• IP addresses are NOT logged in this forum so there's no point asking. Please note that this forum is full of homophobes, racists, lunatics, schizophrenics & absolute nut jobs with a smattering of geniuses, Chinese chauvinists, Moderate Muslims and last but not least a couple of "know-it-alls" constantly sprouting their dubious wisdom. If you believe that content generated by unsavory characters might cause you offense PLEASE LEAVE NOW! Sammyboy Admin and Staff are not responsible for your hurt feelings should you choose to read any of the content here.

    The OTHER forum is HERE so please stop asking.

Dollar vs RMB

theDoors

Alfrescian
Loyal
Joined
Oct 17, 2008
Messages
867
Points
0
Dollar Hegemony and the Rise of China
July 12, 2010
By Michael Hudson
http://michael-hudson.com/2010/07/dollar-hegemony-and-the-rise-of-china/

Hudson to Premier Wen Jaibao, March 15, 2010

Dear Premier Wen Jiabao,

I write this letter to counteract some of the solutions that Western politicians are recommending for China to cope with its buildup of excess foreign-exchange reserves. Raising the renminbi’s exchange rate against the dollar will not cure the China-US payments imbalance. The dollar glut will continue, and so will the currency fluctuation among the dollar, euro and sterling, leaving no stable store of value. The cause of this instability is that each of these three currency areas has grown top-heavy with by debts in excess of the ability to pay.

What then should China should it do with its buildup of excess reserves, if not recycle its inflows into their bonds? Four possibilities have been suggested: (1) to revalue the renminbi, (2) to flood China’s economy with credit (as Japan did after the Plaza Accord of 1985), (3) to buy foreign resources and assets, and (4) to use excess dollars to buy back foreign investments in China, given US reluctance to permit Chinese investment in America’s own most promising economic sectors.

I explain below why China’s best course is to avoid accumulating further foreign exchange reserves. The most workable solution is to use its official reserves to buy back US and other foreign investments in China’s financial system and other key sectors. This policy will seem more natural as a response to an escalation of US protectionist moves to block Chinese imports or block China’s sovereign wealth funds from buying key US assets.

China’s excess reserves will impose a foreign-exchange loss (as valued in renminbi)

Every nation needs foreign currency reserves to ward off currency raids, as the Asia Crisis showed in 1997. The usual kind of raid forces currencies down. Speculators see a central bank with large foreign currency holdings, and seek to empty them out by borrowing even larger sums, selling the target currency short to drive down its price. This is the tactic that George Soros pioneered against the British pound when he broke the Bank of England.

Malaysia’s counter-tactic was not to let speculators cover their bets by buying the target currency. Its Malaysia’s success in resisting that crisis showed that currency controls prevent speculators from “cashing out” on their exchange-rate bets, blocking their attempt to drive down the currency’s value.

China’s case is the opposite. Speculators are trying to force up the renminbi’s exchange rate. Foreign inflows into China’s banks – especially those owned by US, British or other foreign companies – is flooding China with foreign currency. Its central bank finds itself obliged either to recycle this inflow back abroad, or to let the renminbi rise – and ultimately take a loss (as measured in yuan) when its currency rises against its holdings in dollars, sterling and euros. Speculators and other foreigners holding Chinese assets will get a free currency ride upward.

The effect within China’s economy will be to load it down with debt, while obliging it to buy foreign securities denominated in dollars that are falling in price. So the question is, how can China best cope with the foreign exchange flowing into its economy?

China’s major response has been to invest in the mineral resources and other imports it will need to sustain its long-term growth. But this option is limited by foreign protectionism against overseas investment in minerals and agricultural land, and by speculators from foreign countries using their own free credit to buy up these resources. So excess foreign exchange is continuing to build up.

Traditionally, central banks used their payments surpluses to buy gold as “money of the world.” Gold has the advantage of serving as a store of value, enabling central banks (in principle) to avoid taking a loss on their dollar holdings. Settling payments deficits in gold also has the global advantage of limiting the ability of other countries to run chronic payments deficits – especially war spending throughout history. This is why US diplomats oppose a return to gold.

In the 1960s foreign governments asked the US Treasury to provide a gold guarantee. The excess dollars thrown off by America’s overseas military spending in Southeast Asia and Europe ended up in the central banks of France (which dominated banking in Indo-China), Germany (as exporter and host to the major European military base), and Japan (for rest and recreation). France and Germany cashed in these dollars for gold, whose price came under pressure as US monetary gold stocks were depleted. To deter the central banks of France (under General de Gaulle), Germany and other countries from cashing in their dollars for gold, the U.S. Treasury gave a gold guarantee so that if the dollar lost value, these central banks would not lose.

Today, the United States is unlikely to give a gold guarantee, or to expect Congress to agree to such an arrangement. (Often in the past, US presidents and the Executive Branch have made agreements on foreign trade and finance, which Congress has refused to confirm.) It could guarantee China’s official dollar holdings vis-à-vis a basket or whatever the Government of China preferred to hold its reserves, from euros to a new post-Yekaterinburg currency mix. But no currency today is stable. All the major Western currencies are buckling under the burden of unpayably large debts. The US Treasury owes $4 trillion to foreign central banks, but there is no foreseeable way in which it can make good this foreign debt, given its chronic structural deficit of foreign military spending, import dependency and capital outflows. That is why so many countries are treating the dollar like a “hot potato” and trying to avoid holding them. And holding euros or British sterling does not provide a better alternative.

Most central banks today hold down their exchange rates by recycling their dollar inflows to buy US Treasury IOUs. This recycling enables the United States to finance its overseas military spending and also its domestic budget deficit (largely military in character) since the 1950s. So Europe and Asia have used their foreign exchange earnings to finance a unipolar US buildup of military bases to surround them.

This situation is inherently unstable, and hence self-terminating. The era is ending where international reserves are based on the unpayably high debts of any single government, especially when these debts are run up for military purposes. Certainly the US dollar cannot continue to fill this role, given the chronic US payments deficit. For most years since 1951, US overseas military spending (mainly in Asia) has accounted for the largest part of this deficit. And increasingly, the US trade balance has fallen into deficit (except for agriculture, entertainment and military arms). Most recently, capital outflows have accelerated from the United States, especially to China and Third World countries. US money managers have concluded that the US and other Western economies are entering a period of debt-burdened, permanently slower growth. So they are looking to China, hoping to obtain its surpluses for themselves by buying out its banking and industry.

This relationship is too one-sided to continue for long. The question is, how can it best be resolved? Any solution will involve China’s avoiding further accumulation of foreign exchange as long as these take the form of “free loans” back to the US and European governments.

