China argues to replace US dollar

Discussion in 'China' started by I-G, Jun 27, 2009.

  1. johnee

    johnee Elite Member Elite Member

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    Why is Pound an option? Euro is understandable, but Pound?!? UK is a spent force and is third rate power.
     
  2. Daredevil

    Daredevil On Vacation! Administrator

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    Dollar Out in Brazil-China Trade. Real and Yuan In

    Dollar Out in Brazil-China Trade. Real and Yuan In

    Written by Newsroom
    Tuesday, 30 June 2009


    Brazil's Central Bank (BC) informed that it has reached an initial understanding with China for the gradual elimination of the US dollar in bilateral trade operations which in 2009 are estimated to reach US$ 40 billion.

    "We have reached an initial understanding and we will begin working on the issue" to use the real and the yuan in bilateral trade said a spokesperson for the Brazilian Central Bank.

    BC's chairman Henrique Meirelles met Sunday with his Chinese counterpart Zhou Xiaochuan in Switzerland where they are participating in a meeting of the International Bank of Settlements.

    However Meirelles pointed out that there was a difference between using local currencies for bilateral trade operations and deciding on moving towards a new currency which would replace the US dollar.

    "For the US dollar to be left aside as an international reserve currency there must be another currency which must perform that role," Meirelles said quoted by the Folha de S. Paulo. The Brazilian official also anticipated that there are similar discussions with India to replace the US dollar for the real and the rupee in bilateral trade.

    The announcement follows the first meeting in Beijing between Brazilian and Chinese monetary and financial experts. A schedule of technical meetings was agreed two weeks ago by President Lula da Silva during the BRIC group summit (Brazil, Russia, India and China).

    BRIC members are considered the largest and fastest growing developing nations.

    China became this year Brazil's main trade partner ahead of the US. Brazilian exports to China in the first quarter of this year jumped 64% compared to the same period a year ago. Brazil sells mainly soy and iron to China and this year those sales soared 70% and 50%.

    Oil is also expected to join the list of commodities sold to China once Brazil begins the commercial development of the recently discovered sub-salt hydrocarbons resources. In anticipation of these operations the Chinese government banking system extended Brazil and its government managed oil corporation a 10 billion US dollars loan.

    China also announced that it was ruling out any "sudden changes" to its foreign- reserves policy. China is the world's main holder of US federal bonds.

    China's currency policy remains "quite stable," central bank Governor Zhou Xiaochuan told reporters, easing concern that emerging-market nations, particularly BRIC may abandon the dollar.

    The US currency is expected to strengthen as much as 17% in the second half of the year as North America recovers from recession faster than Europe, according to this year's most accurate foreign-exchange forecasters.
     
  3. F-14

    F-14 Global Defence Moderator Senior Member

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    i would rather have a pound sterling then the PRC's crruency
     
  4. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    Chinese are the only one's pushing their currency, no else has joined their bandwagon.
     
  5. Yusuf

    Yusuf GUARDIAN Administrator

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    It's obvious that no Indian is going to accept the RMB as the reserve currency.
    But rather than presenting reasons based on the obvious dislike for it, it would be better to have a meaningful debate from the economics point of view.

    China is seriously trying to push it's currency. It's going to put forth a proposal to India as well to drop the dollar.
    So let's talk about what the possibilities of any other country's currency gaining prominence.
    There have always been instances where two countries had a mutual agreement to trade in their own currency. India did that with the erstwhile Soviet Union to trade in Ruble.
     
  6. LETHALFORCE

    LETHALFORCE Moderator Moderator

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  7. F-14

    F-14 Global Defence Moderator Senior Member

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    my pick for the next international currency would be


    yen

    Russian rubels

    euro
     
  8. badguy2000

    badguy2000 Respected Member Senior Member

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    to topple us dollar, China may have two ways:

    1.sign more currency-swap agreement with other economies. it can decrease the currency of dollar directly.
    that is what china may do right now.

    in fact, china is doing so now.


    2. change dollar asset to other asset like mines,gold..etc.
    it may be much more comlicated than to sign bilateral currency-swap agreements,because china now has no much choice.
    So it will take china long time to finish such adjustment.
     
  9. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    true badguy but this is successful if the other country is also interested in toppling the dollar,buying assets is a good move but it still does not lower your dollar holdings if the assets are sold in non dollar currency as many nations are choosing. China is stuck in a do or die type situation but USA still holds the upper hand, Chinese were promised more trade but with a decreasing currency and worthless debt the Chinese were tricked by USA in many ways.
     
