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Another challenging post from the FT's blogsite, alphaville.

 

Challenging for me in two respects. Like crooky, I struggle to come to grips with some of the relationships that are referred to in this discussion, and as such there is a solid chance that what I think I am reading is a long way from what was actually written. But - assuming I have managed to grab at least some of the meaning being expressed - it is also challenging in respect to what I understand is the current state of play in the currency markets.

 

It seems to me that the biggest play in the currency markets in recent years has been how China has in the space of a dozen years or so gone from holding very few USD's to being the biggest investor in the greenback (apart from the yanks themselves of course). So if there were any great disruption to that trend then there would be major ramifications throughout the currency markets.

 

From what I understand the article to be saying it seems that corporate China has in effect been shorting the greenback for the last decade or so, presumably on the assumption that the yuan would continue to strengthen against the USD. But there seems some indications that like in 2008 corporate China is attempting to cover that short position to some degree. Outward indications of this is the reports that in recent months some Chinese importers have defaulted on commodity contracts and that inventories in China of several hard commodities are at record levels: the logic being that some Chinese operators cannot source enough USD's to pay for the commodities.

 

Now in all probability the Chinese authorities know exactly what is happening here and know what needs to be done to keep the situation under control. The worst case scenario would I guess be that things happen so quickly and or violently that the authorities lose control and there becomes a stampede from corporate China to cover their short position in greenbacks. But seeing neither the US authorities nor the Chinese authorities would find any benefit in such an uncontrolled situation both would act to prevent it and as such it becomes a highly improbable scenario.

 

The more realistic scenario is that unlike in the previous decade it will be the renminbi and not the greenback that will be moving into a headwind as corporate China moves to unwind its short position. In other words the steady breeze from China may now be supporting the USD to remain stronger. I guess this would flow on to how the Aussie behaves relative to the USD (?).

 

As I say I am painfully aware that I am not on top of this stuff so if those more knowledgeable wish to correct me then I would value the lesson being offered. :)

 

http://ftalphaville.ft.com/blog/2012/06/26...t-usd-position/

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OR -

 

China is indeed slowing and does not need as much cash on hand?

 

Recent reports that China trades with more countries outside the USD norm?

 

Political status in China still unsettled and some examples are being made within the party.

 

Connected Business Man 1 - I need USD

 

Gov - no

 

Connected Business Man 1 - default

 

Gov - jail for you, let that be a lesson to you all.

 

It is a complex place.

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It seems to me that the biggest play in the currency markets in recent years has been how China has in the space of a dozen years or so gone from holding very few USD's to being the biggest investor in the greenback (apart from the yanks themselves of course). So if there were any great disruption to that trend then there would be major ramifications throughout the currency markets.

 

Instead of all these conspracy theories about China shorting the USD, could the fact that China owns so many valueless USD's today be due entirely to the fact that for many years past China has been buying US bonds to prop up America itself?

 

The crunch comes when China has run out of patience bailing the USofA out of its many crises and starts to SELL their 30% holding in US debt--ie China has bought 30% of US paper, but will not act as banker for ever, they will sell at a time chosen by themselves.

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Dave

 

Yeah mate as I have indicated I am not sure how all these things are interconnected but I think what the FT blogger is suggesting is that the corporates in China are experiencing a shortage of USD's which is restricting their ability to complete contracts that are written in USD's (rather than the corporates not having a sufficient need for the commodities). She admits that this reading is counter to the common view. She is in effect suggesting that currently there is a liquidity issue more so than an activity problem for some Chinese operators.

 

I would think that the Chinese authorities could trade with the corporates some USD's for some RMB's if they thought things were getting out of hand: after all they are sitting on over a trillion of them. So I don't think the blogger is suggesting that there is a serious problem here, rather she is noting that the indications - instances of Chinese operators defaulting on commodity deals - could be symptomatic of a tightening in the supply of USD's for Chinese operators. My impression is she is not attempting to explain the meaning of life in her article, rather she is merely analysing current conditions which may or may change in coming days and weeks.

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After my little chat at the airport last week to a bloke from USA in China, The Chinese have had to deal with a few defaults on their exports to USA and EU. - I would not read too much into it, ATM. If it becomes overt then - yeah, take action but for now it is good to know.

 

Thanks for th heads up.

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http://in.reuters.com/article/2012/06/27/e...E8HB00620120627

 

(Reuters) - There is no doctrine that interest rates cannot fall below 1.0 percent, European Central Bank policymaker Peter Praet told Financial Times Deutschland according to a preview of an interview to be published on Thursday

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If effective interest rates ALL fall below zero, that means that depositing cash anywhere other than Australia seems suicidal, at least we have retained our Central Bank entegrity.

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  • 1 year later...

Further escalation in the currency debasement war:

 

http://www.bloomberg.com/news/2013-11-11/r...currencies.html

 

 

The global currency wars are heating up again as central banks embark on a new round of easing to combat a slowdown in growth. The European Central Bank cut its key rate last week in a decision some investors say was intended in part to curb the euro after it soared to the strongest since 2011. The same day, Czech policy makers said they were intervening in the currency market for the first time in 11 years to weaken the koruna. New Zealand said it may delay rate increases to temper its dollar, and Australia warned the Aussie is "uncomfortably high."

 

"It's a very real concern of these countries to keep their currencies weak," Axel Merk, who oversees about $450 million of foreign exchange as the head of Palo Alto, California-based Merk Investments LLC, said in a Nov. 8 telephone interview. ECB President Mario Draghi, "persistently since earlier this year, has been trying to talk down the euro," Merk said.

 

With the outlook for the global economy being downgraded by the International Monetary Fund and inflation slowing to levels that may hinder investment, countries and central banks are revisiting policies that tend to boost competitiveness through weaker currencies.

 

Mantega's 'War'

The moves threaten to spark a new round in what Brazil Finance Minister Guido Mantega in 2010 called a "currency war," barely two months after the Group of 20 nations pledged to "refrain from competitive devaluation."

 

"We're seeing a new era of currency wars," Neil Mellor, a foreign-exchange strategist at Bank of New York Mellon in London, said in a Nov. 8 telephone interview.

 

etc etc etc

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Said flowerÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦

 

" Instead of all these conspracy theories about China shorting the USD, could the fact that China owns so many valueless USD's todayÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦.."

 

This is going to to be difficult for you flower,but there is no way to break the news gently. The USD is not valueless.It has been appreciating against all major currencies.

You seem to believe that wishing something was true is the same as it actually being correct.

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