China’s exchange rate vis-à-vis the dollar

American China bashers blame China for being so strong. They urge it to raise the renminbi’s exchange rate to be less competitive. And indeed, over the past three months China’s currency has risen by more than 10% against the euro and sterling as one euro-using government after another is facing insolvency.

The dollar’s recent strength does not reflect intrinsic factors, but merely the fact that the euro and sterling are even more highly debt leveraged. The main problem areas to date have been Greece, Ireland, Spain, Italy and Portugal, but much larger problems are soon to come from the Baltics, Hungary and other post-Soviet economies. For a decade, they financed their structural trade deficits by borrowing in foreign currency to fuel a real estate bubble. This foreign-currency inflow (from Austrian banks to Hungary and Romania, from Swedish banks to the Baltic States) inflated prices for their housing and office buildings. But now that their real estate bubbles have burst, there is no foreign lending to support their currencies. As their real estate sinks into negative equity, the banking systems of Sweden and Austria face widespread defaults.

The EU and IMF have pressured post-Soviet governments to borrow to bail out EU banks. This shifts the bankruptcy from the private sector to the public sector (“taxpayers”), imposing a severe economic depression on these countries. Governments are slashing spending on education, health care and infrastructure so deeply as to cause personal and business mortgage defaults, emigration, and even shortening life spans.

This shrinkage is the end-result of the neoliberal Washington Consensus imposed on these countries since 1991, aggravated by the global financial bubble since 2000. It is an object lesson for what China needs to avoid.

The United States for its part is manipulating its currency to keep the dollar low, by flooding its economy with low-interest credit. This manipulation runs counter to normal practice over the past five centuries. Any economy running a balance-of-payments deficit traditional has raised interest rates to attract foreign loans and slow domestic spending. But the US Federal Reserve is doing just the opposite. Low interest rates to keep the real estate bubble fro bursting further have the effect of aggravating rather than curing the trade deficit and capital outflow.

Yet more dollars are ending up in the hands of foreign central banks. Foreign economies are expected to recycle these inflows into yet more purchases of US Treasury securities, saving US taxpayers and investors from having to finance this deficit themselves.

Revaluing the renminbi would exacerbate China’s financial problem, not stabilize its trade

US economic diplomats argue that increasing the renminbi’s exchange rate will help restore balance to China’s balance of payments with the United States. But the US payments deficit is structural, and hence not responsive to price changes. As noted above, a major payments outflow is overseas military spending. Another growing outflow is on capital account, to buy up foreign companies, stocks and bonds. US investors themselves are abandoning the US economy, looking mainly to China for higher yields – and for a foreign-exchange windfall gain.

The US strategy is to buy up Chinese assets yielding 20% or more annually, while China recycles these dollars to Washington and Wall Street at interest rates of only about 1% (for Treasury securities) and absorbs losses in many private-sector investments. (This is the strategy that “worked” with Japan after 1985.) Revaluing the renminbi would provide a windfall for US hedge funds and speculators. Anticipations of revaluation already are spurring higher capital outflows to China.

A higher exchange rate for the renminbi also would result in even more dollar outflows from the United States to Asia on trade account, by obliging American consumers to pay a higher dollar price. Contrary to what most “free trade” assumptions, the fact is that most trade is not responsive to small shifts in currency values. (Economic jargon calls this “price-inelastic.”)

This became clear in the 1980s when a rising exchange rate for Japan’s yen did not reduce that nation’s trade balance. US consumers simply paid more. This is why, despite the recent 21% appreciation in the renminbi, China’s trade balance increased rather than shrank. Likewise, Japan’s yen has soared since autumn 2009, yet it is still accumulating reserves.

Even if China revalues the renminbi, its export prices will not rise proportionally. This is because imports of raw materials, much machinery and other components of most exports have a common world price (typically denominated in dollars). So a higher renminbi will lower the dollar price of these imports.

About half the price received for exports covers the price and markup spent on these imports with a common world price. So if China’s currency rises by 10% against the dollar, the price of imports embodied in these exports (as valued in renminbi) will fall by 10%. Half the export price will be unaffected, so overall export prices might rise by 5%.

Given the fact that trade patterns are deeply entrenched, a quantum leap in revaluing the renminbi would be needed to reduce China’s trade surplus. Small revaluations would not “solve” the problem that US diplomats are demanding. Unless revaluation is enormous – in the neighborhood of 40% – raising the exchange rate thus will tend to increase rather than reduce China’s trade surplus. The moral is that if the aim is really to change export patterns, there is no point in devaluing except to excess (that is, about 40%). This was the principle that US President Franklin Roosevelt followed in 1933.

Creating more domestic credit at low interest rates would destabilize China

The follow-up to a renminbi revaluation is likely to be what it was in the Plaza and Louvre accords that US diplomats forced on Japan after 1985. Payments-surplus economies are told to restore “equilibrium” by easing credit to spur a balance-of-payments outflow.

The effect is to create a financial bubble, derailing industrial competitiveness and leaving the banking system in a debt-ridden shambles. Japan was willing to flood its economy with enough credit to destabilize its industry and real estate markets with debt that has remained for the twenty years since its bubble burst in 1990. China should avoid this kind of policy at all costs. To avoid the debt overhead now stifling the Western economies, it should minimize debt leveraging and limit the banking system’s ability to create credit to buy assets already in place. Foreign-owned banks in particular need to be restricted from aiding parent-country currency speculation and related financial extraction of revenue from China’s economy.

Balancing China’s international payments by buying foreign resources and assets

China already is seeking to buy mineral, fuel and agricultural resources abroad to supply the inputs that it needs for its own growth. But these efforts still leave substantial foreign exchange surpluses. Most countries have used these surpluses to buy up key sectors of foreign economies. This is what Britain, the United States and France have done for more than a century.

When the US economy runs payments surpluses with foreign countries, it insists that they pay for their foreign debts and ongoing trade deficits by opening up their markets and “restore balance” by selling their key public infrastructure, industries, mineral rights and commanding heights to US investors. But the US Government has blocked foreign countries from doing the same with the United States. This asymmetry has been a major factor causing the inequality between high US private-sector returns and low foreign official returns on their dollar holdings.

The refusal of the US Government to behave symmetrically by not letting China buy key US companies with the dollar inflows that enter China to buy its own companies, above all its financial and banking sector, is largely responsible for the asymmetrical situation noted above, in which US investors earn 20% in China, but China earns only 1% in the US.

Buying back foreign investments in China

The wave of the future is to avoid a buildup of foreign exchange at all. The main way to do this is an option that European governments have discussed: to use their excess dollars to buy out US investment holdings in their countries, at book value. In effect, China would say to the United States:

“We have let you invest in out own factories and even our banks, and we have let you participate in our key sectors even where these have special domestic privileges. Your economists advised us that this was the most efficient way to run an economy. But it is not advice that the United States itself has followed. You are not letting us use the dollars that you invest here – and the dollars that China earns by exporting the products of its labor – to buy corresponding investments in your country.”

