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China removes the USD peg, What are the consequences for us?
mullokintyre
post Posted: Jul 15 2020, 04:03 PM
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From Zero Hedge

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With all eyes on Trump's Tuesday evening Rose Garden speech which unveiled that he'll sign new and punitive measures indirectly targeting China namely the Hong Kong Autonomy Act, a bipartisan measure to penalize banks that work with Chinese officials found to be interfering in Hong Kong affairs it remains that arguably the most important recent statements out of China came not from current government officials, but from Zhou Li, the 65-year-old former deputy head of the Chinese Communist Party's International Liaison Department. He's considered an important voice who echoes the outside the box thinking and general "talk" of the communist party's diplomatic establishment.

Amid the soaring US-China tension which could give way to a military stand-off in the South China Sea, given the presence and military exercises of two US supercarriers there, Zhou Li earlier this month issued what many see as the more radical 'extreme thinking' out of the communist party: an eventual decoupling of the Chinese yuan from the US dollar.

This would be a "full-blown escalation" with no off ramp scenario. But given the tit-for-tat with Washington is likely to lead precisely to further extreme responses on both sides, Zhou's position could in the end be the final weapon Beijing ultimately and no doubt reluctantly pulls out of its arsenal. Now is the time for Beijing to begin insulating itself from dollar hegemony and gradually achieve the decoupling of the renminbi from the US currency, Zhou argued. The US dollar could become a major risk issue that has us by the throat.He penned an article widely reported on in regional media which "predicts industrial supply chains being torn up, a China-U.S. decoupling and a world split into dollar and yuan economic blocs." This would take China, contrary to President Xi's ambitious plans for his country as an expanding global economic power, into a 'forced' unprecedented level of isolation.

By taking advantage of the dollars global monopoly position in the financial sector, the US will pose an increasingly severe threat to Chinas further development, Zhou wrote in the article originally published by the Beijing-based think tank Chongyang Institute for Financial Studies at Renmin University.

Framing what's at issue behind the former high ranking diplomat's rationale, The South China Morning Post summarized:

The US had been able to leverage the dollar-dominated SWIFT international payments messaging system to extend long-arm jurisdiction for its policies outside America, including sanctioning Russia and Iran, Zhou noted. Sanctions against energy suppliers could jeopardise Chinas energy security, he warned.

And further: "China must accelerate the internationalization of the yuan, speed up the increase in cross-border payments and clearing arrangements for the yuan, establish local currency settlement mechanisms with more countries, and create conditions to maximise the use of the Chinese currency in global industrial supply chains, Zhou said."

Broadly, in this most dire scenario spelled out by Zhou, decoupling would only be possible should a ripple effect of 'walling off' in other Chinese sectors also be aggressively pursued and in progress.
"Beijing should seize the opportunity to build China-centric regional industrial chains, given the continued devastation to overseas demand and the disruption of global supply chains caused by the coronavirus," SCMP wrote of his words. "In addition, Zhou warned, China should brace for a worldwide food crisis and the return of international terrorism during the pandemic," the report also noted.

* * *

In a brief outline presented separately by Nikkei, Zhou's position is that the Chinese must prepare:

1. For the deterioration of Sino-U.S. relations and the full escalation of the struggle.

2. To cope with shrinking external demand and a disruption of supply chains.

3. For a new normal of coexisting with the novel coronavirus pandemic over the long term.

4. To leave the dollar hegemony and gradually realize the decoupling of the yuan from the dollar.

5. For the outbreak of a global food crisis.

6. For a resurgence of international terrorism.

Again, such a grim position forecasting isolation is nowhere near the official Chinese Communist Party line, but represents a predicted necessary future reaction to full-blown long lasting conflict with the US.


Maybe its the plan along by the US, make the Chinese open up and turn their currency into something global that can be manipulated by screen jockeys.
Who knows, but there is a bit of pain to come yet.
Mick



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mullokintyre
post Posted: Jul 13 2020, 12:48 PM
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From Bloombergs


QUOTE
Faced with the prospect of restricted access to U.S. dollars, Chinas answer is to get more people to use its own currency instead.The increasing spillover of Sino-American tensions into the financial sphere has ignited a fresh push by China to promote the global use of the yuan. A growing number of government officials and influential market watchers have in recent weeks urged greater efforts on the endeavor, which gained renewed significance after Chinas new Hong Kong security law triggered the threat of retaliation from Washington.

