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USA To Move To Gold Standard In Next 5 Years! New Form Of Digital Currency?

Jun22
2011 Leave a Comment Written by

A 5:13 video about the return to the Gold Standard and the implementation of Digital Currencies.

 

Christopher Greene is a dynamic independent economist, activist, investigative journalist, frequent video-blogger and author of several monthly newsletters. With a unique background in finance and real estate, Christopher has pioneered and redefined the concept of Alternative Media. In 2008, Christopher awakened to the fraud and corruption evident in Washington, the Federal Reserve, our regulatory agencies and the Too-Big-to-Fail banks during the height of the financial crisis.


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The Currency That’s Up 200,000 Percent

Jun16
2011 Leave a Comment Written by

Friday, June 3, 2011

by: Jack Hough

Bitcoins are the top-performing money in the world — but what are they?

 

The best performing currency of the past year isn’t Brazil’s real, up 15% versus the U.S. dollar, or Australia’s dollar, up 27%. It’s the Bitcoin. A year ago one was worth half a penny. Thursday morning it hit $10.50. That’s a gain of more than 200,000%.

What’s a Bitcoin? It’s a peer-to-peer system of electronic money that allows payments to be sent directly between two parties without the need for a financial institution. It’s related to Bit Torrent, a system for sharing large files like movies, but in this case the “movie” is a file with the currency’s entire transaction history. And because users themselves all share that history, “it’s more secure than even bank transactions,” says Donald Norman, a spokesman for the Bitcoin Consultancy, which is seeking to gain wider acceptance for the currency.

As befitting a virtual currency, no one is quite sure who created the Bitcoin. A white paper and software turned up three years ago listing Satoshi Nakamoto as the author. That’s presumed to be a pseudonym. All that’s known about Nakamoto, based on his paper and message board comments, is that he’s fluent in English and has a deep understanding of Internet security.

Dotcom crash veterans might recall failed currencies like Flooz and Beenz, but those were mere means of online payment. Bitcoin is an entire monetary system. It doesn’t require a Treasury Department, because there are no bills or coins to mint. It doesn’t need a Federal Reserve to create money. An algorithm does that at a rate that slows by half every four years. There are about six million Bitcoins today. The number will approach 21 million beginning in the 2030s but never exceed it.

The finite supply of Bitcoins might help explain the frantic demand for them. Dollars and euros are created at will by central bankers. Some economists see that as useful for smoothing out wild swings in the economy — making money more plentiful when consumers are hurting and scarcer when they’re flush. Skeptics, and there are many, worry that the ability to create money from nothing will be abused by governments that overspend, resulting in gradual debasing of the value of savings. That’s why dollar bears cling to gold, and why a few might now be scrambling for Bitcoins.

Users get Bitcoins in one of several ways. “Miners” set their computers to work solving problems in exchange for coins. The more miners there are, the more difficult the problems become, which keeps the rate of supply stable. At recent exchange rates, high-end machines can produce $30 worth of Bitcoins per day, but consume a vast amount of energy in doing so. Some advanced miners have taken to cooling their machines with dry ice to improve their results.

The other ways to get Bitcoins involve trading goods, services or cash. Mt. Gox has emerged as the largest Bitcoin exchange, charging 0.65% per transaction to match up buyers and sellers. More than $500,000 worth of the coins changed hands in a recent 24-hour period. Traders can add funds to their accounts using cash, checks, bank wires or Liberty Reserve, a private online payment service.

Any fiat currency — dollars, euros, Bitcoins — gets its value from trust. Dollars can’t be cashed in for anything; rather, we accept them as payment with the belief that others will accept them, too. That’s another reason the price of Bitcoins has rocketed over the past year. Two years ago, almost no one accepted them for payment. Over the past year, a handful of early adopters began trading services for them — mostly programmers offering things like website design and hacking consultation. In recent months, a handful of pioneers have begun selling real goods for the start-up money.

Four months ago David Forster, 29, convinced his parents Jim and Nancy, owners of Green Hill Alpacas in Haydenville, Mass., to accept Bitcoins for alpaca socks. Technically, the younger Forster buys the socks for dollars and resells them for Bitcoins. “They said it sounded like a Ponzi scheme but that as long as I wasn’t risking their money for Internet coins it was fine,” he says.

Sock sales have risen to between 75 and 100 since the experiment began from four dozen during all of last year and orders have come from as far as Finland and Russia. More remarkable is what has happened to pricing. Forster began charging 75 Bitcoins for each pair in February and has since had to lower the price to 5 due to extreme appreciation in the currency’s value. “I wish I had kept all of them,” says Forster, who traded his Bitcoins on the way up for cash and web services.

