Bloomberg reports As Trade War Heats Up, Biggest Currency Whales Make Their Move.
“A lot of countries around the world are turning to Europe for increased partnership in trade,’’ said Jens Nordvig, who was Wall Street’s top-ranked currency strategist for five years running before setting up Exante Data a little over a year ago. “It’s not crazy to think that’s also going to be happening in the area of capital markets and reserve allocations. The bottom line is, this trade stance the U.S. has now is not helpful in terms of making the dollar attractive” for central banks that hold billions in reserves.
Nordvig estimates a half-trillion dollars could flow into the euro in the next two years, equal to a 25 percent boost in the currency’s share of reserves.
Developing countries and oil-exporting nations in the Middle East, which rely heavily on international trade, are the most likely to lift their euro allocations, he said. Six emerging economies — China, Saudi Arabia, Taiwan, India, South Korea and Brazil — hold almost half the world’s reserves, data compiled by Bloomberg show. China alone has amassed over $3 trillion in foreign exchange — primarily as a result of its cheap exports to the U.S.
Trade Whale “Buying Opportunity” Silliness
It does not matter whether countries like the dollar or like euros. Reserves are a mostly a function of trade math.
As the US deficit increases, and it will, foreign countries will accumulate more US assets.
It’s a mathematical necessity that has nothing to do with likability.
From time to time, countries like China may sell treasuries or other US dollar denominated assets to stop capital flight.
Death of the Dollar?
Death of US dollar? China launches petro-yuan to challenge greenback’s dominance says RT.
PetroYuan futures started trading today. I am amused by the hype.
Energy Independence
The PetroYuan is not about the likability of dollars, nor does it represent a desire by China to dethrone the dollar.
Recall that the US is on the verge of energy independence. As a result, the US will buy less oil from the Mideast .
China runs a huge trade surplus with the US, but also a big deficit with the Mideast energy producers. Those producers will now accumulate Yuan.
PetroYuan Represents US Success
Three weeks ago, I reported US will Overtake Russia to Become Top Oil Producer by 2023.
As a direct result, the Saudi trade surplus with the US will crash. Those oil exporters are finally ready to hold yuan.
The huge irony in all the petroyuan hype is that it is a direct result of forthcoming US energy independence. That’s a US achievement, far bigger than the symbolic gain by China.
No Dollar Dethrone: Three Reasons
The idea that the yuan will soon replace the dollar as the world’s reserve currency is ridiculous for currency reasons, political reasons, and economic reasons.
For further discussion, please see Gold-Backed Petro-Yuan Silliness: Reserve Currency Curse?
Mike “Mish” Shedlock
Also North Korea is up to dollar counterfeiting again. Supposedly it’s not very much; numbering only in the millions, but there’s no incentive for authorities to tell the truth nor ability to measure the size of the counterfeiting effort accurately.
Remember this is also M0 we are looking at. We always talk about central banks printing, but this is ACTUAL printing we’re talking about. The paper that real consumers carry around in their wallets & purses that psychologically affects their confidence.
link to uk.businessinsider.com
link to hindustantimes.com
Another 2008 isn’t going to help out either.
It’s all well and good Mish to say someone in the end must hold our exported dollars: trade in fiat currency is 100% irrational and the only thing that matters is what other currency traders seem to collectively decide matters.
Europe & BRIC’s ever increasing apathy to trade commodities in dollars and hold dollars as reserve in banks is slowly and persistently eroding the dollar brand away, and US sanctioning and tariffing (and indeed resource self-sufficiency) is catalyzing the process.
That’s all paper money is in the end. Pure brand, nothing else.
“Those oil exporters are finally ready to hold yuan.”
After the trade, where is the surplus invested? Global investment is an order of magnitude larger than trade, and certainly greater than anything the Fed will do and bigger than all the stock buy-backs. The SHTF in the periphery first. So, what choice does the big money have … especially when the govt debt bubble officially pops?
The “chink/cavern in the armor” is a rising dollar, which cannot be avoided.
“print paper dollar, and buy stuff””, how can i get into this business? you need people to accept your “paper”. Sentiment change, once that is done, you’re in business. An
economy with a big middle and consumption power going all around the world spending their own “paper”. Let the printing start!!
Essentially correct – but a mathematical necessity. China holds dollar reserves, the Mideast will hold Yuan reserves. This is what’s become of “reserves”
Hmmm! Just wondering — if China continues to run a huge trade imbalance with the US, accumulating lots of dollars of dubious value, would it not make more sense for China to continue to unload those pieces of paper to Saudi Arabia et al? In effect, China would be receiving a real asset (Saudi oil barrels) in exchange for the real assets (I-Phones & plastic crap) it ships to the US.
No chink anywhere. AWC is correct.
A small “chink” in the armour of US Dollar hegemony.
PetroYuan gold convertibility allows Yuan holders to avoid having to convert Yuan into US$ or British Pounds to purchase gold in NY or London. Settlement/conversion thus occurs completely outside the Anglo-US financial and monetary systems.