The Chinese Yuan has official joined the SDR club

[verdo]

SDR inclusion to help China lure trillions

Here's an excerpt..

Monday's momentous decision will see the Chinese yuan (CNY) hold a 10.9 percent weighting in the Special Drawing Rights (SDR) basket, higher than the yen and sterling's 8 percent but well below the euro's30.9 percent and the greenback's 42.9 percent.
"This should help underpin China's continuing efforts to internationalize the currency and its capital account—moves which, our research suggests, could lead to inflows of up to $3 trillion over the next few years," said Hayden Briscoe, managing director of Asia Pacific fixed income at asset manager AllianceBernstein (AB), on Tuesday.

I heard the news a few days ago myself, but im curious to know what you all think. What doesn't surprise me is how little press this seems to be getting, despite how important it is. I've been following a lot of jim rickards lately because his deflation then inflation view seems to fit what's going on at the moment....But when it comes to this recent inclusion to the SDR, he believes that the real reason the Yuan got included is not because China has liberalized its economy, but because it finally got enough gold. I'm not sure how accurate that is, but it did get me thinking. Right now, it seems like the IMF is trying to position the SDR as this new "world currency" which can potentially replace the U.S. dollar as the reserve currency in the future and help to bring liquidity to the world in the event of another severe crisis. The Fed doesn't have an unlimited balance sheet, so its unlikely that they can carry the full burden of another deflationary scare, which is where the IMF may come in. But what got me thinking was that when this next deflation scare is over with and we get back to the natural order of things (which is inflation, recontinuation of PCO and dollar demise), how will the SDR be seen as any different from any other currency since its backed by other fiat currencies like the USD and Sterling? Well, one good way in theory would be to make the value of the SDR based on currencies issued by countries with significant gold holdings, and hence in the event of a future worldwide currency crisis, these countries can bolster their currency with gold, which would in turn bolster the SDR...and maybe the future rules to be part of the club and get a seat at the table will be to have X amount of gold owned by your central bank. This is just my theory, but i was curious to hear what you guys think of the Yuans recent inclusion into the SDR and what it may mean for the future. In the short term, i don't expect much market impact from this but I think the move has some important long term implications

[seobook]

Re: The Chinese Yuan has official joined the SDR club

This topic was in another thread on here recently. The thread highlighted a (Bloomberg?) article stating that now the Yuan is included in the SDR, China may not see as much need to provide as strong of a support under their currency value. Another interesting bit was that the composition of the SDR basket was nearly flat in terms of the percent backed by the USD, but the EUR took a much larger hit to allow room for the RMB.

That the IMF still has such a heavy weighting on the USD indicates they plan to largely sync or echo US plans & goals, rather than act as any significant sort of counterbalance or offset to them or such.

The Euro recently rallied on less dovish than anticipated talk by the ECB, but as the middle east continues to melt down, that will also have a big negative impact on the European economy.

[verdo]

Re: The Chinese Yuan has official joined the SDR club

This topic was in another thread on here recently. The thread highlighted a (Bloomberg?) article stating that now the Yuan is included in the SDR, China may not see as much need to provide as strong of a support under their currency value. Another interesting bit was that the composition of the SDR basket was nearly flat in terms of the percent backed by the USD, but the EUR took a much larger hit to allow room for the RMB.

That the IMF still has such a heavy weighting on the USD indicates they plan to largely sync or echo US plans & goals, rather than act as any significant sort of counterbalance or offset to them or such.

The Euro recently rallied on less dovish than anticipated talk by the ECB, but as the middle east continues to melt down, that will also have a big negative impact on the European economy.

Ah i didn't see the other thread. But I did notice that part of the Euro weighting was being phased out to make room for the yuan. No surprise there though. The IMF is an American creation, and so they aren't going to bite the hand that feeds them most...at least not unless the U.S. fiscal position falls so low that the U.S. needs the IMF more than the IMF needs the U.S.

[don]

Re: The Chinese Yuan has official joined the SDR club

Ah i didn't see the other thread. But I did notice that part of the Euro weighting was being phased out to make room for the yuan. No surprise there though. The IMF is an American creation, and so they aren't going to bite the hand that feeds them most...at least not unless the U.S. fiscal position falls so low that the U.S. needs the IMF more than the IMF needs the U.S.