More than a dozen sites now sell goods for Bitcoins, including T-shirts, coffee and natural pet food. At least one, The Arms Locker, says it offers firearms. Another, Silk Road, is a forum for people selling recreational drugs. How can that be? Bitcoin transactions leave a record of times and amounts, but not identities, and Silk Road can only be reached through an identity-cloaking computer network called Tor. There’s no way to determine the identity of its administrators and since sellers only accept Bitcoins for their wares, they can’t be found, either (so long as packages are mailed discretely).

That’s one source of discomfort surrounding Bitcoins. Even a libertarian who’s comfortable with anonymous gun and drug sales would cringe at the thought that, say, the child pornography trade has a new way to escape detection.

Amir Taaki, a U.K. citizen and project developer for Bitcoin.org, admits that Bitcoins can be used for bad things but says the same is true of cash and that Bitcoins have much potential for good. “Think of all of the people sending money in third-world countries and getting ripped off by outrageous transaction fees,” he says. “Bitcoins are here to stay and the world will benefit. The U.S. can ban it but it will still proliferate.”

It’s not clear what regulators think of Bitcoin. The Constitution gives Congress the sole authority over U.S. money. In March, a North Carolina resident was convicted of minting his own Liberty Dollars to reduce reliance on and compete with the greenback. He faces up to 15 years in prison.

Bitcoins aren’t U.S. currency, however, and Norman says the Bitcoin Consultancy doesn’t operate in the U.S. And as with file-sharing software, Bitcoin operates as a peer-to-peer network, raising the question of how regulators could stop it if they wanted to. The FBI didn’t respond to requests for comment. On a message board, one Bitcoin miner wrote that agents visited his home. They weren’t interested in currency, though. Huge electricity usage led them to suspect a marijuana growing operation.

 


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U.S. dollar could ‘collapse’: UN

Jun14
2011 Leave a Comment Written by

BY PATRICK WORSNIP, REUTERS MAY 25, 2011

BY PATRICK WORSNIP, REUTERSMAY 25, 2011

UN economists have for some time queried whether the dollar should continue to be the world’s sole reserve currency. Others have also expressed concerns about U.S. finances.

Photograph by: Nicky Loh/Reuters, Nicky Loh/Reuters

UNITED NATIONS – The United Nations warned on Wednesday of a possible crisis of confidence in, and even a “collapse” of, the U.S. dollar if its value against other currencies continued to decline.

 

In a mid-year review of the world economy, the UN economic division said such a development, stemming from the falling value of foreign dollar holdings, would imperil the global financial system.

 

The report, an update of the UN “World Economic Situation and Prospects 2011” report first issued in December, noted that the dollar exchange rate against a basket of other key currencies had reached its lowest level since the 1970s.

 

This trend, it said, had recently been driven in part by interest rate differentials between the United States and other major economies and growing concern about the sustainability of the U.S. public debt, half of which is held by foreigners.

 

“As a result, further (expected) losses of the book value of the vast foreign reserve holdings could trigger a crisis of confidence in the reserve currency, which would put the entire global financial system at risk,” it said.

 

The 17-page report referred at another point to the “still looming risk of a collapse of the United States dollar.”

 

Rob Vos, a senior UN economist involved with the report, said if emerging markets “massively start selling off dollars, then you can have this risk of a slide in the dollar.

 

“We’re not saying the collapse is imminent, but the factors are further building up that we could quickly come to that stage if other things are not improving quickly on other fronts — like the risk of the U.S. not being able to service its obligations,” he told Reuters.

 

UN economists have for some time queried whether the dollar should continue to be the world’s sole reserve currency. Others have also expressed concerns about U.S. finances.

 

Standard & Poor’s threatened on April 18 to downgrade the United States’ prized AAA credit rating unless the Obama administration and Congress found a way to slash the yawning federal budget deficit within two years.

 

A downgrade would erode the status of the United States as the world’s most powerful economy and the dollar’s role as the dominant global currency.

 

Treasury Secretary Timothy Geithner said on Wednesday the U.S. government would “never default on its obligations.”

 

ASSET BUBBLES

 

Assessing the broader global economy, the UN report said recovery from the 2008 financial crisis continued to be led by China, India and Brazil, but that their growth outlook was moderating due to fears of inflation and domestic asset price bubbles.

 

It took a slightly more optimistic view of world growth prospects than it did six months ago, forecasting 3.3% expansion this year and 3.6% in 2012, compared with 3.1% and 3.5% respectively.

 

The United Nations uses a different exchange rate calculation than the International Monetary Fund and the Organization for Economic Cooperation and Development, making its global growth figures slightly lower.

 

It boosted its forecast for U.S. gross domestic product growth this year from 2.2% to 2.6% but kept next year’s estimate steady at 2.8%.

 

The report cut Japan’s growth outlook this year by more than a third to 0.7% following March’s catastrophic earthquake, tsunami and nuclear plant crisis. It put damage to buildings and infrastructure at about 25 trillion yen (US$305-billion) or 5% of GDP.

