Chop, chop, chop the dollar<http://ftalphaville.ft.com/blog/2009/05/19/56020/chop-chop-chop-the-dollar/>Posted by *Izabella Kaminska* on May 19 15:50.
The FT reported<http://www.ft.com/cms/s/0/2120e2b0-440c-11de-a9be-00144feabdc0.html>on Tuesday that Brazil and China have come one step closer towards dropping the dollar in trade transactions in favour of their own currencies. Brazilian president Luiz Inácio Lula da Silva is currently visiting Beijing on a state visit. The news follows a Reuters report<http://af.reuters.com/article/energyOilNews/idAFLG46752220090516>on Saturday that Russia and Turkey have also discussed the possibility of switching to national currencies for the purpose of bilateral trade. As Reuters points out, Russia is Turkey’s largest trading partner, while Turkey is the fifth largest trading partner for Russia. The Chinese/Brazil move, meanwhile, was originally discussed by Brazilian President Lula da Silva and Chinese president Hu Jintao during the G20 summit in London last month. As the FT reports: An official at Brazil’s central bank stressed that talks were at an early stage. He also said that what was under discussion was not a currency swap of the kind China recently agreed with Argentina and which the US had agreed with several countries, including Brazil. “Currency swaps are not necessarily trade related,” the official said. “The funds can be drawn down for any use. What we are talking about now is Brazil paying for Chinese goods with reals and China paying for Brazilian goods with renminbi.” BarCap’s forex team, meanwhile, suggests the implications of this are pretty significant for the world’s relationship with the dollar (our emphasis): *This highlights that good news for the world (and even for the US) is bad news for the USD. *The growing confidence that recovery is coming means that other priorities can be pursued. It also shows that QE and unprecedented fiscal expansion comes at a cost. They introduce huge uncertainty into US monetary policy that cannot be deflected by just stating the US is in favor of low inflation and a strong dollar policy. That said, it is very unlikely that the USD’s reserve currency status faces any serious risks for now. It does not matter what currency trade is denominated in (except for pure transactional balances); what matters is the currency denomination of the assets that are held in portfolios. It is not possible for China to increase the importance of its currency without allowing it to appreciate. Similarly, one of the criteria for a reserve currency is that it be liquid, which usually means an open capital account. All of which stands to make US Treasury Secretary Tim Geithner’s first visit to Beijing on May 30th pretty interesting. According to his schedule he is due to discuss “a range of issues of importance to both countries, including strengthening US-China economic ties to promote stable, balanced and sustained economic growth in the two nations.” We, however, will be looking out for anymore potential slips of the tongue<http://ftalphaville.ft.com/blog/2009/04/02/54411/soros-gets-his-way-with-the-g20/>regarding strong dollar policy and/or special drawing rights. --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups ""GLOBAL SPECULATORS"" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [email protected] For more options, visit this group at http://groups.google.com/group/globalspeculators?hl=en -~----------~----~----~----~------~----~------~--~---
