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China removes the USD peg, What are the consequences for us?
mullokintyre
post Posted: Dec 17 2020, 08:32 PM
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Seeing as the China The Monster thread has been turned into a climate thread, I thought I had better stick this here.
China's aim to have the Yuan/renmimbi replace the dollar as the worlds reserve currency will stumble as long as the opaque control mechanisms of the CCP keep fooling with the levers.
From Zero hedge

QUOTE
Beijing has avoided being named a currency manipulator by the Trump administration. But the conclusion comes with a big yellow flag that may come back to haunt China.

The U.S. Treasury Department on Wednesday kept China on the watch list in the last currency report of the Trump administration, while slapping the manipulator tag on Vietnam and Switzerland. It urged Beijing to improve transparency in its currency management - in particular the role state-owned banks play in the foreign exchange market. It noted state-owned banks have sold the yuan, even as the PBOC appears to have refrained from intervening.

The Treasury pointed out that Chinas balance-of-payments number doesnt seem to add up. Chinas goods and service surplus surged to a record $132 billion in the second quarter, and the country also attracted stock and bond inflows. But its foreign reserves added only $18 billion during the period.

While intervention proxies do not provide definitive evidence that the PBOC intervened in foreign exchange markets over the review period, this issue warrants further investigation, said the report. In particular, the small scale of foreign reserve accumulation relative to Chinas substantial trade and portfolio inflows in the second quarter of 2020, coupled with the RMBs relative stability over the same time period, raises concerns.

Its not just the Trump administration. The apparent mismatch also caught the eye of Brad Setser, a senior fellow at the Council on Foreign Relations, who was tapped to work on Joe Bidens transition team last month.

In a report on the CFR website in September, Setser noted that the pace of foreign asset accumulation of Chinas state banking system increased dramatically in the second quarter.

The signs of possible hidden intervention are still mostly whispers that speak most loudly only to those who have spent a long time with the data, Setser wrote. But if current trends continue, I would expect that they will start to shout when the data for the full year becomes available - as the both the rising Chinese surplus and ongoing bond inflows will raise the size of the offsetting outflow to a level that is going to be hard to hide.

To be sure, there may be some other explanation for the balance-of-payment puzzle. For instance, Chinese exporters may have parked their dollar revenue overseas, so not all of the trade surplus translates into foreign-currency inflows. The so-called errors and omissions also point to capital flight from illegal channels, offsetting the trade surplus.

But the bottom line is that Chinas balance of payments data raise more questions than answers at the moment, as Mark Williams of Capital Economics puts it. There needs to be a bit more transparency on state banks activities in the currency market. On that point, the Trump administration may have a valid argument.


it reinforces the points made in the other thread before it got hijacked about the lack of any semblance of reliability to the statistics put out by CCP.
Mick




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early birds
post Posted: Nov 19 2020, 09:05 AM
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In Reply To: mullokintyre's post @ Nov 19 2020, 08:56 AM

The question they have to ask themselves iis this: is being subservient to western imperialist culture better or worse than being subservient to Chinese Imperialist Culture?

======================

as they just singed RCEP with china
my guess is they try to do what Aussie did for last 30 years, benefit from both side and still keep themself independent.... nice move but will it last this time?? unsure.gif



 
mullokintyre
post Posted: Nov 19 2020, 08:56 AM
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In Reply To: early birds's post @ Nov 19 2020, 08:34 AM

Any country can decide to confiscate the assets of another country.
Australia did it to Japan and Germany in WW2, as did UK, Canada, New Zealand etc.
Its much easier selling down treasuries than bricks and mortar, so that is the obvious place to start.
There is always a reciprocal to this, lots of US companies have invested in China, but they will have no chance of selling those assets down.
China would just take them, including any intellectual Property rights.
You can see whats happening in OZ with plenty of business people , industry leaders, lobbyists etc bleating that the Fed govt should be fixing the problem with China.
That just aint gunna happen unless we become completely subservient to the CCP, which is also impossibly unlikely.
We are just going to have to live with a crude, aggressive, xenophobic military dictatorship on our region.
Just like many other nations in Asia have had to do with Western nations, without the military dictatorship part.
The question they have to ask themselves iis this: is being subservient to western imperialist culture better or worse than being subservient to Chinese Imperialist Culture??

Mick



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early birds
post Posted: Nov 19 2020, 08:34 AM
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In Reply To: mullokintyre's post @ Nov 19 2020, 08:20 AM

china still hold huge chunk of US debt even it reduce it slowly!

there is main thing that i look at is US 10 years movement , if the yield jumped out of normal, then i reckon the hot war between the two likely to start with TAIWAN
i leant that USA has the law to confiscate it's enemies assets in USA. so if china gonna attack Taiwan, more likely they will sell their holdings in US debt market first
is it logical???

that is how i look at these things!! if there is a hat war start, then short everything that moves first. worry about them late !!



 
mullokintyre
post Posted: Nov 19 2020, 08:20 AM
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As China moves out of foreign reserves, others move in a little, but nowhere near enough to cover the change.
From ZERO HEDGE

QUOTE
Some relatively positive news in the latest TIC data shows that the last 12 months purchases of Treasuries by foreign central banks surged by $59 billion to $221.6 billion - its highest since Jan 2019.
Total Long-Term Treasury Purchases: $22.5BN, sharp reversal from $33BN in sales in August

Purchases of Agencies $46.2BN, highest since Feb 2020

Foreigners sold a total of $28.7BN in corporate bonds, after $2.3BN in purchases in August

Stock purchases by foreigners $38.2BN, up from $26.6BN in August and most since May 2020.
While that is all bright and shiny news for the US Government's massive deficits, one trend continues - China is dedollarizing, dumping more of its Treasury holdings to the lowest since Jan 2017.Other high- (and low-) lights include:

Japan holds $1.28t, a decrease of $2.2b from last month

China holds $1.06t of U.S. Treasuries, a decrease of $6.3b from last month

Belgium holds $218.1b of U.S. Treasuries, an increase of $3.1b from prior month

Cayman Islands hold $231.6b, an increase of $2.7b from last month

Saudi Arabia holds $131.2b, an increase of $1.2b from last month

What is more interesting is that foreign official institutions bought for 2nd month in a row, something they haven't done since March 2018.

But the trend is clear.


The link below shows a chart showing the decline, but Sharescene admins in its great wisdom, do not allow IMG files, only TIF format.


https://www.zerohedge.com/s3/files/inline-i...g?itok=UvCC67I5

Cayman Islands , a tiny Island with a GDP in the low millions, has more treasuries than Saudi's.
Tax evasion anyone??

Mick



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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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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


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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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