September 15, 2010
CURRENCY MANIPULATORS
Twenty-five years ago the USA forced Japan to appreciate its currency in order to correct its own bad books by fixing (temporarily) America's current account deficit. The Plaza Accord of 1985 led to rampant speculation in the Yen and a financial crisis and depression from which the Japanese have yet to recover. From the sidelines, having secured the return of Hong Kong and its capital, Beijing watched and learned.
Since the dotcom bubble popped and jobless recoveries, booms, and busts have America stalled, certain political factions believe that if Uncle Sam can force a similar appreciation of the Yuan on Beijing the American Dream can be saved. Chief among the politicians is Chuck Schumer (D-NY) and his chorus of taxpayer funded think tank reports and leading talking heads. One of the biggest proponents of the China tariff clique is Nobel Prize winning economist Paul Krugman. Krugman used his NY Times column again today to call for tariffs on Chinese goods deciding that one lesson from the Great Depression - the Smoot-Hawley Act - is not worth heeding.
I've written many posts and Sinomania! Show episodes on the futility of trying to force Beijing's hand on Yuan. Do a search here and on the Sinomania! website and you'll come up with the same conclusion. America cannot fix its problems by manipulating international forex markets. Beijing unlike Japan is not America's satellite and cannot be told what to do and is not afraid of Washington. And the biggest reason why people like Krugman and Schumer know that the issue is just hot air is not the "threat" of a "nuke option" - Beijing selling its holdings of US Treasury securities - but because the average American mired in a deep recession can't afford to pay two and three times for all the stuff they buy from WalMart, Target, IKEA, and everywhere else!
Further the accusation that Beijing manipulates the Chinese currency is complete hypocrisy when Washington and Tokyo both do the same. Just yesterday Tokyo intervened in forex markets for the first time in years to stop Yen appreciating. And Washington deliberately devalues the dollar (what W called the "strong dollar" policy) to support American exports and reduce the value of its debts.
Labels: currencies, financial crisis, forex, free trade, japan, schumer, yuan
March 15, 2010
Krugman's Last Stand
Columnist Paul Krugman of the New York Times says the US government needs to "take a stand" against China by declaring that Beijing "manipulates" its currency (Renminbi) and slap big extra tariffs on Chinese imports. Krugman began the year with the same message and seems willing to stake his reputation on his quixotic quest. Frankly the US has already taken a stand on the issue of the Yuan/Dollar exchange rate and been stood down. Further Krugman's simplistic explanation of alleged Chinese "mercantilism" is surprising from a Nobel Prize winning economist. To blame global economic imbalance on imports of Chinese goods is absurd.
To declare China a currency manipulator while ignoring Tokyo's support of the Yen and other currencies pegged to the US dollar including oil exporting nations and whole regions (the Caribbean, etc.) is a selective and hostile act. And if the Yuan is so undervalued why are the EU, Brazil, Australia, and other countries with important China trade not joining the USA in a stand against China?
Millions of Americans are already cutting back on what they buy and trying to make do with less. Do we need the cost of everything to go up because of additional tariffs on Chinese goods? Does Krugman think stagflation will help the American economy recover?
To declare China a currency manipulator while ignoring Tokyo's support of the Yen and other currencies pegged to the US dollar including oil exporting nations and whole regions (the Caribbean, etc.) is a selective and hostile act. And if the Yuan is so undervalued why are the EU, Brazil, Australia, and other countries with important China trade not joining the USA in a stand against China?
Millions of Americans are already cutting back on what they buy and trying to make do with less. Do we need the cost of everything to go up because of additional tariffs on Chinese goods? Does Krugman think stagflation will help the American economy recover?
Labels: anti-china, currencies, forex, free trade, renminbi, yuan
March 11, 2010
Obama's China Currency Comment
Headline writers this afternoon say President Obama "urged" China to stop controlling its currency. What did Obama say exactly? Long into a banal booster speech at the annual meeting of the Export-Import Bank of the United States (a federal government agency), Obama said
"China moving to a more market-oriented exchange rate will make an essential contribution to that global rebalancing effort."
It surprises me Obama continues to spend political capital in a pointless pursuit to coerce Beijing to appreciate its currency. Washington can urge China all it wants but Beijing has made its position on Renminbi very clear. Just this week at the National People's Congress session China said the Yuan's unofficial peg to the US dollar will end and appreciation up to 10% over the short to medium term is expected.
A move by Beijing to drastically create a more "market-oriented" exchange rate would mean reducing China's dollar holdings in favor of other currencies or gold. Is this ultimately what Washington really wants? It is also hard to argue that the exchange rate of the Yuan is that out of whack for US exporters when China is year after year the fastest growing market for US exports.
A move by Beijing to drastically create a more "market-oriented" exchange rate would mean reducing China's dollar holdings in favor of other currencies or gold. Is this ultimately what Washington really wants? It is also hard to argue that the exchange rate of the Yuan is that out of whack for US exporters when China is year after year the fastest growing market for US exports.