 

Despite a recent surge in oil prices, it predicted that barring major disruptions from political unrest in the Middle East, they would level off at an average $99 a barrel this year — close to the price of U.S. crude on Wednesday — and fall to an average of US$90 next year.

 

“Supply and demand conditions do not warrant a continued upward trend,” it said.

 

Food prices have also been soaring but the report said better harvests were expected to moderate them in the second half of this year.

© Thomson Reuters 2011

© Copyright (c) National Post

 


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United Nations report warns of dollar “collapse”

Jun01
2011 Leave a Comment Written by
By Andre Damon
31 May 2011

The world economy faces the “looming risk of a collapse of the dollar,” together with the dangers of rising commodity prices, continued high unemployment and the risk of sovereign debt default, according to a report published last week by the United Nations.

The report, a mid-year update to the 200-page conspectus of the world economy issued earlier this year, says that the precipitous fall of the dollar since the start of the new millennium portends the possibility of a destabilization and “crisis of confidence” of the world reserve currency.

The risk of a dollar collapse is just one of the economic pitfalls outlined in the report. The report’s headline conclusion on economic growth, which is slightly improved from its earlier estimate, is overshadowed by the risks it outlines to every other aspect of the world economy—from rising food prices, falling living standards, the potential for sovereign debt defaults, and the destabilization of currency systems.

The report also warns that rampant unemployment, particularly among young people, is likely to trigger political upheavals similar to those seen in Egypt and Tunisia. It notes that, at the end of 2009, “there were an estimated 81 million unemployed young people, and the rate of global youth unemployment stood at 13.0 percent, having increased by 0.9 percentage points from 2008.”

It added, “Between 2007 and the end of 2009, at least 30 million jobs were lost worldwide as a result of the global financial crisis.” Thus, “The global economy will still need to create at least another 22 million new jobs in order to return to the pre-crisis level of global employment. At the current speed of the recovery, this would take at least five years.”

Food and oil prices grew significantly faster than the UN had expected in its earlier report. Over the past year, food prices have shot up by 36 percent. Gas prices have gone up 60 percent in the past 6 months alone.

The report notes that rising food and energy have greatly diminished the real incomes of the world’s poor. If prices continue to rise at their current levels, this “could push 64 million people below the poverty income threshold of $1.25 per person a day.”

Likewise, the growth of food and energy prices at the present rate would significantly drag down economic activity. If prices continue to rise at their current level, this would, together with government measures to combat inflation, slow world growth by 0.7 percentage points in 2011 and 1 percentage point in 2012.

The UN report paints a bleak outlook for economic growth in the developed world, noting the recovery “remains weak” and is likely to “moderate.” It states, “Output growth… is feeble in many developed economies,” particularly those that, like Spain, Greece, and Portugal, are facing austerity measures under the whip of the sovereign debt crisis.

In 2010, government spending for the developed world grew at about 1 percent, or half the speed of economic growth in the region, according to the report. This year, the austerity measures are set to be even more severe and will “adversely affect global economic growth.”

Over the last ten years, the US dollar has lost 27 percent of its value against other currencies, although this process was interrupted by the global financial crisis, in which investors fled to the dollar for its relative safety. Since mid-2009, however, the dollar has lost 23 percent of its value and is even lower than the pre-crash level. In fact, the dollar is currently at its lowest level since the 1970s.

After this stark warning, the report called for “deeper reforms of the global reserve system” which would reduce “dependence on the dollar as the major reserve currency,” including “enhancing the role of special drawing rights (SDRs) as international liquidity, while expanding the basket of SDR currencies including with currencies from major developing countries.” This is essentially a call by the United Nations for a move away from the US dollar, a move that portends major international conflicts over the role of the dollar as the global reserve currency.

The report underscores the predatory and destructive character of the US ruling class’s exchange rate policy, which is rooted in the interests of its oligarchic financial elite. Through a decade of lax monetary policy, the United States government succeeded not only in creating a catastrophic financial bubble that plunged the world into depression, but consistently devalued the dollar against other currencies. This process has intensified since the crisis, as the Obama administration seeks to subsidize American export businesses, which have utilized the fall of the dollar to bolster their competitiveness.

On a global scale, the report gives a blunt and revealing characterization of the 2008-09 bank bailout and its role in the present sovereign debt crisis. The report notes, “Given the large-scale government bailout programmes over the past two years, risks in the private financial sector, particularly banking, have been transferred to the public sector.”

Thus, the risk of banking is socialized, while the profits are privatized. Through a program of global austerity, the current round of budget cuts is being used to cut spending on social programs and funnel it into the coffers of the banks. And if this is not done to the satisfaction of the financial elite, they can take punitive measures, such as the most recent downgrade warning by Standard & Poor’s of the United States’ sovereign debt and the virtual dictatorship imposed by the European banks on Greece.