“It is of course the sovereign right of every nation to determine who shall own and control its industry, bank credit-creating privileges and other resources. We accept this principle of international law. So by the same token, we are using the surplus dollars to buy out US and other foreign investments in China. We are willing to do this according to international law, and pay the book value that your own accountants report their investments in China as being worth.”

“This will stabilize international exchange rates by restoring balance to international payments. It is especially natural inasmuch as we understand that the US consumer-goods market is shrinking, obliging us to turn more to our own domestic market.”

Obviously, US holders of investments in China would complain that their holdings are worth more than the book value they have declared. Indeed, this is a major reason why current investors in China are trying to prevent the US Government from engaging in more anti-Chinese protectionist policies. But in the event that the governments rejects their advice and “goes it alone” by taking anti-China measures, China would be in the position of responding to a US initiative rather than acting independently. And it certainly would have the support of other countries in a similar position vis-à-vis US attempts at politicizing foreign investment.

This problem came up in the 1960s and ‘70s, when the US Government directed foreign affiliates of US firms to adopt US Cold War policies to avoid trading with China, the Soviet Union and other targeted economies. Foreign governments pointed out that US directions as to how affiliates incorporated in foreign countries could act, as these were subject to their host-country laws, not those of the United States.

This issue is being revived today with regard to sanctions against Iran and other countries. International law has long backed host countries regarding trade and investment policy, credit policy and so forth. I expect this to become a major factor in foreign repurchases of US investments abroad – in Europe and other Asian countries as well as China.

Perhaps a commission will be necessary to debate a fair price for these future buyouts. But such cases usually take a considerable time to resolve. There are implications of this policy that I would prefer to discuss orally at an appropriate point in time rather than elaborate further at present.

Summary: The inequity of the dollar deficit

China, the rest of Asia and Russia have been financing the US overseas dollar spending to pay for America’s military encirclement of the Eastern Hemisphere and for US investors to buy out the crown jewels of Asian industry, financial institutions and public infrastructure. This situation is asymmetrical not only economically, but also politically. In 1823, America’s Monroe Doctrine told Europe to keep out of the Western Hemisphere, ending European colonialism and political hegemony in Latin America. The United States replaced the major European powers as investor and political and military influence.

Today, many people in the United States, Canada and Europe wish to see global disarmament in a multi-polar world rather than a unipolar world. They believe that no country should get a free ride or dominate the world militarily. That would not be a free market. In the end, international economic, political and military relations tend to settle at symmetrical common rules for all parties. A generation ago, Harvard economist Albert Hirschman called for U.S. disinvestment in Latin America and third world countries, on grounds of U.S. economic interest itself. Today, the US economy is suffering from chronic domestic budget deficits that are largely military in character, and chronic payments deficits. Scaling back military spending would free resources for use in its own economy, while enabling foreign economies to wind down their own military budgets.

This logic is endorsed by many US citizens and economists. It can be promoted by a system in which no national economy remains in a monetary system based on the military spending of a military nation in chronic deficit and rising debt beyond its foreseeable ability to pay. This kind of free ride characterized the empires of times past, but the present century promises a more fair, equitable and (one hopes) less militarized world.

Michael Hudson
Distinguished Professor of Economics, University of Missouri (Kansas City)
Honorary Professor, Huazhong University of Science and Technology (Wuhan)
 
<object width="640" height="385"><param name="movie" value="http://www.youtube.com/v/3pwAFohWBL4?fs=1&amp;hl=en_US"></param><param name="allowFullScreen" value="true"></param><param name="allowscriptaccess" value="always"></param><embed src="http://www.youtube.com/v/3pwAFohWBL4?fs=1&amp;hl=en_US" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="640" height="385"></embed></object>
 
September 16, 2010
Senators Tell Geithner That China Hinders U.S. Recovery
By SEWELL CHAN
http://www.nytimes.com/2010/09/17/business/17geithner.html?hp=&pagewanted=print

WASHINGTON — As a part of a touch new posture on China, Treasury Secretary Timothy F. Geithner laid out a list of complaints about China’s economic policies on Thursday and urged it to allow “significant, sustained appreciation” of its undervalued currency.

But senators from both parties expressed impatience with the Obama administration’s reliance on persuasion and negotiation, saying such tactics had yielded few gains so far.

“There is no question that the economic and trade policies of China represent clear roadblocks to our recovery,” Senator Christopher J. Dodd, Democrat of Connecticut and the chairman of the Banking Committee, said at a hearing with Mr. Geithner seated before him.

“I’ve listened to every administration, Democrats and Republicans, from Ronald Reagan to the current administration, say virtually the same thing,” Mr. Dodd, who is not seeking re-election, said. “And China does basically whatever it wants, while we grow weaker and they grow stronger.”

He added: “It’s clearly time for a change in strategy.”

The top Republican on the Banking Committee, Senator Richard C. Shelby of Alabama, was even harsher. “There is no question that China manipulates its currency in order to subsidize Chinese exports,” he said. “The only question is: Why is the administration protecting China by refusing to designate it as a currency manipulator?”

In Beijing, the Chinese Foreign Ministry said Thursday that the pressure from the United States would not help resolve the currency issue and could even backfire. “I would point out that appreciation of the renminbi will not solve the U.S. deficit and unemployment problems,” a Foreign Ministry spokeswoman, Jiang Yu, said at news conference.

Mr. Geithner told the committee that he agreed with the International Monetary Fund’s assessment that China’s currency, the renminbi, was “significantly undervalued,” relative to its rapid growth in income and productivity relative to its trading partners and its gaping current account surplus with the rest of the world.

China spends an estimated $1 billion a day to keep the renminbi more or less pegged to the dollar. Though it pledged in June to allow a more flexible exchange peg, the renminbi has risen only about 1 percent against the dollar since then — and the renminbi has actually depreciated against the trade-weighted averages of its trading partners’ currencies, as Mr. Geithner pointed out.

The Treasury secretary said that “the pace of appreciation has been too slow and the extent of appreciation too limited.”

The administration has declined, like its predecessors, to formally declare China a currency manipulator, a finding that could trigger a series of retaliatory measures. But Mr. Geithner said the Treasury “will take China’s actions into account as we prepare the next Foreign Exchange Report,” which is due Oct. 15.

Mr. Geithner laid out other concerns about China’s policies, including its support for “indigenous innovation,” a set of practices that American officials believe result discrimination against foreign products and technology.

