United Future World Currency

Russian President Dmitry Medvedev illustrated his call for a supranational currency to replace the dollar by pulling from his pocket a sample coin of a “united future world currency.”

“Here it is,” Medvedev told reporters today in L’Aquila, Italy, after a summit of the Group of Eight nations. “You can see it and touch it.” The coin, which bears the words “unity in diversity,” was minted in Belgium and presented to the heads of G-8 delegations, Medvedev said.

The question of a supranational currency “concerns everyone now, even the mints,” Medvedev said. The test coin “means they’re getting ready. I think it’s a good sign that we understand how interdependent we are.”

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 U.S. dollar’s future as a global reserve currency. Russia’s proposals for the G-20 meeting in London in April included the creation of a supranational currency.

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Source:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aeFVNYQpByU4

http://www.futureworldcurrency.com/

Tags:

United Future World Currency, Dmitry Medvedev, G8, Russian President, Unity in Diversity, Laquila Italy, Supranational currency, G20, Global Economic News, coin, hard currency, Belgian mints, SDR’s,

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China Stuck in Dollar Trap

China’s official foreign exchange manager is still buying record amounts of US government bonds, in spite of Beijing’s increasingly vocal fear of a dollar collapse, according to officials and analysts.

Senior Chinese officials, including Wen Jiabao, the premier, have repeatedly signalled concern that US policies could lead to a collapse in the dollar and global inflation. But Chinese and western officials in Beijing said China was caught in a “dollar trap” and has little choice but to keep pouring the bulk of its growing reserves into the US Treasury, which remains the only market big enough and liquid enough to support its huge purchases.

In March alone, China’s direct holdings of US Treasury securities rose $23.7bn to reach a new record of $768bn, according to preliminary US data, allowing China to retain its title as the biggest creditor of the US government.

“Because of the sheer size of its reserves Safe [China’s State Administration of Foreign Exchange] will immediately disrupt any other market it tries to shift into in a big way and could also collapse the value of its existing reserves if it sold too many dollars,” said a western official, who spoke on condition of anonymity.

The composition of China’s reserves is a state secret but dollar assets are estimated to comprise as much as 70 per cent of the $1,953bn total and China owns nearly a quarter of the US debt held by foreigners, according to US Treasury data.

The collapse of Fannie Mae and Freddie Mac, the US mortgage financiers, last summer prompted Safe to adjust its strategy and start buying far more short-term US government securities, instead of longer-maturity bonds and notes.

This approach is widespread in the market because of expectations that the US will have to raise interest rates in the medium term to deal with rising inflation, as a result of all the money that it is printing.

But Safe has not fundamentally changed its strategy of allocating the bulk of its burgeoning foreign exchange reserves to US Treasury securities, a western adviser familiar with Safe thinking told the Financial Times.

He said Safe traders were “very negative” on sterling because of expectations of renewed weakness of the UK currency but Safe was neutral on the euro and bullish on the Australian dollar.

The pound ended last week at its strongest since December, shrugging off a warning over the UK’s soaring public debt from Standard & Poor’s, a rating agency.

The US dollar fell to its lowest level of the year against major currencies last week. Treasury yields spiked to six-month highs as investors focused on the willingness of creditors to fund a deficit that was expected to be about 13 per cent of gross domestic product this year.

China’s determination to keep buying US government debt is helping Washington fund its soaring budget deficit and there is no indication that Beijing will shy away from continued purchases, the Obama administration’s budget chief told a congressional sub-committee last week.

As its reserves soared in recent years, Safe began trying to diversify away from the dollar, It has been adding to its gold stocks and taking small equity stakes in publicly listed companies all over the world.

Over the long term, Beijing hopes to reduce the size of its enormous reserves and cut exposure to US Treasury bonds by encouraging state-owned enterprises to use foreign exchange to acquire competitors abroad.

Chinese outbound foreign direct investment nearly doubled from 2007 to $52.2bn last year. Beijing announced a plan last week to ease restrictions on domestic companies to make it easier to buy and borrow foreign exchange for offshore investment.

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G20 Communiqué – Emergence by Emergency

So where do we stand, now that the momentous G20 event has concluded?

Well, one thing is for sure. Some pundits will be “up in arms” over the lack of tangible progress resulting from the summit.

However, this pundit is particularly impressed with the visible contours of the new global financial system.

In this author’s opinion, the most important takeaway from the G20 summit is that we, as citizens of the world, now have evolving multi-lateral coordination occurring on a global level.

See here: http://www.number10.gov.uk/Page18914

 

“We face the greatest challenge to the world economy in modern times; a crisis which has deepened since we last met, which affects the lives of women, men, and children in every country, and which all countries must join together to resolve. A global crisis requires a global solution.”