While such drastic action is far from being implemented by the U.S. -- and could potentially do major damage to American interests and the entire global financial system -- the risks alone have raised alarm bells. With almost a trillion dollars in offshore bonds and loans and $1.1 trillion in state-owned bank liabilities, access to the greenback is vital for Chinese companies and lenders.Yuan internationalization morphed from a desirable to an indispensable thing for Beijing, said Ding Shuang, chief economist for greater China and north Asia at Standard Chartered Plc. China needs to find a replacement for the dollar amid the political uncertainty, otherwise the nation will see financial risks.

Similar calls for moving away from the dollar followed the 2007-09 financial crisis. While China over the years made some progress -- promoting offshore yuan trading, winning official reserve-currency status from the International Monetary Fund and launching commodity contracts priced in yuan -- the renminbi is a small player on the global stage.

The yuans share in global payments and central bank reserves remains low, at about 2%. And while a steady opening of Chinas financial markets to overseas investors has lured inflows, foreign ownership of mainland stocks and bonds is relatively minor.

Among the recent voices expressing urgency in China:Fang Xinghai, a top official at Chinas securities regulator, said last month our ability to defend against potential decoupling will be enhanced significantly through yuan internationalization.
Huang Yiping, a former adviser to the central bank, said its necessary for the country to reduce its reliance on the greenback.
Zhou Li, an ex-deputy director of a government body that manages relations with foreign parties, decried Chinas vulnerability to dollar hegemony, and said the greenback is a major risk that has us by the throat.
Zhou Yongkun, an official at the Peoples Bank of China, said last week that the country will introduce direct trading between the yuan and additional currencies, without specifying which ones.

To accelerate reaching a par with counterparts such as the yen or euro, China would need to pull down its capital controls, which were tightened in the wake of a messy devaluation in 2015. But that would raise the risk of destabilizing outflows. China could alternatively expand imports and run persistent current-account deficits -- as the U.S. does -- to generate a pool of yuan balances overseas. That, too, would require a hard-to-envision policy shift.


That last section is the key. There would be dangers in the stability of the China financial system if it were to ease the capital controls it has.
Given it is a central command and control regime, letting go of those controls is not in their playbook.
The other issue is whether other countries would trust china not to reimplement capital controls should it suit them.
There are question marks over whether the trump administration will carry through with their threat to isolate China from USD accesss, the repercussions would be extreme not just for the US, but for worldwide finances.
But then, the Donals has shown he can be a bit of a maverick, so we can't write it off completely.
Mick



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nipper
post Posted: Nov 3 2019, 09:44 AM
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In Reply To: mullokintyre's post @ Nov 2 2019, 09:25 PM

And Russia has begun pricing oil sales in non USD terms, Rosneft at least.

Xi and Putin talking about these things




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"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time." - Dr John Hussman

"If I had even the slightest grasp upon my own faculties, I would not make essays, I would make decisions." ― Michel de Montaigne
 
jacsar
post Posted: Nov 3 2019, 02:02 AM
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In Reply To: mullokintyre's post @ Nov 2 2019, 09:25 PM

Even though I agree with Max on China's moves on gold backed currencies listening to Max makes me convinced he has a few roo's loose in the top paddock or had some wacky backy in his personal behaviour on air


Said 'Thanks' for this post: triage  
 
mullokintyre
post Posted: Nov 2 2019, 09:25 PM
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On the other hand, the Chinese may be changing tack in doing away with the USD as a reserve currency.

according to Kitco news


QUOTE
China’s big move for the 21st century is to pull a “trap door” on the U.S. by launching a gold-backed crypto currency that will devalue the U.S. dollar to “zero,” this according to Max Keiser, host of the Keiser Report.

“[China] is rolling out a cryptocurrency, a lot of the details have not been divulged. I can tell you that the cryptocurrency that China’s rolling out will be backed by gold. It’s a two-pronged announcement. Number one, China’s got 20,000 tonnes of gold, number two, we’re rolling out a crypto coin backed by gold, and the dollar is toast,” Keiser told Kitco News.

Keiser added that bitcoin is a superior form of currency to gold.