 

All of this portends not only explosive economic and financial crises, but a direct confrontation over austerity measures, fought between the working class on one hand and the banks and governments on the other.

 


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Gold, silver coins to be legal currency in Utah

May31
2011 Leave a Comment Written by
Gold, silver coins to be legal currency in Utah

(AP) – May 22, 2011

SALT LAKE CITY (AP) — Utah legislators want to see the dollar regain its former glory, back to the days when one could literally bank on it being “as good as gold.”

To make that point, they’ve turned it around, and made gold as good as cash. Utah became the first state in the country this month to legalize gold and silver coins as currency. The law also will exempt the sale of the coins from state capital gains taxes.

Craig Franco hopes to cash in on it with his Utah Gold and Silver Depository, and he thinks others will soon follow.

The idea is simple: Store your gold and silver coins in a vault, and Franco issues a debit-like card to make purchases backed by your holdings.

He plans to open for business June 1, likely the first of its kind in the country.

“Because we’re dealing with something so forward thinking, I expect a wait-and-see attitude,” Franco said. “Once the depository is executed and transactions can occur, then I think people will move into the marketplace.”

The idea was spawned by Republican state Rep. Brad Galvez, who sponsored the bill largely to serve as a protest against Federal Reserve monetary policy. Galvez says Americans are losing faith in the dollar. If you’re mad about government debt, ditch the cash. Spend your gold and silver, he says.

His idea isn’t to return to the gold standard, when the dollar was backed by gold instead of government goodwill. Instead, he just wanted to create options for consumers.

“We’re too far down the road to go back to the gold standard,” Galvez said. “This will move us toward an alternative currency.”

Earlier this month, Minnesota took a step closer to joining Utah in making gold and silver legal tender. A Republican lawmaker there introduced a bill that sets up a special committee to explore the option. North Carolina, Idaho and at least nine other states also have similar bills drafted.

At the moment, Franco’s idea would generally be the only practical use of the law in Utah, given the legislation doesn’t require merchants to accept the coins, either at face value — $50 for a 1-ounce gold coin — or market value, currently almost $1,500 per ounce. And no one expects people will be walking around town with pockets full of gold and silver.

Matt Zeman, market strategist for Kingsview Financial in Chicago, expects more people will start investing in gold as America’s growing debt and bankruptcies in other countries continue to decrease the value of government-backed money.

“You’ve seen gold replacing these currencies as safety instruments,” Zeman said. “If I don’t feel good about the dollar or other currencies, I’m putting my money in precious metals.”

Some supporters, including the law’s sponsor, seek to push Congress toward removing the tax burdens that discourage use of the coins, such as a federal capital gains tax.

“Making gold and silver coins legal tender sends a strong signal to Congress and the Federal Reserve that their monetary policy is failing,” said Ralph Danker, project director for economics at the Washington, D.C.-based American Principles in Action, which helped shape Utah’s law. “The dollar should be backed by gold and silver, so we have hard money.”

The U.S. and many other countries largely abandoned gold-backed money during World War I because they needed to print more cash to pay for the war. Later, during the Great Depression, President Franklin D. Roosevelt took steps that essentially prohibited gold and silver as legal currency to prevent hoarding.

In 1971, President Nixon formally abandoned the gold standard.

Fifteen years later, the U.S. Mint began producing the gold and silver American Eagle coins, primarily aimed at investment portfolios and allowing people to trade them at market value but with capital gains taxes on profits.

Utah is now allowing the coins to be used as legal tender while levying no taxes.

Opponents of the law warn such a policy shift nationwide could increase the prospect of inflation and could destabilize international markets by removing the government’s flexibility to quickly adjust currency prices.

“We’d be going backward in financial development,” said Carlos Sanchez, director of Commodities Management for The CPM Group in New York. “What backs currency is confidence in a government’s ability to pay debt, its government system and its economy.”

Larry Hilton, a Utah attorney who helped draft the law, disagrees and says the gold standard would restore faith in American money at a time when spiraling debt is weakening confidence.

“We view this as a dollar-friendly measure,” Hilton said. “It will strengthen the dollar by refocusing policy matters in Washington on what led to the phrase, ‘the dollar is as good as gold.’”

Copyright © 2011 The Associated Press. All rights reserved.

 


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Gold, Silver to be Legal Currency in Utah

May30
2011 Leave a Comment Written by

05/23/11 Novato, California – This month, lawmakers in Utah have made plans for gold and silver to be functional as currency in the Beehive State. Utah is now the nation’s first state where precious metals will be as good as US dollars.

Some details for how the new legislation will practically impact trade remain murky. For example, merchants are not required to accept metals as payment, nor is there a clear indication as to whether coins should be adopted at face or market value. However, the state law has clearly exempted sales of precious metal coins from state taxes on capital gains.