The secretary also attacked what he called “rampant” violations of intellectual property rights and an “unacceptable” level of theft of intellectual property.

And he criticized a proposal by China to require that certain products be accredited before being sold to the Chinese government. The United States believes that such requirements might violate the standards China must abide by as part of its membership of the World Trade Organization, which it joined in 2001. China has been re-evaluating the policy.

“We are very concerned about the negative impact of these policies on our economic interests, and are pursuing a carefully designed, targeted approach to address these problems,” he said.

Mr. Geithner said the United States would work through international forums like the Group of 20 and the I.M.F. He also pledged that the administration would be “aggressively using the full set of trade remedies available to us,” including filing new cases against the W.T.O.

And he said the administration was “reviewing carefully” a complaint by the United Steelworkers union over a range of Chinese policies in the renewable energy sector.
 
Sep 17, 2010
Yuan dispute will go to G-20
http://www.straitstimes.com/print/BreakingNews/Money/Story/STIStory_579612.html

WASHINGTON - US TREASURY Secretary Timothy Geithner vowed on Thursday to rally other world powers to push China for trade and currency reforms as he was grilled by lawmakers demanding a crackdown on Beijing's policies.

China warned that pressure from Washington could backfire. Raising the stakes as part of a tougher line on China's policies, Mr Geithner said the United States would use a Group of 20 summit in Seoul in November to try to mobilise trading partners to get Beijing to let the yuan strengthen faster.

US lawmakers are weighing new legislation to punish China for practices they say keep the yuan artificially low, hurting American jobs and competitiveness, as they grow impatient with a diplomatic approach that has yielded little so far.

Even as Mr Geithner talked tough in testimony before two key congressional panels, saying he shared lawmakers' frustrations, he urged caution over any measures that might further strain US-China relations.

US lawmakers are weighing whether to push ahead with action against China before a Nov 2 congressional election that will hinge on voter concerns about the weak economy. The consensus in Congress seems stronger than ever for new rules targeting China but the tight legislative calendar leaves little time to pass a bill in coming weeks. Some analysts see the outcry as politicians trying to curry favor with voters.

Mr Geithner, walking a fine line in testimony to the House of Representatives Ways and Means Committee, said the Obama administration had not endorsed the House bill, which is tougher than the Senate version and would slap duties on goods from countries with 'fundamentally misaligned' currencies. But he said 'we are carefully looking at it' and wanted to be sure it was compatible with World Trade Organisation rules. -- REUTERS
Copyright © 2007 Singapore Press Holdings.
 
China starts trading yuan against Malaysian ringgit
Friday, August 20, 2010
AFP

http://www.chinapost.com.tw/print/269433.htm

SHANGHAI -- China began trading the Malaysian ringgit against the Chinese yuan on the domestic foreign exchange market Thursday in the latest step toward making the yuan an international currency.

The People's Bank of China, the nation's central bank, set a central parity rate, to be published daily before trading starts, of 0.46204 ringgit per yuan, according to the website of the China Foreign Exchange Trading Centre (CFETC).

The yuan is allowed to move a maximum of five percent up or down against the ringgit from the central parity rate.

The band is wider than the 0.5 percent range set for the yuan and the dollar, and the three percent band for four other major currencies currently traded on the onshore market.

The move is aimed to "promote bilateral trade between China and Malaysia and facilitate using the yuan to settle cross-border trade," the CFETC said in a statement late Wednesday.

Beijing has been taking steps including promoting the use of the yuan to settle international trade and forging currency swap agreements in a bid to make the yuan a major global currency.

The central bank said earlier this week it would allow foreign financial institutions that participate in the yuan settlement program to invest their yuan proceeds in China's interbank bond market, giving those receiving yuan as payments an investment channel.

Copyright © 1999 – 2010 The China Post. Back to Story


LEAD: China proposes using yuan for trade settlement with ASEAN+
Aug 26 02:51 AM US/Eastern

http://www.breitbart.com/print.php?id=D9HR0TMO0&show_article=1

DANANG, Vietnam, Aug. 26 (AP) - (Kyodo)—(EDS: ADDING DETAIL, QUOTES)

China is proposing the Association of Southeast Asian Nations use the yuan for trade settlements, according to a joint statement to issued after a meeting of their economic ministers Thursday.

For a start, China will organize a seminar on cross-border trade using its currency for ASEAN government officials and professionals in November this year.

The seminar set for Beijing, Shanghai and in Yunnan Province is aimed at promoting economic and trade cooperation and the statement said ASEAN welcomed China's proposal.

Participants at the seminar will be able to "discuss and exchange views on how economic and trade cooperation between them can be expanded and promoted through cross-border RMB trade settlement," the statement says.
RMB refers to the Chinese currency, which is also called renminbi.

"Everyone has already supported it. This will also promote our regional financial cooperation," said China's Commerce Minister Chen Deming who attended the ministerial meeting held alongside this week's ASEAN Economic Ministers meeting that involves meetings with ASEAN's major trade partners.

China has in recent years emerged as ASEAN's largest trade partner, with China-ASEAN trade reaching $178 billion last year, nearly 12 percent of ASEAN's total trade.

ASEAN and China have a free trade agreement, with tariffs on about 97 percent of products already eliminated as of this year.

ASEAN groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.
 
I think PRC's intention is to have the RMB to replace the US dollar as primary trading currency in South East Asia.

The question is will Asian currencies start using the RMB as a reserve currency?

PRC has issued RMB dominated bonds
http://sg.morningstar.com/ap/articles/view.aspx?id=2614

Will the Chinese replicate the success of the Petrodollar recycling of the United states in Asia?
 
China's Ministry of Finance to issue RMB bonds in HK: report
http://www.chinaknowledge.com/Newswires/News_Detail.aspx?type=1&NewsID=26906

Sep. 8, 2009 (China Knowledge) - China's Ministry of Finance plans to sell several billion RMB worth of RMB-denominated bonds in Hong Kong this year, said sources close to the ministry and the National Development and Reform Commission, the nation's top economic planning agency, today.
 
China Trading in RMB - Early Steps Toward Internationalization of the RMB
http://www.kmgadvisors.com/?p=283
by KMGAdvisors on July 7, 2009

Yes it is happening. While I was working in finance in Shanghai in 2005, I estimated a five-year window until China internationalized the RMB. The time has come and China is now trading with the renminbi. As an HSBC report indicated, the process is expected to happen a lot quicker than we expect. Nearly two trillion dollars of trade with China may be traded in renminbi over the next 2-3 years. Thanks to the US financial crisis, China can begin the steps allowing the renminbi to be an international currency.