DECEMBER 9, 2015

The IMF Joins the New Cold War

by MICHAEL HUDSON

On December 8, the IMF’s Chief Spokesman Gerry Rice sent a note saying:

“The IMF’s Executive Board met today and agreed to change the current policy on non-toleration of arrears to official creditors. We will provide details on the scope and rationale for this policy change in the next day or so.”

Since 1947 when it really started operations, the World Bank has acted as a branch of the U.S. Defense Department, from its first major chairman John J. McCloy through Robert McNamara to Robert Zoellick and neocon Paul Wolfowitz. From the outset, it has promoted U.S. exports – especially farm exports – by steering Third World countries to produce plantation crops rather than feeding their own populations. (They are to import U.S. grain.) But it has felt obliged to wrap its U.S. export promotion and support for the dollar area in an ostensibly internationalist rhetoric, as if what’s good for the United States is good for the world.

The IMF has now been drawn into the U.S. Cold War orbit. On Tuesday it made a radical decision to dismantle the condition that had integrated the global financial system for the past half century. In the past, it has been able to take thelead in organizing bailout packages for governments by getting other creditor nations – headed by the United States, Germany and Japan – to participate. The creditor leverage that the IMF has used is that if a nation is in financialarrears to any government, it cannot qualify for an IMF loan – and hence, for packages involving other governments.

This has been the system by which the dollarized global financial system has worked for half a century. The beneficiaries have been creditors in US dollars.

But on Tuesday, the IMF joined the New Cold War. It has been lending money to Ukraine despite the Fund’s rules blocking it from lending to countries with no visible chance of paying (the “No More Argentinas” rule from 2001). With IMF head Christine Lagarde made the last IMF loan to Ukraine in the spring, she expressed the hope that there would be peace. But President Porochenko immediately announced that he would use the proceeds to step up his nation’s civil war with the Russian-speaking population in the East – the Donbass.

That is the region where most IMF exports have been made – mainly to Russia. This market is now lost for the foreseeable future. It may be a long break, because the country is run by the U.S.-backed junta put in place after the right-wing coup of winter 2014. Ukraine has refused to pay not only private-sector bondholders, but the Russian Government as well.

This should have blocked Ukraine from receiving further IMF aid. Refusal to pay for Ukrainian military belligerence in its New Cold War against Russia would have been a major step forcing peace, and also forcing a clean-up of the country’s endemic corruption.

Instead, the IMF is backing Ukrainian policy, its kleptocracy and its Right Sector leading the attacks that recently cut off Crimea’s electricity. The only condition on which the IMF insists is continued austerity. Ukraine’s currency, the hryvnia, has fallen by a third this years, pensions have been slashed (largely as a result of being inflated away), while corruption continues unabated.

Despite this the IMF announced its intention to extend new loans to finance Ukraine’s dependency and payoffs to the oligarchs who are in control of its parliament and justice departments to block any real cleanup of corruption.

For over half a year there was a semi-public discussion with U.S. Treasury advisors and Cold Warriors about how to stiff Russia on the $3 billion owed by Ukraine to Russia’s Sovereign Wealth Fund. There was some talk of declaring this an “odious debt,” but it was decided that this ploy might backfire against U.S. supported dictatorships.

In the end, the IMF simply lent Ukraine the money.

By doing so, it announced its new policy: “We only enforce debts owed in US dollars to US allies.” This means that what was simmering as a Cold War against Russia has now turned into a full-blown division of the world into the Dollar Bloc (with its satellite Euro and other pro-U.S. currencies) and the BRICS or other countries not in the U.S. financial and military orbit.

What should Russia do? For that matter, what should China and other BRICS countries do? The IMF and U.S. neocons have sent the world a message: you don’t have to honor debts to countries outside of the dollar area and its satellites.
Why then should these non-dollarized countries remain in the IMF – or the World Bank, for that matter? The IMF move effectively splits the global system in half,between the BRICS and the US-European neoliberalized financial system.
Should Russia withdraw from the IMF? Should other countries?