From the Associated Press:

“The idea was spawned by Republican state Rep. Brad Galvez, who sponsored the bill largely to serve as a protest against Federal Reserve monetary policy. Galvez says Americans are losing faith in the dollar. If you’re mad about government debt, ditch the cash. Spend your gold and silver, he says.

“His idea isn’t to return to the gold standard, when the dollar was backed by gold instead of government goodwill. Instead, he just wanted to create options for consumers. ‘We’re too far down the road to go back to the gold standard,’ Galvez said. ‘This will move us toward an alternative currency.’

“Earlier this month, Minnesota took a step closer to joining Utah in making gold and silver legal tender. A Republican lawmaker there introduced a bill that sets up a special committee to explore the option. North Carolina, Idaho and at least nine other states also have similar bills drafted.”

The law has also quickly laid the foundation for launching new business ideas, as the move is a boon to innovation in domestic currency alternatives:

“Craig Franco hopes to cash in on it with his Utah Gold and Silver Depository, and he thinks others will soon follow. The idea is simple: Store your gold and silver coins in a vault, and Franco issues a debit-like card to make purchases backed by your holdings. He plans to open for business June 1, likely the first of its kind in the country…

“…At the moment, Franco’s idea would generally be the only practical use of the law in Utah, given the legislation doesn’t require merchants to accept the coins, either at face value — $50 for a 1-ounce gold coin — or market value, currently almost $1,500 per ounce. And no one expects people will be walking around town with pockets full of gold and silver. ‘You’ve seen gold replacing these currencies as safety instruments,’ Zeman said. ‘If I don’t feel good about the dollar or other currencies, I’m putting my money in precious metals.’”

Alongside removing state capital gains tax on sales of coins, the law encourages the US Congress to also remove federal capital gains tax burdens. It “sends a strong signal to Congress and the Federal Reserve that their monetary policy is failing,” according to one opinion cited in the article. You can read more details in the Associated Press’ coverage of how gold and silver coins are becoming legal currency in Utah.


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Has China’s Yuan Drive Taken a Wrong Turn?

May30
2011 Leave a Comment Written by

The Wall Street Journal
China Real Time Report

China’s effort to make the yuan an international currency is running into complications, including the deeply ironic outcome that it is actually boosting the country’s massive stockpile of foreign currency. As awareness builds of these unintended consequences, prominent voices are now calling on Beijing to take a step back and slow the pace of yuan internationalization.

The yuan drive is partly due to Beijing’s frustration with reliance on the U.S. dollar as a global currency in the aftermath of the U.S. financial crisis. Since it began on an experimental basis in 2009, yuan trade settlement has grown rapidly, rising more than 20-fold from a year earlier to reach 7% of China’s total foreign trade in the first quarter. But dollar dependence is proving a hard habit to kick.

Yu Yongding, a former central bank adviser turned strident central bank critic, is the latest to raise questions about the wisdom of rapid yuan internationalization. Rather than reducing China’s accumulation of foreign exchange reserves, yuan trade settlement is actually having the opposite impact, and the process needs to managed carefully, Yu wrote in an essay published on Monday by the Chinese Academy of Social Sciences.

This perverse state of affairs arises because people outside of China are keen to accept yuan as payment, believing it will appreciate. For the same reason, they are less keen to pay for goods with yuan — and don’t have much of it on hand in the first place. Analysts estimate around 80% of current yuan trade settlement is to pay for imports. As more and more imports are paid for in yuan rather than dollars or euros, less foreign currency is drained from the Chinese economy, leaving Beijing at the end of the day holding more foreign currency reserves than it otherwise would. Mark Williams, an economist at Capital Economics, estimates this effect contributed around $40 billion to China’s foreign currency stockpile – equal to roughly 20% of growth in the reserves– in the first quarter.

That is a particularly vexing outcome for Mr. Yu, who has emerged in recent years as one of the world’s biggest critics of U.S. Treasury bonds, an asset in which a large proportion of China’s foreign exchange reserves are invested. In a separate essay last month, Mr. Yu denounced U.S. Treasury bonds as a giant ponzi scheme supported by Federal Reserve purchases. In another, he said the Fed’s policy of quantitative easing may lead to hyperinflation in the U.S. and major losses for China’s Treasury holdings.

“While internationalization of the (yuan) is necessary and inevitable, it should be guided by market principles and pursued in a cautious manner,” Mr. Yu wrote in Monday’s essay. “In any case, the (yuan’s) path to becoming a truly international currency promises to be a bumpy one.”

What’s more, he added, yuan internationalization risks increasing inflows of speculative hot money, a headache for Chinese policymakers as it opens a new hole in China’s wall of capital controls.