A far better use of rhetoric and effort would be for Obama to push Beijing to fulfill its promise to enter into the WTO Government Procurement Agreement (GPA) and open up potentially billion$ in opportunities to American businesses. So far no moves on the GPA have been made by US Trade Rep Ron Kirk or anyone else in the Obama administration. Why not?....
Labels: currencies, exports, foreign exhange, forex, goverment procurement, obama, wto, yuan
March 10, 2010
China Moves the World
It is an interesting irony that the same mainstream media that criticizes Chinese government data as untrustworthy claims that same data is capable of moving commodities, currency, and stock prices the world over. Consider today's headlines. Chinese numbers on exports and inflation are responsible we read for stock markets going up in the USA, Canada, and Brazil; affected the Mexican Peso, the (US) Dollar, and the Yen; and impacted gold and oil markets!....
Labels: exports, forex, gold, inflation, oil
February 09, 2010
China's Portfolio: AAPL BLK KO NWSA RIMM TCK V
The China Investment Corporation, the sovereign wealth fund of the Chinese central government, revealed its holdings in a Form 13F filing with the US Securities & Exchange Commission last Friday. The biggest single investment is 101 million+ class B shares of Teck Resources Ltd., a Vancouver based mining conglomerate listed on NYSE as TCK.
CIC's Major holdings of Morgan Stanley (MS) and Blackrock (BLK) are well known but less known are sizeable share blocks in healthcare and pharmaceuticals including Health Net, Abbott Labs, Pfizer, Merck, Eli Lilly, and financials & banks such as Metlife, Bank of America, Citigroup, Comerica, and Wells Fargo.
China owns 30,000 shares of Apple; 158,100 shares of Coca-Cola; 300,000 shares of Rupert Murdoch's News Corp.; 401,100 shares of Sprint; and $350 million worth of Visa, Inc. China also has investments in iShares indexes and SPDR ETFs ranging from $50 million+ to over $200 million per account. The Form 13F and full list of China's portfolio can be viewed at the Sinomania! website here. Chart via CFR.org, Brad Setser....
CIC's Major holdings of Morgan Stanley (MS) and Blackrock (BLK) are well known but less known are sizeable share blocks in healthcare and pharmaceuticals including Health Net, Abbott Labs, Pfizer, Merck, Eli Lilly, and financials & banks such as Metlife, Bank of America, Citigroup, Comerica, and Wells Fargo.
China owns 30,000 shares of Apple; 158,100 shares of Coca-Cola; 300,000 shares of Rupert Murdoch's News Corp.; 401,100 shares of Sprint; and $350 million worth of Visa, Inc. China also has investments in iShares indexes and SPDR ETFs ranging from $50 million+ to over $200 million per account. The Form 13F and full list of China's portfolio can be viewed at the Sinomania! website here. Chart via CFR.org, Brad Setser....
Labels: foreign investment, foreign relations, forex, stocks
November 30, 2009
No Word on Yuan at EU-China Summit
The 12th EU-China Summit concluded in Nanjing (capital of Jiangsu Province) today and the official statement contains not one character or word on China's currency. Outside the forum at the WTO headquarters in Geneva Minister for Commerce Chen Deming intimated that the USA was to blame for its policy to devalue the dollar. The EU and USA have now concluded several high-level talks with no official word on the Chinese currency. It is apparent that the exchange rate of the Yuan is a plaything of politicians only. All talk of China "manipulating" its currency is merely pandering to voters in election districts hard hit by aging industry and rising poverty. Absent a complete breakdown in global trade and a worldwide trade war, the EU and USA are powerless over Renminbi.
The EU is now China's number 1 trading partner. For the EU China is now number 2 after the USA. EU imports from China are down in the great recession to just over $65 billion euros in the 1st Half of 2009. Overall China accounts for 17% of all EU imports. As in the USA China is a growing market for exports accounting for 7% of EU exports, up one percent from 2008. The top EU exporters to China are Germany, France, Italy, UK, and Netherlands - in that order. While the EU overall has a trade deficit with China, the smallest individual deficits are in Germany and France which have the healthiest trade relations with China. Click here for more detail on EU-China trade....
Labels: currencies, euro, foreign relations, foreign trade, forex, yuan
October 15, 2009
Obama China Currency Flip Flop
During the 2008 Presidential campaign candidate Obama agreed many times with American industry groups and unions that Beijing "manipulated" its currency. Perhaps not understanding the impact of the "M" word in USA-China relations Obama's Treasury Secretary Tim Geithner also said as much in his confirmation hearings. But as so often happens when candidates come to power the complexities and realities of China relations compel an about-face.
Today the US Dept. of the Treasury released its semiannual Report to Congress on International and Exchange Rate Policies with the decision that China does not "manipulate" its currency. With somewhat contorted logic Treasury says that since the renminbi remains stable against the dollar it follows the movement of the dollar against other currencies although it is still "undervalued." The report revealed that China is anticipated to account for 2/3 of global growth in 2010. The reaction of Congress awaits....