  10. thakur_ritesh

    thakur_ritesh Administrator Administrator

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    badguy, the questions that arrise are:

    1 what is the % of chinese trade with the rest of the world of the total world trade
    2 will the US, the EU, the koreans, the japanese and the indians agree to it, i am not even sure of the russians siding with you on this
    3 what is the chinese trade with the rest of the world if the above mentioned countries are left out, out of the total world trade

    and if all these countries are taken out then prc is hardly left with any countries to trade with in their own currency, then where is the future for yuan as you see it?
     
  11. Daredevil

    Daredevil On Vacation! Administrator

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    Let's put things in perspective as to why China wants to and trying to move away from dollar as exchange currency.

    1) China hold 2 trillion dollars in american treasury bonds.

    2) American treasury is planning or already put the plans in place to print more paper dollars to tide over the present economic recession. As a result, it will lead to hyperinflation and in turn lead to devaluation of dollar and it has no control over it.

    3) Because of devaluation of dollar, Chinese will effectively lose the value of the treasury bonds they hold, which will be massive (at least in hundreds of billions).

    4) China doesn't want any more dollars in its forex because they already have too much exposure to it and any devaluation in dollar will make them lose hard earned money. It is altogether a different question as to how China will lessen its exposure from its current position of holding 2 trillion dollars in forex.

    5) As China no longer wants dollars, it wants to trade in yuan, whose value it can effectively control. It will only beneficial to China and its trading partner as long as there are no trade surplus on either side, that is, they have to have trade flows equally in both directions. Let's imagine China is buying oil from Brazil by paying in yuan. What will Brazil will do with Yuan?. It has to give it back to China and buy something in return or can trade in Yuan with another third country if it is willing to trade in Yuan (for eg Venezuela or Russia). Any trade imbalances will lead to loss either to Chinese or to the trading partner.

    6) Right now there is no other currency that can replace the dollar as world exchange currency. It needs massive changes in the banking institutions in order for another currency to take place of dollar as world currency which I think is not going to happen any time sooner.

    7) The only choice left for China is to convince its trading partners to trade in local currency and there should be no trade imbalances otherwise one of them will be loser.
     
  12. Rage

    Rage DFI TEAM Stars and Ambassadors

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    Let's put things into perspective: the current economic downturn has caused great speculation that the future of the US dollar is in jeopardy. To start with, there will not be a single 'winner' from the present crisis. If anything, there is sufficient evidence to suggest that the global financial crisis will hurt China more than it will the US. Here for example is one such compendium:

    http://cnreviews.com/china_economy/china_financial_crisis_20081125.html

    The dollar is still the primary transaction medium in virtually every major commodity market, and it is impossible to envisage that that will change significantly until the first quarter of the Fiscal 10-11, which is when the financial crisis is projected to end at its very latest.

    If bullion is to replace the dollar as the new asset-holdings medium and reserve however, both China and India will have improved their relative positions- China at 1058 tonnes and India at 358 tonne in official gold reserves. China publicly disclosed that it had secretly added 450 tonnes of gold to its reserves last month over concerns over the erosion of its $2 trillion cash pile. However, consider this in light of the fact that India is arguably the largest bullion market in the world- we import between 500-800 tonnes of gold on average every year, and that the Indian public alone owns over 17,000 metric tonnes of gold - that's right, and that is merely in public non-institutional holdings. Among the several proposals mooted to deal with financial crises in India is the possibility of tapping into this vast reserve of wealth via government bonds, CD's and other financial instruments.

    Temples, religious and charitable trusts hold even more. For an insight into the bullion processing in India's temples, check out:

    http://www.commodityonline.com/news/Gold-Rush-Indian-temples-own-tonnes-of-gold-17391-3-1.html


    And that notwithstanding, India is estimated to have some 20,000 tonnes in unmined gold reserves valued at over $360 billion that the government has mandated the Geological Survey of India to tap into:

    http://www.chinamining.org/News/2009-03-05/1236232417d22157.html
     
  13. Daredevil

    Daredevil On Vacation! Administrator

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    Bullion is very very unlikely to replace the dollar. Bullion as world denomination will skew favorably towards Asians (Indians in particular) and away from the western world.
     
  14. p2prada

    p2prada Stars and Ambassadors Stars and Ambassadors

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    The Americans hold over 10000 tons in Gold reserve at Fort Knox and the FedRes Bank. Eurozone reserves add to 11000 tons with Germany on top, I guess.

    The problem is gold is not enough nowadays. Total gold mined around the world till date is valued at around $5trillion.