Chinese monetary authorities have already begun to distinguish between legitimate demand for yuan-denominated assets and speculative demand, Mr. Yu wrote. The pace of yuan internationalization could therefore “become more measured than international investors have expected.”

– Aaron Back. Follow him on Twitter @AaronBack

 


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China’s Yuan Convertible by 2016 in Global Poll Marking Big Investor Shift

May18
2011 Leave a Comment Written by

By Bloomberg News – May 11, 2011

Most global investors predict China’s yuan will be convertible into other currencies by 2016, with 50 percent seeing it joining the dollar, yen and euro as a reserve currency within a decade, a Bloomberg poll indicated.

Fifty-seven percent of 1,263 Bloomberg customers surveyed who are investors, traders or analysts, including 58 percent of Asian respondents, said it’s likely the yuan will be convertible in five years. Nineteen percent of respondents said it will become a reserve currency in that time, with an additional 31 percent predicting that step within a decade.

The decision would mark one of the biggest policy changes since China embraced private enterprise three decades ago, enabling fund managers to more freely invest in the world’s No. 2 economy. Convertibility would help unlock domestic Chinese savings, now at 75.6 trillion yuan ($11.6 trillion), equivalent to more than 80 percent of U.S. gross domestic product.

“If we get to the stage that the yuan is convertible and there’s a liquid government bond market available to invest in, it would mean that the Chinese yuan becomes a possible viable alternative to the dollar,” said Mansoor Mohi-uddin, chief currency strategist at UBS AG in Singapore, the world’s third- biggest foreign-exchange trader. “The euro hasn’t been able to fulfill that.”

China Advantage

While the dollar’s share of global reserves fell after the euro’s 1999 introduction, it has held above 60 percent in recent years, International Monetary Fund data show. One advantage for China over the euro region would be a single national government, avoiding the disputes arising from the sovereign-debt crisis that enveloped Greece, Ireland and Portugal.

China is taking steps to make the yuan more accepted abroad short of convertibility, such as setting up an offshore market for yuan transactions in Hong Kong. It has also entered into currency swaps with nations from Indonesia to Argentina, and denominated some overseas loans, including to Venezuela, in yuan. In Hong Kong, McDonald’s Corp. (MCD), the world’s biggest restaurant chain, sold yuan-denominated bonds last year.

“Certainly we have seen huge steps pointing towards that direction,” said Marcelo Ricaud, a fixed-income sales manager at Standard Chartered Plc in London who participated in the poll, referring to convertibility. “It is interesting to follow the increase in volume” of the offshore yuan in Hong Kong, he said.

Yuan Bonds

Sales of yuan-denominated bonds in Hong Kong have climbed to 40 billion yuan so far this year, from 36 billion yuan last year, data compiled by Bloomberg show.

Yuan deposits in Hong Kong rose to a record 451.4 billion yuan in March and may climb to 870 billion yuan by year-end, Zhang Guangping, deputy director general of the China Banking Regulatory Commission’s Shanghai branch, said last month.

French President Nicolas Sarkozy said in March that work should start on including the yuan in the currency basket used for the IMF’s Special Drawing Rights. At a March 31 conference in Nanjing, European Central Bank President Jean-Claude Trichet said the idea is “worth discussing.”

In 2009, People’s Bank of China Governor Zhou Xiaochuan proposed making SDRs, the unit of account for IMF loans that’s also held by central banks, function as a working global reserve currency.

Faster Than Expected

“Zhou Xiaochuan has laid out a coherent plan for having the yuan become a major global currency, including becoming a constituent of an expanded SDR — convertibility is part of this plan,” said Tim Condon, the Singapore-based head of Asia research at ING Groep NV. “The authorities have started implementing the plan and progress has been faster than most expected. I think that will remain the case.”

The yuan was at 6.4976 per dollar at 11:35 a.m. Shanghai time, according to the China Foreign Exchange Trade System. The currency reached 6.4892 on April 29, the strongest level since 1993. It isn’t allowed to move more than 0.5 percent either side of the central bank’s daily fixing, which was 6.4948 yesterday. The yuan has gained about 5 percent in the past year.

By contrast with investors in the poll, many economists don’t see the yuan becoming fully convertible until 2020 or later because making the move earlier could stoke real estate and equity bubbles. A new generation of leaders, scheduled to come to power starting late next year, will not want to risk disrupting the economy, said Brian Jackson, a Hong Kong-based strategist with the Royal Bank of Canada.

Leadership Transition

“It’s a slow-moving process,” Jackson said. “There are a lot of reforms, especially in the financial sector, that need to be done. I think it could be delayed by a factor that we are going to have a transition to a new leadership over the next couple of years.”

Wang Tao, a Beijing-based economist and colleague of Mohi- uddin’s at UBS, declined to predict a time-frame for yuan convertibility. “China will have to put in place a sound financial, macro-control and exchange-rate regulatory framework” to enable the step, she said.