Yuan Deposes Dollar on China’s Border in Sign of Trade’s Future
July 7, 2009

July 8 (Bloomberg) — Huang Xinyuan, who sells mining
equipment and pesticides to customers across China’s border with
Vietnam, says he no longer wants payment in U.S. dollars and
prefers the yuan.

Sales using the greenback at Guangxi Jinbei Group, where
Huang is vice president, dropped to 30 percent of contracts in
2008 from 87 percent in 2007. The yuan, which has gained 21
percent since it was allowed to strengthen against the dollar
starting in 2005, offers greater stability, he said.

“In recent years, the dollar has gone in only one
direction and that is down,” said Huang, 45, in his second-
floor office in Pingxiang, a town set amongst karst limestone
hills and sugar-cane fields in China’s southwest Guangxi Zhuang
Autonomous Region, three kilometers (1.9 miles) from Vietnam.
“Settling our orders in yuan removes a major risk.”

China expanded yuan settlement agreements last week from
border zones to its largest financial centers, including
Shanghai, Guangzhou and Hong Kong. The program is being rolled
out across Malaysia, Indonesia, Brazil and Russia, all nations
seeking to reduce the dollar’s role as the linchpin of world
finance and trade.

The central bank first brought up the concept of a
supranational currency to replace the greenback in reserves in
March. It will sponsor use of the yuan in trade by arranging
export tax rebates. Russia and India said the global financial
crisis had highlighted the dollar’s flaws and called for a
debate before the Group of Eight leaders meet in L’Aquila,
Italy, starting today.

‘Raise Questions’

“It does give you an idea of what the future could look
like,” said Ben Simpfendorfer, chief China economist in Hong
Kong at Royal Bank of Scotland Group Plc, the fifth-biggest
foreign-exchange trader. “The Chinese see an opportunity at
this point to raise questions about the dollar and its status as
a reserve currency.”

China, the biggest overseas holder of U.S. Treasuries,
trimmed its holdings of government notes and bonds by $4.4
billion to $763.5 billion in April. Premier Wen Jiabao said in
March that he was “worried” the dollar would weaken as U.S.
President Barack Obama sells record amounts of debt to fund his
$787 billion economic stimulus plan.

“The objective is to develop a substitute for the dollar
as the world’s reserve currency,” said Tim Condon, Singapore-
based head of Asia research at ING Groep NV, part of the largest
Dutch financial-services group. “That will reduce the ability
of the U.S. government to finance deficits with impunity.”

‘Justifiable Confidence’

Treasury Secretary Timothy Geithner said during a visit to
Beijing on June 2 that Chinese officials expressed “justifiable
confidence” in the strength of the American economy. China
expects the greenback to maintain its role for “many years to
come,” Deputy Foreign Minister He Yafei told reporters in Rome
on July 5.

In Pingxiang’s Puzhai border zone, traders prefer the yuan.
A parking lot that doubles as a wholesale market is jammed with
container trucks with license plates from as far as Shandong,
about 1,930 kilometers to the north. Garlic-laden motorcycles
snake through a checkpoint to the border control.
Traders from Vietnam bring harvests of lychees and dragon
fruit, departing with toys, household appliances and medical
supplies to sell back home.

Luo Huiguang, 27, who sells as much as 100 tons daily of
onions and garlic, collects payment in yuan wired from Vietnam.
“I prefer it to the Vietnam dong or U.S. dollar,” said
Luo as he shuttled between warehouses and trucks. “There’s less
hassle and we don’t need to convert the currency.”

Erase Profits

Exporters typically set prices to earn 5 percent profit on
sales, so 1 percent currency transaction costs and swings in the
value of the dollar can wipe out returns, Simpfendorfer said.
Many businesses lack the scale to hedge foreign-exchange risks,
said Huang at Jinbei, which did $50 million in trade last year.

Limited use of the yuan has been allowed since 2003 in
border trade with Vietnam and Laos to the south and Mongolia and
Russia in the north, according to a book published by the
Beijing-based State Administration of Foreign Exchange.

The central bank extended settlement last week by offering
companies in Shanghai and four southern cities tax breaks to
start conducting trade in the currency with Hong Kong, Macau and
the 10 members of the Association of Southeast Asian Nations,
which includes Indonesia, Thailand and Malaysia.

In five years, yuan contracts may account for 50 percent of
China’s trade with Hong Kong, which totaled $204 billion in
2008, according to Lian Ping, chief economist in Shanghai at
Bank of Communications Co., the nation’s fifth-largest lender.
They may make up 30 percent of shipments between the nation and
Asean countries that last year reached $231 billion, he said.

Yuan Appreciation

“The yuan will resume appreciation next year,” Lian said.
“More people will use the yuan in international trade.”

China’s central bank has limited the yuan’s gains in the
past year to 0.5 percent to help support exports during the
global recession. The dollar may depreciate by 5 percent
annually against the currency over the next two years, ING’s
Condon said. Simpfendorfer forecast the yuan will rise 5 percent
to 6.5 per dollar from 6.83 by the middle of next year. The
median forecast of 27 analysts in a Bloomberg survey was 6.7.

For all the concern that the dollar’s role is waning, China
has continued to lead buying of U.S. assets. The greenback
accounted for 65 percent of central bank reserves on March 31,
up from 62.8 percent in June 2008, according to the
International Monetary Fund in Washington.

‘China’s Desire’

“This is not a six-month or one-year story,” said Kenneth
Akintewe, a Singapore-based fund manager who helps oversee $138
billion of assets at Aberdeen Asset Management Plc. “China’s
desire to control the currency, particularly in the current
environment, will supersede its ambitions for the yuan.”

China’s currency isn’t fully convertible for investment
purposes. HSBC Holdings Plc, based in London, and Bank of East
Asia Ltd. in Hong Kong won approval in May to be the first
foreign banks to sell yuan bonds in Hong Kong.

Asian companies may be willing to accept yuan to win market
share in the world’s fastest-growing economy, said Pushpanathan
Sundram, a deputy secretary-general of Asean. The U.S. economy
will contract 3 percent in 2009, while China expands 7.2 percent
and the Asia-Pacific region grows 5 percent, according to World
Bank forecasts.

“The use of the yuan may eventually boil down to simple
economics,” Pushpanathan said. “Given China’s growing share in
international trade, traders may find it makes economic sense to
make settlements in the yuan.”

Russia, Brazil

Since December, the People’s Bank of China has provided 650
billion yuan ($95 billion) to Argentina, Belarus, Hong Kong,
Indonesia, Malaysia and South Korea through so-called currency
swaps, encouraging its use in trade and finance. Russia and
China agreed to expand use of the ruble and yuan in bilateral
trade on June 17. Brazil and China began studying a similar
proposal in May.