The mirror-image response would be for the new Asian Development Bank to announce that countries that joined the ruble-yuan area did not have to pay US dollar or euro-denominated debts. That is implicitly where the IMF’s break is leading.

[verdo]

Re: The Chinese Yuan has official joined the SDR club

^yeah i heard about that. Can't say i'm all that surprised. But I think the U.S. had better be careful. The IMF is a frankenstein monster they created, and can one day turn back on them too once their own debt crisis comes full swing. This time however, they'd be forced to pay back what they owe in SDR's

[GRG55]

Re: The Chinese Yuan has official joined the SDR club

DECEMBER 9, 2015

The IMF Joins the New Cold War

by MICHAEL HUDSON

... The IMF move effectively splits the global system in half,between the BRICS and the US-European neoliberalized financial system.
...

BRICS?

I refuse to take anyone [still] using that always since inception useless for analysis acronym seriously.

Difficult not to be amused by the anti-US commentary about this yuan-in-the-SDR basket event. Weren't some of these same commentators exclaiming not so long ago that the BRICS Bank and the AIIB were proof positive that China didn't need the IMF or the Americans.

[GRG55]

Re: The Chinese Yuan has official joined the SDR club

And now that messy IMF SDR business is out of the way, right on cue here comes the start of the Yuan devaluation.

China’s Central Bank Signals Intention to Loosen Yuan’s Peg to Dollar

PBOC says it makes more sense to measure yuan’s exchange rate against basket of currencies

Dec. 11, 2015 7:40 p.m. ET

BEIJING—China’s central bank signaled its intention to change the way it manages the yuan’s value by potentially easing its loose peg to the U.S. dollar and instead letting it track the currencies of its broader trading partners.

In an editorial posted on its website Friday night, the People’s Bank of China said the yuan’s exchange rate would be better measured against a basket of currencies rather than the dollar alone.

The foreign-exchange trading system run by the central bank for the first time published the composition of the currency basket, which comprises the dollar, euro, yen and 10 other currencies...

...China has reasons why it would consider changing its currency management this time. The yuan faces growing pressure to depreciate versus the dollar because of expectations of higher U.S. interest rates and China’s slowing economic growth, which has encouraged investors to find places other than China to park their money.

On Friday, the yuan recorded its biggest weekly drop against the dollar—about 0.83%—since a surprise devaluation on Aug. 11. A dollar bought 6.4553 yuan based on Friday’s closing price published by the China Foreign Exchange Trade System, or CFETS. In recent days, the dollar has been strengthening against the world’s major currencies as investors expect the U.S. Federal Reserve to raise interest rates in the coming week.
Late in New York Friday, the yuan was trading at 6.4558 per dollar. In the forward market, investors now expect the yuan to trade at 6.77 a dollar in the next 12 months.

Decoupling from the dollar peg would give the PBOC more flexibility in allowing the yuan to depreciate against the dollar, economists and analysts say...

[Southernguy]

Re: The Chinese Yuan has official joined the SDR club

Nations depending on commodity exports to China are doomed.

[GRG55]

Re: The Chinese Yuan has official joined the SDR club

Nations depending on commodity exports to China are doomed.

Commodities have been deeply cyclical long before anybody heard of China. This isn't the first or last time commodities will crash.

China's levels of personal income and demographics couldn't support the nonsensical level of infrastructure building that some people lauded as signs of a superior centrally planned economy. Now capital and people are both trying to escape as the authorities flail about refusing to accept any responsibility for the unfolding disaster. As you note, China's days as a driver of excessive commodity production and pricing are over.

However, the world is a big place even without China. And there are many other citizens and nations that aspire to something more than a manual labour, agrarian existence. Not even the newly minted Paris climate accord is going to stop them from improving their farming productivity, housing, schools, hospitals, transport infrastructure, telecommunications, utilities and military capability. All of which requires commodity raw materials.