“Both fiat money and gold are inferior to bitcoin for one very simple reason, that with a bitcoin transaction, it i s also simultaneously the settlement. You don’t have that with fiat, you don’t have that with gold,” he said.


The full report can be seen here


One of the interesting things is that he says that if 5 years ago, you had invested 10,000 dollars in gold, today it would be worth 12,500. A return of 5% a year.
However, if you had invested that same 10,000 in bitcoin 5 years ago, it would be worth 250,000 today.

His second piece of data, namely that China does not have 2,000 tons of gold, but actually has 20,000 tons og f gold is a little more contentious.
Chinas stats are notoriously opaque, unless there is almost no gold left inFort Knox, its hard to see where the massive increase has come from.

But if he is correct, and China is about to start using a cryptocurrency backed by gold, its a game changer.
However, getting its trading partners to accept a crypto for trade is a bit problematic.

Mick





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mullokintyre
post Posted: Nov 2 2019, 08:35 PM
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Bloombergs on the reasons why the USD is still king.



[quote]Russian President Vladimir Putin is acting on a pledge to shrink the role of the U.S. dollar in international trade. Jean-Claude Juncker, outgoing president of the European Commission, says it’s “absurd” that Europe uses the greenback for 80% of energy imports. Chinese President Xi Jinping has railed against economic “hegemonism.” Can the mighty dollar retain its global dominance when attacked from so many sides? Don’t count it out yet.

1. Why are some people fed up with the dollar?
Because it’s so prevalent. The U.S. currency is on one side of almost 90% of foreign-exchange transactions and accounts for two-thirds of international debt. Almost all international trades in oil are priced in dollars, hence the term petrodollars. That ubiquity makes nations beholden to fluctuations in its value and ties their economies to decisions made in Washington. As Juncker intimated, it makes sense for European countries to pay for their energy needs in euros rather than dollars. Then there are the countries that get on the wrong side of American policy.

2. What’s the issue there?
Sanctions. U.S. leverage rests with the central role its banks, and the dollar, play in the global economy; any country, company or bank that violates sanctions could see their U.S.-based assets blocked or lose the ability to move money to or through accounts held in the U.S. A spate of such penalties has pushed Russia to target faster “de-dollarization.” And European leaders began work on a payments system that would enable their companies to do business with Iran without getting snagged, though progress has been slow.

3. Is dollar concern a new thing?
The U.S. currency has dominated since the end of World War II, when world leaders met at Bretton Woods, New Hampshire, to establish a system to manage foreign exchange and agreed to link their currencies to the dollar. The push to dial back the greenback has its origins partly in the 1998 currency crisis, when Asian nations got caught borrowing too many dollars and were plunged into recession as their currencies plummeted and debt repayments soared. Fast forward a decade, and Asia’s amassing of dollars to build currency reserves helped fuel a U.S. credit binge that triggered the global financial crisis. Back in 2010, Brazil, Russia, India and China set up the BRIC partnership with the aim of establishing a new world order. More recently, China has put its weight behind developing a “Belt and Road” trade route across Asia and Europe lined with infrastructure projects financed in local currencies. Those efforts accelerated after the U.S. instigated a trade war.

4. Is the dollar’s market share shrinking?
No. The Bank for International Settlements’ triennial survey showed the share of currency trades in dollars had increased marginally since 2016 to 88%. The euro’s share climbed a percentage point to 32% in 2019. Emerging-market currencies gained 3.5 points to 24.5%, mostly at the expense of the yen, while China’s yuan accounted for 4%, the same as in 2016. The share of foreign reserves held in dollars (about 62%) has remained steady over the past decade, while the dollar’s usage in global payments tracked by financial institutions has actually risen since the start of the decade.
Too much bother. Shifting to the euro, yuan or ruble means higher costs and difficulties finding banks to handle business. The euro’s allure as currency to back trade and investment has hardly been boosted by the region’s 2010 sovereign debt crisis and the European Central Bank’s use of negative interest rates. Volatility and scant volumes in emerging currencies make for higher trading and hedging costs. Russia’s first year of diversifying away from the dollar illustrated another peril: In a strong period for the dollar, the country missed out on $7.7 billion in potential returns on its foreign exchange reserves.