 

On a practical level, the implicit consensus understated here, is not to be overlooked. We now officially live in an age where a global consensus has developed in the sphere of the global political economy.

On a practical level, to get 20 human beings to agree on any one-thing is, in my view, a major accomplishment. As an experiment in analogy, take your 20 best friends and try to get them all to agree on a restaurant, and a time to meet…

After you’ve completed this simple experiment, then take 46 sovereign nations (the G19 + EU), and get them all to agree on immediate coordinated financial and regulatory action.

Impressive indeed!

 

“We start from the belief that prosperity is indivisible; that growth, to be sustained, has to be shared; and that our global plan for recovery must have at its heart the needs and jobs of hard-working families, not just in developed countries but in emerging markets and the poorest countries of the world too; and must reflect the interests, not just of today’s population, but of future generations too.”

 

“We believe that the only sure foundation for sustainable globalisation and rising prosperity for all is an open world economy based on market principles, effective regulation, and strong global institutions.”

 

Clearly, the march toward an increasingly integrated world lurches onward.

 

“In order for our financial institutions to help manage the crisis and prevent future crises we must strengthen their longer term relevance, effectiveness and legitimacy.”

 

“So alongside the significant increase in resources agreed today we are determined to reform and modernise the international financial institutions to ensure they can assist members and shareholders effectively in the new challenges they face.”

 

“We will reform their mandates, scope and governance to reflect changes in the world economy and the new challenges of globalisation, and that emerging and developing economies, including the poorest, must have greater voice and representation.”

 

And now the real take home:

 

“we commit to implementing the World Bank reforms agreed in October 2008. We look forward to further recommendations, at the next meetings, on voice and representation reforms on an accelerated timescale, to be agreed by the 2010 Spring Meetings;”

 

“we agree that the heads and senior leadership of the international financial institutions should be appointed through an open, transparent, and merit-based selection process; and”

 

“building on the current reviews of the IMF and World Bank we asked the Chairman, working with the G20 Finance Ministers, to consult widely in an inclusive process and report back to the next meeting with proposals for further reforms to improve the responsiveness and adaptability of the IFIs (International Financial Institutions).”

 

When we take into consideration that the G20 represents approximately 85% of global GDP, and provided that these reforms do not get bogged-down in partisan complexities, then we can look forward to a financial future that is, for better or worse, on the vanguard of a new era of co-operation and integration, the likes of which the world has never experienced before.   

http://www.g20.utoronto.ca/2009/2009-london-communique090402.html

 

 

 

China and the Dollar

In this piece by Robert Lenzner of Forbes, he discusses the recent report issued by the Governor of the People’s Bank of China, regarding the status of the USD as the predominant reserve currency of Central Banks around the globe.

 

The author refers to Zhou Xiaochuan’s "Reform the International Monetary System", issued by the Chinese central bank governor, where it’s suggested that a “super-sovereign” currency be created to supplant the USD, as the global reserve currency of choice.

 

"A super-sovereign reserve currency not only eliminates the inherent risks of credit-based sovereign currency, but also makes it possible to manage global liquidity… This will significantly reduce the risks of a future crisis and enhance crisis management capability."

 

Certainly, Mr. Xiaochuan’s suggestions are a powerful signal from the Chinese administration of their unhappiness with the current state of global economic affairs, but these actions can also be viewed as a flowering of Chinese participation and dare I say, leadership, in the global economic sphere. This point is completely missed by Mr. Lenzner, and instead he characterizes China’s proposal through an adversarial frame.

 

“Move over Ben Bernanke. Step aside Tim Geithner. There's a new power in international finance: Zhou Xiaochuan, governor of the People's Bank of China, the $2 trillion central bank of China. It has the tools and the financial interests to be the new power player on the global financial stage”.

 

A new power in International finance? Sure, I guess that’s a true statement if you have been asleep for the last 5 years or more.

 

“Zhou Xiaochuan--better learn how to spell it and pronounce it--threw down the gauntlet this week at the Obama-Geithner-Bernanke financial regime”.  

 

Get your pistol ready. It’s high noon, and there’s a new pistol in town from the East. You’ve been warned.

 

“His remarks can only be interpreted as a slap in the face of U.S. policy during the severe financial crisis that has swept the world”.

 

Colorful overstatement here by Mr. Lenzner, to be sure, but the fact that China is engaging the world with potential solutions, is a much better option than if they were expounding a policy of protectionist insularity. If China really wanted a battle at high noon, perhaps they’d of included a “Buy Chinese” clause in their recent stimulus efforts.

Nonetheless, it will be interesting to see how this story develops at the G20 meetings later this week.

http://www.forbes.com/2009/03/27/china-imf-america-personal-finance-investing-ideas-dollar.html

http://www.pbc.gov.cn/english/detail.asp?col=6500&id=178