[verdo]

Re: The Chinese Yuan has official joined the SDR club

I'm curious GRG55 (and others who have an opinion on this)...what does all this mean for gold, if anything? I still own it, but should i be getting more involved in the U.S. economy/stock market now, despite how overpriced it seems to be (at least to me)

[santafe2]

Re: The Chinese Yuan has official joined the SDR club

I'm curious GRG55 (and others who have an opinion on this)...what does all this mean for gold, if anything? I still own it, but should i be getting more involved in the U.S. economy/stock market now, despite how overpriced it seems to be (at least to me)

As I've said a few times lately, I don't think we've seen the bottom for commodities. As for investing in the stock market, if you don't believe this is a good time, it will be very hard to stay committed to your strategy if the market turns against you so my answer, given your position, would be to stay away from it now. I wouldn't worry, it's always good to have cash when opportunity finally does knock.

[Southernguy]

Re: The Chinese Yuan has official joined the SDR club

I'm curious GRG55 (and others who have an opinion on this)...what does all this mean for gold, if anything? I still own it, but should i be getting more involved in the U.S. economy/stock market now, despite how overpriced it seems to be (at least to me)

US stocks: If you consider Jeremy Grantham ( that is his website) anwer is no. https://www.gmo.com/docs/default-sou....pdf?sfvrsn=20

I checked price of oil in gold: the index was at a minimum in 1993, 1998, 2008 and at present. It's hovering under 5 (more or less what it attained the years mentioned) since dec 2014. Maximum was 14 in may 2008.

[Southernguy]

Re: The Chinese Yuan has official joined the SDR club

Think you are right: I should have said "for several years doomed"

Commodities have been deeply cyclical long before anybody heard of China. This isn't the first or last time commodities will crash.

China's levels of personal income and demographics couldn't support the nonsensical level of infrastructure building that some people lauded as signs of a superior centrally planned economy. Now capital and people are both trying to escape as the authorities flail about refusing to accept any responsibility for the unfolding disaster. As you note, China's days as a driver of excessive commodity production and pricing are over.

However, the world is a big place even without China. And there are many other citizens and nations that aspire to something more than a manual labour, agrarian existence. Not even the newly minted Paris climate accord is going to stop them from improving their farming productivity, housing, schools, hospitals, transport infrastructure, telecommunications, utilities and military capability. All of which requires commodity raw materials.

[verdo]

Re: The Chinese Yuan has official joined the SDR club

As I've said a few times lately, I don't think we've seen the bottom for commodities. As for investing in the stock market, if you don't believe this is a good time, it will be very hard to stay committed to your strategy if the market turns against you so my answer, given your position, would be to stay away from it now. I wouldn't worry, it's always good to have cash when opportunity finally does knock.

US stocks: If you consider Jeremy Grantham ( that is his website) anwer is no. https://www.gmo.com/docs/default-sou....pdf?sfvrsn=20

I checked price of oil in gold: the index was at a minimum in 1993, 1998, 2008 and at present. It's hovering under 5 (more or less what it attained the years mentioned) since dec 2014. Maximum was 14 in may 2008.

honestly, im so negative on stocks that I've been considering moving money into an inverse etf on the S&P500, but it may still be too early for that. As for gold though, i don't really see any way for it to go higher as long as oil prices are trending downwards. OPEC is determined to continue to flood the world with cheap oil and the U.S. continues to burn through what its got left. But i suppose if oil prices remain so low, companies input costs will come down which is good for the markets. But the world economy is signalling to me another deflationary event, and America's chronically low inflation at the moment of 0.2% also concerns me. it's actually making U.S. 10 year treasuries look like a good buy

[jk]

Re: The Chinese Yuan has official joined the SDR club

honestly, im so negative on stocks that I've been considering moving money into an inverse etf on the S&P500, but it may still be too early for that. As for gold though, i don't really see any way for it to go higher as long as oil prices are trending downwards. OPEC is determined to continue to flood the world with cheap oil and the U.S. continues to burn through what its got left. But i suppose if oil prices remain so low, companies input costs will come down which is good for the markets. But the world economy is signalling to me another deflationary event, and America's chronically low inflation at the moment of 0.2% also concerns me. it's actually making U.S. 10 year treasuries look like a good buy

avoid inverse etf's except for a very short term trade. do the math: calculate what happens if the s&p goes down 10% and then goes back up for a net change of 0. because its value is calculated daily, you lose money in an inverse etf. what you want to do is sell a future- then you're really short the index. the etf is not a good way to accomplish this.

i actually bought some tlt and edv a few weeks ago.