Meantime, respondents were less optimistic about Chinese government policies helping the investment climate than in past surveys. Fifty-one percent said they were optimistic President Hu Jintao’s policies would help investors. That is lower by about 10 percentage points than in three previous polls dating back to September 2010 where that question was asked.

Asian Leaders

Still, investors had more confidence in Hu’s government than in India under Prime Minister Manmohan Singh, Singapore under Prime Minister Lee Hsien Loong, and Japan under Prime Minister Naoto Kan, who tied with Sarkozy at 25 percent as the leader whose government policies investors judged to be the least promising.

Among Asian investors, 63 percent were optimistic about Hu and China, with 14 percent saying the same about Kan.

China ranked as the third-best market for investors over the next year behind the U.S. and Brazil, with 24 percent of respondents saying the country was among the world’s top two investment opportunities. Even so, that figure was the lowest among seven investor polls dating back to October 2009, though almost even with January’s findings.

Fifty percent of poll respondents and 62 percent in Asia predicted the MSCI Asia Pacific Index would be higher six months from now. In a January poll, 58 percent of all respondents said the index would be higher a half year later and in a November poll 64 percent predicted a rise. The index is little changed from the start of the year.

Japan’s Stocks

Forty-one percent of respondents, including 47 percent in Asia, predicted that the Nikkei 225 (NKY) Stock Average would be higher in six months, with 23 percent saying the index would be lower.

Fifty-four percent of respondents, including 67 percent in Asia, said that Japan’s economy will shrink in the year following the March 11 earthquake and tsunami. Ten percent of investors say Japan can escape deflation within the next year, and 21 percent say it will take more than five years.

Goldman Sachs Group Inc. economists on May 10 lowered their forecasts for Japan’s gross domestic product for 2011, saying GDP will shrink 0.2 percent this year and expand 2.6 percent in 2012. Goldman Tokyo-based analysts Naohiko Baba and Chiwoong Lee had previously seen a 0.7 percent gain for this year and 2.3 percent growth in 2012.

Highest Since 2009

At the same time, 15 percent of respondents said Japan gave investors the best opportunities among global markets, the highest percentage saying that in seven polls dating to October 2009.

“The Japanese equity market is largely discounting the reconstruction story,” said Manoj Wanzare, senior portfolio manager at Plato Investment Management in Sydney and a participant in the global poll that was conducted May 9-10.

Wanzare said he expects the Japanese economy to have an “uptick in activity” within the next six to 12 months as reconstruction spending rises.

The poll was conducted by Des Moines, Iowa-based Selzer & Co. for Bloomberg and has a margin of error of plus or minus 2.8 percentage points.

–Michael Forsythe, Andrea Wong. With assistance from Zheng Lifei in Beijing and Chinmei Sung in Taipei. Editors: Chris Anstey, Peter Hirschberg

To contact the reporter on this story: Michael Forsythe at mforsythe@bloomberg.net Andrea Wong at awong268@bloomberg.net.

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net; Sandy Hendry at shendry@bloomberg.net.

 


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US dollar status as world’s single reserve currency will end by 2025

May18
2011 Leave a Comment Written by

The United States dollar status as the world’s single reserve currency will end by 2025, according to a new report by the World Bank.

“By 2025, six major emerging economies—Brazil, China, India, Indonesia, South Korea, and Russia—will account for more than half of all global growth, and the international monetary system will likely no longer be dominated by a single currency. As economic power shifts, these successful economies will help drive growth in lower income countries through cross-border commercial and financial transactions.” the report noted.

Mansoor Dailami, lead author of the report and manager of emerging trends at the World Bank, commented that “Over the next decade or so, China’s size and the rapid globalization of its corporations and banks will likely mean a more important role for the Yuan. The most likely global currency scenario in 2025 will be a multi-currency one centered round the dollar, the euro, and the Yuan.”

The report “Global Development Horizons 2011” states that global growth over the next 15 years is likely to mirror the current recovery, with emerging and developing countries growing faster than more advanced counterparts. The bank projects emerging economies to grow an average of 4.7% a year through 2025, more than double the 2.3% forecast for advanced economies.

“The distribution of global growth will become more diffuse, with no single country dominating the global economic scene,” the report said. By 2025, the economies of Brazil, China, India, Indonesia, South Korea and Russia will represent more than half of all global growth, the bank forecasts.

The growing clout of emerging economies could foster significant changes to the international monetary system, the report said, most notably in which currency nations and multinational corporations use to do business. The bank noted that currency use remains dominated by the US dollar despite the growing importance of emerging markets, a situation that could begin to see change over the next 15 years.

“The dollar now faces several potential rivals for the role of international currency,” the report said.