Converting payments to a third currency “seems to be
unreasonable” when Chinese partners are both supplying
equipment and buying processed raw materials, said Pavel
Maslovsky, deputy chairman of Peter Hambro Mining Plc, Russia’s
second-largest gold producer. It develops iron ore projects in
the Amur region bordering China.

“The Chinese economy is in such a shape now that their
project to export yuan may turn highly efficient,” said Eduard
Taran, chairman of OOO RATM Holding, a Siberian cement producer
also considering buying Chinese machinery in yuan and exporting
output in the currency.

About 160 kilometers north of Pingxiang, yellow cranes jut
skywards from a dusty 3 square-kilometer construction site in
the provincial capital of Nanning. The plot will house trade
missions and businesses from the Asean countries.

“Many countries view China as the savior in this global
economic crisis,” said Pan Hejun, vice-mayor. “It’s natural
that other countries will be willing to use the yuan to settle
trade and hold it among their reserves.”
 
I think the Malaysians are one step ahead of us, since the Ringgit has started to trade against the RMB.

Sep 16, 2010
S'pore can be RMB centre
By Cassandra Chew
http://www.straitstimes.com/print/BreakingNews/Singapore/Story/STIStory_579375.html

THE Sino-Singapore currency-swap agreement can help establish the Republic as a Renminbi (RMB) centre for the region, said Monetary Authority of Singapore (MAS) deputy chairman Lim Hng Kiang on Thursday.

'Currently, the Chinese are keen to internationalise the Renminbi, and the main vehicle for doing so is through Hong Kong. By having this swap line we are encouraging them to also provide the facility through Singapore.

'We can expect the Chinese to do so bilaterally with other South-east Asian countries, but to the extent that Singapore is the financial hub for South-east Asia, and the trade and investment facilitator for many of the deals and many of the operations arising in South-east Asia, then of course Singapore can aspire to be a Renminbi centre for South-east Asia,' he said.

Mr Lim, who is also Trade and Industry Minister, was responding to a question in Parliament from Nominated MP Teo Siong Seng.

MAS inked the S$30 billion currency swap agreement with the People's Bank of China (PBOC) on July 24.

Click here to find out more!
Copyright © 2007 Singapore Press Holdings.
 
Dollar Hegemony and the Rise of China
July 12, 2010
By Michael Hudson
http://michael-hudson.com/2010/07/dollar-hegemony-and-the-rise-of-china/

Hudson to Premier Wen Jaibao, March 15, 2010

Dear Premier Wen Jiabao,

I write this letter to counteract some of the solutions that Western politicians are recommending for China to cope with its buildup of excess foreign-exchange reserves. Raising the renminbi’s exchange rate against the dollar will not cure the China-US payments imbalance. The dollar glut will continue, and so will the currency fluctuation among the dollar, euro and sterling, leaving no stable store of value. The cause of this instability is that each of these three currency areas has grown top-heavy with by debts in excess of the ability to pay.

What then should China should it do with its buildup of excess reserves, if not recycle its inflows into their bonds? Four possibilities have been suggested: (1) to revalue the renminbi, (2) to flood China’s economy with credit (as Japan did after the Plaza Accord of 1985), (3) to buy foreign resources and assets, and (4) to use excess dollars to buy back foreign investments in China, given US reluctance to permit Chinese investment in America’s own most promising economic sectors.

I explain below why China’s best course is to avoid accumulating further foreign exchange reserves. The most workable solution is to use its official reserves to buy back US and other foreign investments in China’s financial system and other key sectors. This policy will seem more natural as a response to an escalation of US protectionist moves to block Chinese imports or block China’s sovereign wealth funds from buying key US assets.

China’s excess reserves will impose a foreign-exchange loss (as valued in renminbi)

Every nation needs foreign currency reserves to ward off currency raids, as the Asia Crisis showed in 1997. The usual kind of raid forces currencies down. Speculators see a central bank with large foreign currency holdings, and seek to empty them out by borrowing even larger sums, selling the target currency short to drive down its price. This is the tactic that George Soros pioneered against the British pound when he broke the Bank of England.

Malaysia’s counter-tactic was not to let speculators cover their bets by buying the target currency. Its Malaysia’s success in resisting that crisis showed that currency controls prevent speculators from “cashing out” on their exchange-rate bets, blocking their attempt to drive down the currency’s value.

China’s case is the opposite. Speculators are trying to force up the renminbi’s exchange rate. Foreign inflows into China’s banks – especially those owned by US, British or other foreign companies – is flooding China with foreign currency. Its central bank finds itself obliged either to recycle this inflow back abroad, or to let the renminbi rise – and ultimately take a loss (as measured in yuan) when its currency rises against its holdings in dollars, sterling and euros. Speculators and other foreigners holding Chinese assets will get a free currency ride upward.

The effect within China’s economy will be to load it down with debt, while obliging it to buy foreign securities denominated in dollars that are falling in price. So the question is, how can China best cope with the foreign exchange flowing into its economy?

China’s major response has been to invest in the mineral resources and other imports it will need to sustain its long-term growth. But this option is limited by foreign protectionism against overseas investment in minerals and agricultural land, and by speculators from foreign countries using their own free credit to buy up these resources. So excess foreign exchange is continuing to build up.

Traditionally, central banks used their payments surpluses to buy gold as “money of the world.” Gold has the advantage of serving as a store of value, enabling central banks (in principle) to avoid taking a loss on their dollar holdings. Settling payments deficits in gold also has the global advantage of limiting the ability of other countries to run chronic payments deficits – especially war spending throughout history. This is why US diplomats oppose a return to gold.

In the 1960s foreign governments asked the US Treasury to provide a gold guarantee. The excess dollars thrown off by America’s overseas military spending in Southeast Asia and Europe ended up in the central banks of France (which dominated banking in Indo-China), Germany (as exporter and host to the major European military base), and Japan (for rest and recreation). France and Germany cashed in these dollars for gold, whose price came under pressure as US monetary gold stocks were depleted. To deter the central banks of France (under General de Gaulle), Germany and other countries from cashing in their dollars for gold, the U.S. Treasury gave a gold guarantee so that if the dollar lost value, these central banks would not lose.

Today, the United States is unlikely to give a gold guarantee, or to expect Congress to agree to such an arrangement. (Often in the past, US presidents and the Executive Branch have made agreements on foreign trade and finance, which Congress has refused to confirm.) It could guarantee China’s official dollar holdings vis-à-vis a basket or whatever the Government of China preferred to hold its reserves, from euros to a new post-Yekaterinburg currency mix. But no currency today is stable. All the major Western currencies are buckling under the burden of unpayably large debts. The US Treasury owes $4 trillion to foreign central banks, but there is no foreseeable way in which it can make good this foreign debt, given its chronic structural deficit of foreign military spending, import dependency and capital outflows. That is why so many countries are treating the dollar like a “hot potato” and trying to avoid holding them. And holding euros or British sterling does not provide a better alternative.