6. Can any currency compete with the dollar?The euro is the only currency anywhere close. That was the conclusion of a European Commission report on strengthening the international role of the currency in June 2019. Rifts with U.S. President Donald Trump over trade tariffs as well as the sanctions on Iran have pushed the EU to seek greater financial independence. The report also found potential for boosting the share of commodities transactions in euros. With so many national governments to appease, though, progress on big European projects like this tends to be slow-moving. Bank of England Governor Mark Carney says it would be a mistake to switch one dominant currency for another; he advocates a global digital currency to supersede the dollar.

7. Why is Russia pressing ahead?“We aren’t ditching the dollar, the dollar is ditching us,” is how Putin put it in 2018. Successive rounds of U.S. sanctions over Ukraine and alleged election-meddling in the U.S., and the threat of more to come, have given Russia good reason to try to move as much of its economy as possible out of the reach of Washington. Last year the central bank sold $100 billion in dollars from its reserves and spread the money between euro and yuan. A campaign to get companies to switch contracts to local currencies appears to be working. The euro is on course to overtake the dollar in Russia’s trade with the EU and China.

8. Is China on board?
China’s drive to make the yuan a more widely used global currency reached its pinnacle in 2015, when the International Monetary Fund decided to make it the fifth currency in its prestigious special drawing rights currency basket -- a kind of overdraft account it holds for global central banks. Yet the People’s Bank of China’s focus has shifted during a six-year weakening of the yuan to keeping a tighter rein on capital outflows and trading. Bond sales raising currency outside the mainland -- so-called offshore yuan -- have flagged. Offshore yuan deposits are down 33% from their 2015 high. On the other hand, China has been on a mission to open domestic exchanges that are priced in yuan for commodities such as oil and iron ore.

9. Is anyone actively challenging the dollar?
Putin said in a meeting with Xi in June that using the dollar as an instrument of pressure was “undermining its role as a global reserve currency.” (A reserve currency is one that’s held by others in significant quantities as part of their foreign-exchange reserves.) Xi, with an eye on trade talks with the U.S. that involve a currency pact, obliquely described “hegemonism” as a global challenge. But watch closely for what China is doing. The focus has shifted from turning the yuan into a freely convertible currency, without government restrictions, to nurturing real economic activity through loans for its Belt and Road initiative. And keep an eye on Russia settling energy deals in euros and defense contracts in rupees. The dollar may be winning the war on the trading floors of London, New York and Tokyo, but it is losing peripheral skirmishes engineered in Moscow, Delhi and Beijing./quote]

The doc is written from a US perspective, but not a bad summary.

Mick



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joules mm1
post Posted: Oct 8 2019, 08:28 PM
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hello

my name is jim rickards

i want you to tell me how long this piece of string is

for any doubters this string is real

we know string is real because most of have used some before, it's an everyday thing, so it's validity cannot be questioned

the only thing that can be questioned is - how long is a piece of string

is it soon

is it eventually

is it pending

is it massive

is it huge

is it long in the making

is it going to hold everything together something something when armageddon

just how long is a piece of string



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mullokintyre
post Posted: Oct 8 2019, 07:45 PM
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Russia has engineered the removal of the first brick in the wall that protects the USD from being removed as the worlds reserve currency.
from RT.com

QUOTE
Russia’s largest oil company Rosneft has set the euro as the default currency for all new exports of crude oil and refined products.
As of September, Rosneft is seeking euros as the default option of payment for its crude oil and products, Reuters reported on Thursday, quoting tender documents the Russian firm has published.

“Rosneft has recently adjusted all the new contracts for export supplies to euros,” a trader at a company that regularly procures oil from Rosneft told Reuters, adding that buyers have already been notified of the change.


In another related article, fromRT

QUOTE
Russia will not take out loans in US dollars for the remainder of this year and the whole of 2020, turning instead to the yuan and euro, according to the Finance Ministry.
“We will borrow in currencies other than the dollar,” Russian Finance Minister Anton Siluanov said on Thursday. He added that the country will not be taking any more loans in 2019.

“This year we have no plans to borrow any more on foreign markets, we have fulfilled our program and even overfulfilled it. Next year, we’ll see. Probably it will be not only in euro but maybe in Chinese yuan,” Siluanov stated back in March, Russia’s Finance Ministry issued Eurobonds worth €2.7 billion ($3 billion) with a maturity date in 2035. It also separately issued Eurobonds worth €750 million ($830 million) with a maturity date in 2025. In June, the Finance Ministry also placed additional Eurobonds worth €1.37 billion ($1.5 billion) with a maturity date in 2029, and €900,000 ($1 billion) with a maturity date in 2035.