    An interesting read.
    http://www.centralasiagold.se/english/default.asp?Pageid=301&id=3
     
  15. Rage

    Rage DFI TEAM Stars and Ambassadors

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    That is absoloutely correct. Not just that, the environmental impact of gold extraction is colossal. Most gold 'nugget' reserves for example have run out, and gold mining in most places today is via microscopic flecks extracted from trace flotation technologies and toxic cyanide "heap-lynching" techniques. Besides, the mercurial releases from artisanal mining are mammoth, and sub marine tailings from even the cleanest flotation technologies have decimated aquatic life on the coasts of countries like Indonesia and states in Latin America.

    One estimate pegs a single ounce of gold today requires the stripping of more than 250 tonnes of layers of rock and ore from the earth's surface.
     
  16. Rage

    Rage DFI TEAM Stars and Ambassadors

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    P, thanks for that read on Central Asian gold dawg. Hook me up with a source on that 10,000 ton gold reserve for the Yankees at Fort Knoxx & the Fed Res? My figures (March 2009) show me that the United States has an estimated 8,133.5 tonnes of gold in reserves:

    http://www.research.gold.org/reserve_asset
     
  17. Daredevil

    Daredevil On Vacation! Administrator

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    In the context of demand by Chinese to replace dollar as world currency, here is an article of what is happening now and also gives a historical perspective as to what happened with Pounds, the then world currency, during WorldWar I time. Interesting read.

     
  18. Daredevil

    Daredevil On Vacation! Administrator

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    India Joins Russia, China in Questioning U.S. Dollar Dominance

    India Joins Russia, China in Questioning U.S. Dollar Dominance

    By Mark Deen and Isabelle Mas

    July 3 (Bloomberg) -- Suresh Tendulkar, an economic adviser to Indian Prime Minister Manmohan Singh, said he is urging the government to diversify its $264.6 billion foreign-exchange reserves and hold fewer dollars.

    “The major part of Indian reserves are in dollars -- that is something that’s a problem for us,” Tendulkar, chairman of the Prime Minister’s Economic Advisory Council, said in an interview today in Aix-en-Provence, France, where he was attending an economic conference.

    Singh is preparing to join leaders from the Group of Eight industrialized nations -- the U.S., Japan, Germany, Britain, France, Italy, Canada and Russia -- at a summit in Italy next week which is due to tackle the global economy. China and Brazil will also send representative to the G-8 summit.

    As the talks have neared, China and Russia have stepped up calls for a rethink of how global currency reserves are composed and managed, underlining a power shift to emerging markets from the developed nations that spawned the financial crisis.

    “There should be a system to maintain the stability of the major reserve currencies,” Former Chinese Vice Premier Zeng Peiyan said in a speech in Beijing today, highlighting the nation’s concerns about a global financial system dominated by the dollar.

    Fiscal and current-account deficits must be supervised as “your currency is likely to become my problem,” said Zeng, who is now the head of a research center under the government’s top economic planning agency. The People’s Bank of China said June 26 that the International Monetary Fund should manage more of members’ reserves.

    Russian Proposals

    Russian President Dmitry Medvedev has repeatedly called for creating a mix of regional reserve currencies as part of the drive to address the global financial crisis, while questioning the dollar’s future as a global reserve currency. Russia’s proposals for the Group of 20 major developed and developing nations summit in London in April included the creation of a supranational currency.

    “We will resume” talks on the supranational currency proposal at the G-8 summit in L’Aquila on July 8-10, Medvedev aide Sergei Prikhodko told reporters in Moscow today.

    Singh adviser Tendulkar said that big dollar holders face a “prisoner’s dilemma” in terms of managing their holdings. “That’s why I’m telling them to do this,” he said.

    He also said that world currencies need to adjust to help unwind trade imbalances that have contributed to the global financial crisis.

    “The major imbalances which led to the current situation, the current account surpluses and deficits, have to be addressed,” he said. “Currency adjustment is one thing that suggests itself.”

    Emerging-Market Dependence

    For all the complaints about the dollar, emerging markets such as India remain dependent on the currency of the U.S., the world’s largest economy and a $2.5 trillion export market. The IMF said June 30 that the share of dollars in global foreign- exchange reserves increased to 65 percent in the first three months of this year, the highest since 2007.

    Tendulkar said that the matter needs to be taken up in international talks, and that it emphasizes the need for those talks to go beyond the traditional G-8.

    “They can meet if they want to,” he said. “The G-20 has a wider role, has representation of the countries that are likely to lead the recovery process.”
     
  19. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    India should remain neutral on this for now. No need for India to choose sides so early in this issue.
     
  20. Daredevil

    Daredevil On Vacation! Administrator

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    ^^Probably India is sensing that there will be a downside of holding dollars as the only forex and India wants to decrease the exposure to US dollar which might soon turn into a paper currency depending on how much Fed prints the green backs as a way out of the economic mess.
     

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