Most central banks today hold down their exchange rates by recycling their dollar inflows to buy US Treasury IOUs. This recycling enables the United States to finance its overseas military spending and also its domestic budget deficit (largely military in character) since the 1950s. So Europe and Asia have used their foreign exchange earnings to finance a unipolar US buildup of military bases to surround them.

This situation is inherently unstable, and hence self-terminating. The era is ending where international reserves are based on the unpayably high debts of any single government, especially when these debts are run up for military purposes. Certainly the US dollar cannot continue to fill this role, given the chronic US payments deficit. For most years since 1951, US overseas military spending (mainly in Asia) has accounted for the largest part of this deficit. And increasingly, the US trade balance has fallen into deficit (except for agriculture, entertainment and military arms). Most recently, capital outflows have accelerated from the United States, especially to China and Third World countries. US money managers have concluded that the US and other Western economies are entering a period of debt-burdened, permanently slower growth. So they are looking to China, hoping to obtain its surpluses for themselves by buying out its banking and industry.

This relationship is too one-sided to continue for long. The question is, how can it best be resolved? Any solution will involve China’s avoiding further accumulation of foreign exchange as long as these take the form of “free loans” back to the US and European governments.

China’s exchange rate vis-à-vis the dollar

American China bashers blame China for being so strong. They urge it to raise the renminbi’s exchange rate to be less competitive. And indeed, over the past three months China’s currency has risen by more than 10% against the euro and sterling as one euro-using government after another is facing insolvency.

The dollar’s recent strength does not reflect intrinsic factors, but merely the fact that the euro and sterling are even more highly debt leveraged. The main problem areas to date have been Greece, Ireland, Spain, Italy and Portugal, but much larger problems are soon to come from the Baltics, Hungary and other post-Soviet economies. For a decade, they financed their structural trade deficits by borrowing in foreign currency to fuel a real estate bubble. This foreign-currency inflow (from Austrian banks to Hungary and Romania, from Swedish banks to the Baltic States) inflated prices for their housing and office buildings. But now that their real estate bubbles have burst, there is no foreign lending to support their currencies. As their real estate sinks into negative equity, the banking systems of Sweden and Austria face widespread defaults.

The EU and IMF have pressured post-Soviet governments to borrow to bail out EU banks. This shifts the bankruptcy from the private sector to the public sector (“taxpayers”), imposing a severe economic depression on these countries. Governments are slashing spending on education, health care and infrastructure so deeply as to cause personal and business mortgage defaults, emigration, and even shortening life spans.

This shrinkage is the end-result of the neoliberal Washington Consensus imposed on these countries since 1991, aggravated by the global financial bubble since 2000. It is an object lesson for what China needs to avoid.

The United States for its part is manipulating its currency to keep the dollar low, by flooding its economy with low-interest credit. This manipulation runs counter to normal practice over the past five centuries. Any economy running a balance-of-payments deficit traditional has raised interest rates to attract foreign loans and slow domestic spending. But the US Federal Reserve is doing just the opposite. Low interest rates to keep the real estate bubble fro bursting further have the effect of aggravating rather than curing the trade deficit and capital outflow.

Yet more dollars are ending up in the hands of foreign central banks. Foreign economies are expected to recycle these inflows into yet more purchases of US Treasury securities, saving US taxpayers and investors from having to finance this deficit themselves.

Revaluing the renminbi would exacerbate China’s financial problem, not stabilize its trade

US economic diplomats argue that increasing the renminbi’s exchange rate will help restore balance to China’s balance of payments with the United States. But the US payments deficit is structural, and hence not responsive to price changes. As noted above, a major payments outflow is overseas military spending. Another growing outflow is on capital account, to buy up foreign companies, stocks and bonds. US investors themselves are abandoning the US economy, looking mainly to China for higher yields – and for a foreign-exchange windfall gain.

The US strategy is to buy up Chinese assets yielding 20% or more annually, while China recycles these dollars to Washington and Wall Street at interest rates of only about 1% (for Treasury securities) and absorbs losses in many private-sector investments. (This is the strategy that “worked” with Japan after 1985.) Revaluing the renminbi would provide a windfall for US hedge funds and speculators. Anticipations of revaluation already are spurring higher capital outflows to China.

A higher exchange rate for the renminbi also would result in even more dollar outflows from the United States to Asia on trade account, by obliging American consumers to pay a higher dollar price. Contrary to what most “free trade” assumptions, the fact is that most trade is not responsive to small shifts in currency values. (Economic jargon calls this “price-inelastic.”)

This became clear in the 1980s when a rising exchange rate for Japan’s yen did not reduce that nation’s trade balance. US consumers simply paid more. This is why, despite the recent 21% appreciation in the renminbi, China’s trade balance increased rather than shrank. Likewise, Japan’s yen has soared since autumn 2009, yet it is still accumulating reserves.

Even if China revalues the renminbi, its export prices will not rise proportionally. This is because imports of raw materials, much machinery and other components of most exports have a common world price (typically denominated in dollars). So a higher renminbi will lower the dollar price of these imports.

About half the price received for exports covers the price and markup spent on these imports with a common world price. So if China’s currency rises by 10% against the dollar, the price of imports embodied in these exports (as valued in renminbi) will fall by 10%. Half the export price will be unaffected, so overall export prices might rise by 5%.

Given the fact that trade patterns are deeply entrenched, a quantum leap in revaluing the renminbi would be needed to reduce China’s trade surplus. Small revaluations would not “solve” the problem that US diplomats are demanding. Unless revaluation is enormous – in the neighborhood of 40% – raising the exchange rate thus will tend to increase rather than reduce China’s trade surplus. The moral is that if the aim is really to change export patterns, there is no point in devaluing except to excess (that is, about 40%). This was the principle that US President Franklin Roosevelt followed in 1933.

Creating more domestic credit at low interest rates would destabilize China

The follow-up to a renminbi revaluation is likely to be what it was in the Plaza and Louvre accords that US diplomats forced on Japan after 1985. Payments-surplus economies are told to restore “equilibrium” by easing credit to spur a balance-of-payments outflow.

The effect is to create a financial bubble, derailing industrial competitiveness and leaving the banking system in a debt-ridden shambles. Japan was willing to flood its economy with enough credit to destabilize its industry and real estate markets with debt that has remained for the twenty years since its bubble burst in 1990. China should avoid this kind of policy at all costs. To avoid the debt overhead now stifling the Western economies, it should minimize debt leveraging and limit the banking system’s ability to create credit to buy assets already in place. Foreign-owned banks in particular need to be restricted from aiding parent-country currency speculation and related financial extraction of revenue from China’s economy.