Labels: currencies, foreign relations, forex, geithner, obama, treasury
September 16, 2009
China US Treasuries Over $800 Billion
Despite all the heated rhetoric this year from Beijing, China's holdings of US Treasuries rose to $800.5 billion (US dollars) in July. China remains the single largest creditor for the USA....
Labels: dollar, forex, treasury
September 03, 2009
Beijing Converts 50 Billion $ to SDR [CORRECTION]
[CORRECTION: Reuters reports that the People's Bank of China will use Yuan not dollars to buy the IMF SDRs.]
In a move celebrated by the IMF, the Chinese central bank will convert $50 billion into SDRs or Special Drawing Rights bonds. SDRs are based on a basket of convertible currencies and were created by the IMF in the 1970s to convert away from gold. Whether SDRs convert as easily into gold is another matter for speculation. Whether SDR or gold, this is further evidence of Beijing's unease over its world's largest holdings of US dollars.....
Labels: dollar, financial news, forex, gold
September 01, 2009
Thailand, Russia Explore Yuan Currency Swap
Thailand and Russia will explore currency swap agreements with Beijing to allow trade settlement in Yuan. The Prime Minister of Belarus said in Beijing that his country would soon finalize its swap arrangement with China. Five other countries including Argentina and Indondesia have currency swaps in place with China....
Labels: currencies, foreign trade, forex, yuan
June 30, 2009
Hong Kong-China Trade Settlement in Yuan by July
Yesterday Chinese central banker Zhou Xiaochuan signed a Memorandum of Understanding with the Hong Kong Monetary Authority to allow trade settlement in renminbi - Yuan - by July between Hong Kong businesses and the Pearl River delta cities Shenzhen, Dongguan, Zhuhai, and Guangzhou and Shanghai, a move widely interpreted as a first step to internationalize China's currency....
Labels: chinese trade, currencies, forex, renminbi, yuan
April 24, 2009
CHINA INCREASES GOLD RESERVES
After weeks of speculation, it's official: China gold reserves increased and China now holds more gold than Switzerland. The US, Germany, France, and Italy still hold far more gold but the acknowledgement by the head of the aptly named SAFE (State Administration of Foreign Exchange) lead many to believe that Beijing may soon buy gold. The last reported figure for China's gold reserves was in December 2002 at approximately 600 tons. The new figure is 1,054 tons of gold and Beijing says the increase came from domestic sources. China is the leading gold producer in the world and could easily increase its gold reserves from its own mines. The planned sale of IMF gold however could proved tempting.
Meanwhile gold price rose today to a 3 week high...
Labels: currencies, forex, gold
April 16, 2009
Is China Hoarding Copper?
Lots of speculation in the news about moves by the State Reserve Bureau in Beijing to buy huge amounts of primary metals, particularly copper but also aluminum and cobalt. Is China planning a copper standard to back the Yuan? Is Beijing stockpiling industrial resources while the global economy is down in order to be ready for the next boom cycle? Or is China really still chugging along at full speed (compared to sluggish Western economies) despite the impact of the Panic of '08?....
Labels: currencies, foreign exchange, forex, renminbi, yuan
April 14, 2009
China Forex Reserves Near $2 Trillion
The Chinese central bank (the People's Bank of China) reported yesterday that official foreign exchange reserves continue to grow - albeit more slowly - and passed $1.95 trillion (US dollars) at the end of March. Most of the Chinese hoard is denominated in dollar bills but rumours persist that China is interested in all of the anticipated IMF gold sales of over 400 tons ....
February 15, 2008
Japan Forex Reserves Growing "Suspiciously Fast"
Morgan Stanley believes the net result is not stealthy intervention but skillful day trading of Yen/Euro positions and that the data reveals Japan is diversifying away from the US Dollar to over 20% Euro composition in its foreign exchange reserves."Japan’s reserves are growing suspiciously fast. Japan’s foreign reserves expanded from US$946 billion in September 2007 to US$996 billion in November, an increase of US$50 billion in four months. Assuming a 2.5-3.0% return on the underlying assets, Japan should only be enjoying US$25-30 billion in annual investment earnings, or US$6-8 billion a quarter. Further, it is widely assumed that Japan has the bulk (90%) of its reserves in USD, and the MoF never diversified away from USD. With such low holdings of EUR, valuation changes – from the rise in EUR/USD – should not have been a major factor generating gains in reserves. Indeed, what is embedded in our reserve tracker file assumes 90% USD holdings. Our presumptive calculations identified a US$13.7 billion gain during September-January due to the returns on the underlying assets, and another US$18 billion from valuation changes, leaving US$18 billion of the reserve increases unexplained by our metric. Could the MoF have conducted secretive interventions worth US$18 billion? "
If true, this raises another interesting question: Is America's loyal Asian satellite dumping the Dollar?
Labels: currencies, euro, foreign exchange, forex, globalization, japan
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