US are limit up for days on end. Oil prices in China collapse as oil is now priced in yuan that oil exporters can exchange for physical gold whose price floats (manipulated by PBOC in the same way that the Fed manipulates UST prices) & therefore Chinese consumption skyrockets.

The "small" swap lines mentioned earlier in this link are only intended to provide liquidity until trade is settled...they aren't meant to settle up the kind of one-way trade the world has grown accustomed to in the Bretton Woods II arrangement b/t China & US (they send stuff, we send IOUs). How much of a swap line does EU need when China sends electronics & EU sends BMWs? Not as much as they would with the US.

The world is changing...and changes occur little by little, & then all at once, to paraphrase Hemingway...ask the USSR

Very interesting, coolhand. Using your hypothetical price of $20,000/oz, which is approximately 15 x the current price in dollars, is it accurate to assume that the prices of oil, food, and anything else priced in USD would also go up by a factor of 15? Could prices rise even higher as a result of more oil being consumed by China? Would prices for items produced in the U.S. go up as much as for imported items? Could the U.S. sustain itself in this event, and for how long?

I barely know how to wrap my mind around this scenario, much less how to phrase my questions in an intelligent manner.

[BadJuju]

Re: Is that a BRIC thru the window?

China has a very poor human rights record. US' human rights record in enforcing its currency monopoly ain't exactly enviable either...watch the beginning of "Argo."

However, if China succeeds in leading towards a gold settlement, "bancor" model (Keynesian, ironically!), then China will succeed in a big step towards the democratization of economic production & the ending of the socialist welfare state...

If this is your idea of a socialist welfare state, I'd hate to see your idea of a capitalist free market society.