In the near term, the bank said the euro remains the biggest challenger to the dollar. The single currency of a host of European countries is “poised to expand” its status as a currency of choice, though the appetite for the euro will depend in large part on whether officials can successfully navigate the sovereign debt and banking crises the region currently faces.

Longer term, the report said that China’s Yuan could take on an ever-increasing role in the international monetary system. This could help resolve massive imbalances that have Beijing holding the largest stock of foreign exchange reserves while the country also serves as the world’s largest exporter. Changes undertaken by Chinese officials to modernize their country’s financial systems “are beginning to have an effect in laying the foundation for the Yuan taking on a more important global role.”

Still, any change is unlikely to happen overnight even if bank officials do see the international monetary system become more diverse.

“I think it is still quite possible that this will only be a very gradual process … it’s very likely that the dollar will still be very dominant,” Hans Timmer, director of development prospects at the bank, said during a conference call with reporters.

 

 


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China ‘Over-Tightening’ Concern to Limit Rate Moves as Reserve Ratio Rises

May12
2011 Leave a Comment Written by
By Bloomberg News - May 12, 2011

China may limit interest-rate increases over the rest of the year, focusing on other tools for combating inflation as the government seeks to cool prices without choking off growth.

The central bank yesterday raised banks’ reserve requirements for the fifth time this year. The half-point increase takes effect May 18 and will boost levels for the nation’s biggest lenders to a record 21 percent.

Policy makers will raise borrowing costs only once more this year, after four increases in the past seven months, Goldman Sachs Group Inc. and Deutsche Bank AG predicted yesterday. Higher interest rates may damp growth while also attracting speculative capital, or “hot money,” to the fastest-growing major economy. Alternative tools include quicker gains in the yuan, as sought by the U.S.

“The room for further rate hikes is quite small this year on concerns of hot money and economic growth,” said Lu Ting, a Hong Kong-based economist for Bank of America Merrill Lynch. “We surely expect more reserve requirement ratio hikes.”

Goldman analysts said officials may allow the yuan to keep climbing against the dollar at a 6 percent annual pace.

The central bank raised reserve requirements a day after reports showed inflation and lending exceeded economists’ estimates in April, with consumer prices rising more than 5 percent. The same batch of data showed industrial output growth slowed, suggesting that the nation’s expansion may be cooling from a 9.7 percent annual pace in the first quarter.

Commodities Slide

Stocks and commodities fell after the central bank announcement on speculation that slower growth will curb demand for raw materials. At Deutsche, Hong Kong-based economist Ma Jun said calls from within the government to avoid policy “over- tightening” may influence interest-rate decisions.

Accelerated gains in the yuan saw the currency break 6.5 per dollar for the first time since 1993 on April 29. U.S. Treasury Secretary Timothy F. Geithner pushed at talks in Washington this week for a faster appreciation that he says would boost consumption in China, ease inflation and limit global economic imbalances.

Alongside monetary tools, the government has used administrative measures. This month, the National Development and Reform Commission said Unilever, the world’s second-largest consumer-goods maker, will be fined $300,000 for telling the media that it planned to raise prices, reportedly triggering panic buying and hoarding.

O’Neill’s Prediction

Jim O’Neill, who chairs Goldman Sachs Asset Management and coined the acronym BRIC for the economies of Brazil, Russia, India and China, said yesterday that China’s inflation “won’t be a problem” in the second half of this year. The nations’ stocks may have a “big rally” as price gains moderate and tightening ends, he told reporters in Hong Kong.

Yesterday’s move locked up about 370 billion yuan ($57 billion), according to Barclays Capital. It may have been triggered by the extra cash entering the financial system from maturing central bank bills, according to Royal Bank of Scotland Plc. Inflows of so-called hot money may also have been a factor, said Bank of America’s Lu.

The ruling Communist Party aims to prevent increases in food and housing costs from fueling social unrest. Consumer prices jumped 5.4 percent in March, the most since July 2008. In April, the gain was 5.3 percent.

Clothing costs climbed 1.4 percent last month from a year earlier, the biggest gain since 1997, a statistics bureau report showed this week. Non-food inflation held at 2.7 percent, the fastest pace in at least six years. Food inflation, the biggest single driver of the consumer-price index, exceeded 11 percent for a third month.

Higher commodity costs, inflows of capital, and the extra cash in the economy from a stimulus program started in late 2008 have added to inflation risks. The nation’s world-record foreign-exchange reserves exceeded $3 trillion for the first time in March.

–Nerys Avery, Sophie Leung, Zheng Lifei. Editors: Paul Panckhurst, Fergal O’Brien

To contact Bloomberg News staff for this story: Paul Panckhurst in Hong Kong at +852-2977-6603 or ppanckhurst@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst in Hong Kong at ppanckhurst@bloomberg.net

 


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