Earlier, it was revealed that Moscow and Beijing are working on a new way of cutting their reliance on the US dollar, as Russia plans to issue its first yuan-denominated bond. The move is aimed at assisting both countries’ economies in dealing with US tariffs and sanctions. The proposal will also allow Moscow to extend its list of foreign creditors. While Chinese investors do not buy Russia’s ruble-denominated bonds, the launch of the yuan bonds would give them an opportunity to invest in Russian state debt.Meanwhile, due to steadily growing gold and foreign currency reserves, Russia’s state-debt-to-GDP ratio last month turned negative for the first time since 2014, when the country’s economy was battered by Western sanctions and the oil market crash. As of August 1, Russian state debt (at federal, regional and municipal levels) amounted to 16.2 trillion rubles (around $247.3 billion). At the same time, liquid assets of federal government, regional authorities and non-budget funds stood at 17.6 trillion rubles (nearly $268.8 billion).


Wish there was easy way to invest in Roubles. It is the best performing currency this year by far.

Mick



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mullokintyre
post Posted: Aug 12 2019, 11:05 AM
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In Reply To: nipper's post @ Aug 12 2019, 08:05 AM

Jim might be right this time.
The trouble is, Jim Rickards has been a non stop bull forever.
He is a regular on Kitco, and has been a gold bull forever.
If you constantly predict the same thing non stop, eventually you may be right.
Nothing wrong with his logic, just that the markets don't follow logic most of the time.
Mick (who is also a gold bull, and a silver bull, and one day will get it all right).



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nipper
post Posted: Aug 12 2019, 08:05 AM
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QUOTE
“We have a currency war, there’s trade war action, there’s central bank action and of course we see what’s going on in the market. They’re all connected.”

To Jim Rickards, this convergence has been coming like a slow-motion train wreck.

The US investment adviser, central bank expert and best-selling author has rusted-on followers who hang off his every word and he is heading to Australia next month.

“Start with the currency war.” This has to be Rickards’ favourite subject. “Nobody wins, tit-for-tat devaluations and after a while it morphs into a trade war. We have been in this state of trade war since January 2018 and unfortunately the last episode of this, in the 1930s, went from currency war to a trade war to a shooting war, World War II in fact. Now we have seen the currency wars going on, we’re in the trade war, let’s hope this one doesn’t go any further, but there is certainly some danger of that.”

Rickards speaks without drawing breath, his passion for economic and political history spilling through the narrative.

“On the currency war, headline writers all over the world, when we saw China let the yuan go below that seven-to-one red line the other day — they said ‘oh there’s a currency war’. No. We’ve been in a currency war since January 2010, you can date it from Obama’s 2010 State of the Union address when he announced a policy that would only be interpreted as weakening the US dollar and indeed in August 2011 the US dollar hit all-time lows.”

In 2011, Rickards wrote his first book, Currency Wars: The Making of the Next Global Crisis, warning that such wars could run for 15, even 20 years.

And he reminds us this is not the first time China has done this. “August 2015, they did a 3 per cent devaluation over a couple of days — US stocks fell 11 per cent in the next four weeks. In December 2015, they did another devaluation and then between January 1 and February 10, 2016, US stocks fell over 11 per cent. So this is the third episode of a Chinese shock devaluation followed by a US sharemarket drawdown.

“The Chinese shock devaluations are nothing new, but of course this one comes in the middle of a trade war.”...

https://www.theaustralian.com.au/business/e...65de8c2472f4d63

...he backs Gold

QUOTE
Gold hit six-year highs last week at $US1500 and the rise will continue, says Rickards, because gold competes with US Treasuries and their attraction is diminishing.

“One of the main drivers of higher gold prices are lower real rates, and I had, straight from the horse’s mouth, three central bankers telling me that their job No 1 is lower real rates. When you take the real yield away, then gold looks more attractive.” Combine this with geopolitics and currency wars and good old supply and demand and Rickards sees a Goldilocks time for gold.




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"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time." - Dr John Hussman

"If I had even the slightest grasp upon my own faculties, I would not make essays, I would make decisions." ― Michel de Montaigne
 
 


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