Balancing China’s international payments by buying foreign resources and assets

China already is seeking to buy mineral, fuel and agricultural resources abroad to supply the inputs that it needs for its own growth. But these efforts still leave substantial foreign exchange surpluses. Most countries have used these surpluses to buy up key sectors of foreign economies. This is what Britain, the United States and France have done for more than a century.

When the US economy runs payments surpluses with foreign countries, it insists that they pay for their foreign debts and ongoing trade deficits by opening up their markets and “restore balance” by selling their key public infrastructure, industries, mineral rights and commanding heights to US investors. But the US Government has blocked foreign countries from doing the same with the United States. This asymmetry has been a major factor causing the inequality between high US private-sector returns and low foreign official returns on their dollar holdings.

The refusal of the US Government to behave symmetrically by not letting China buy key US companies with the dollar inflows that enter China to buy its own companies, above all its financial and banking sector, is largely responsible for the asymmetrical situation noted above, in which US investors earn 20% in China, but China earns only 1% in the US.

Buying back foreign investments in China

The wave of the future is to avoid a buildup of foreign exchange at all. The main way to do this is an option that European governments have discussed: to use their excess dollars to buy out US investment holdings in their countries, at book value. In effect, China would say to the United States:

“We have let you invest in out own factories and even our banks, and we have let you participate in our key sectors even where these have special domestic privileges. Your economists advised us that this was the most efficient way to run an economy. But it is not advice that the United States itself has followed. You are not letting us use the dollars that you invest here – and the dollars that China earns by exporting the products of its labor – to buy corresponding investments in your country.”

“It is of course the sovereign right of every nation to determine who shall own and control its industry, bank credit-creating privileges and other resources. We accept this principle of international law. So by the same token, we are using the surplus dollars to buy out US and other foreign investments in China. We are willing to do this according to international law, and pay the book value that your own accountants report their investments in China as being worth.”

“This will stabilize international exchange rates by restoring balance to international payments. It is especially natural inasmuch as we understand that the US consumer-goods market is shrinking, obliging us to turn more to our own domestic market.”

Obviously, US holders of investments in China would complain that their holdings are worth more than the book value they have declared. Indeed, this is a major reason why current investors in China are trying to prevent the US Government from engaging in more anti-Chinese protectionist policies. But in the event that the governments rejects their advice and “goes it alone” by taking anti-China measures, China would be in the position of responding to a US initiative rather than acting independently. And it certainly would have the support of other countries in a similar position vis-à-vis US attempts at politicizing foreign investment.

This problem came up in the 1960s and ‘70s, when the US Government directed foreign affiliates of US firms to adopt US Cold War policies to avoid trading with China, the Soviet Union and other targeted economies. Foreign governments pointed out that US directions as to how affiliates incorporated in foreign countries could act, as these were subject to their host-country laws, not those of the United States.

This issue is being revived today with regard to sanctions against Iran and other countries. International law has long backed host countries regarding trade and investment policy, credit policy and so forth. I expect this to become a major factor in foreign repurchases of US investments abroad – in Europe and other Asian countries as well as China.

Perhaps a commission will be necessary to debate a fair price for these future buyouts. But such cases usually take a considerable time to resolve. There are implications of this policy that I would prefer to discuss orally at an appropriate point in time rather than elaborate further at present.

Summary: The inequity of the dollar deficit

China, the rest of Asia and Russia have been financing the US overseas dollar spending to pay for America’s military encirclement of the Eastern Hemisphere and for US investors to buy out the crown jewels of Asian industry, financial institutions and public infrastructure. This situation is asymmetrical not only economically, but also politically. In 1823, America’s Monroe Doctrine told Europe to keep out of the Western Hemisphere, ending European colonialism and political hegemony in Latin America. The United States replaced the major European powers as investor and political and military influence.

Today, many people in the United States, Canada and Europe wish to see global disarmament in a multi-polar world rather than a unipolar world. They believe that no country should get a free ride or dominate the world militarily. That would not be a free market. In the end, international economic, political and military relations tend to settle at symmetrical common rules for all parties. A generation ago, Harvard economist Albert Hirschman called for U.S. disinvestment in Latin America and third world countries, on grounds of U.S. economic interest itself. Today, the US economy is suffering from chronic domestic budget deficits that are largely military in character, and chronic payments deficits. Scaling back military spending would free resources for use in its own economy, while enabling foreign economies to wind down their own military budgets.

This logic is endorsed by many US citizens and economists. It can be promoted by a system in which no national economy remains in a monetary system based on the military spending of a military nation in chronic deficit and rising debt beyond its foreseeable ability to pay. This kind of free ride characterized the empires of times past, but the present century promises a more fair, equitable and (one hopes) less militarized world.

Michael Hudson
Distinguished Professor of Economics, University of Missouri (Kansas City)
Honorary Professor, Huazhong University of Science and Technology (Wuhan)

I am not an Economist nor a business guru in fact I am just a Joe average. In my own laymen opinion, I do find it rather ironic when the writer of the text came from the either 2 continents that are almost facing bankruptcy and facing the highest unemployment in history - And they are giving advice to China on what to do. Shouldn't it be the other way round?

When Europe and the Americas were wealthy (filthy rich), did they do what they are advising China now? Well, I dont think so, they wanted to stay on top of the game so why should they? The decades to follow are the age of South East Asia and China perhaps with the Europeans and Americas trialling behind, at least not until they have managed their debt ridden economies..;)
 
I am not an Economist nor a business guru in fact I am just a Joe average. In my own laymen opinion, I do find it rather ironic when the writer of the text came from the either 2 continents that are almost facing bankruptcy and facing the highest unemployment in history - And they are giving advice to China on what to do. Shouldn't it be the other way round?

When Europe and the Americas were wealthy (filthy rich), did they do what they are advising China? I dont think so, the decades to follow are the age of South East Asia and China perhaps with the Europeans and Americas trialling behind, until they have managed their debt ridden eonomies..;)

The particular economist is telling the CCP that the Wall Street nexus is engineering a financial warfare against the state of China by plunging the US dollar.

He is suggesting that the CCP should "nationalised" US companies on Chinese soil by buying them out should the US wage a trade war against China.

He has also given the solution to solving the US debt crisis. Annulment of the mortgage debt owed by Americans instead of lending money to the financial institutions. But trust me, no sane banking institution will annulled the mortgage debt.
 
Last edited:
If I were an American financial institution , I will borrow USD and use the money to buy RMB over the counter, since the RMB is going up and the US interest rate is at historic low and plunging by the day.

Instant profit.
 
Back
Top