For Cathleen

[Kat Kanning]

 China signals switch in reserves away from dollar

Financial Times | January 6, 2006
RELATED:

Gates, Buffett, China 'run from dollar'

China Severs Its Currency's Link to Dollar

China indicated on Thursday it could begin to diversify its rapidly growing foreign exchange reserves away from the US dollar and government bonds ? a potential shift with significant implications for global financial and commodity markets.

Economists estimate that more that 70 per cent of the reserves are invested in US dollar assets, which has helped to sustain the recent large US deficits. If China were to stop acquiring such a large proportion of dollars with its reserves ? currently accumulating at about $15bn (?12.4bn) a month ? it could put heavy downward pressure on the greenback.

In a brief statement on its website, the government's foreign exchange regulator said one of its targets for 2006 was to "improve the operation and management of foreign exchange reserves and to actively explore more effective ways to utilise reserve assets".

It went on: "[The objective is] to improve the currency structure and asset structure of our foreign exchange reserves, and to continue to expand the investment area of reserves.

"We want to ensure that the use of foreign exchange reserves supports a national strategy, an open economy and the macro-economic adjustment."

The announcement came from the State Administration of Foreign Exchange (Safe). It gave no more details about whether this meant a big shift in the investment strategy for Chinese reserves, which according to local press reports reached nearly $800bn at the end of last year and are expected by economists to near $1,000bn this year.

The regulator also said it would end quotas on the amount of foreign currency Chinese companies can acquire to invest in overseas assets, a decision that removes a bureaucratic hurdle facing companies that plan to make international acquisitions.

The statement comes at a time of growing debate in China on how the reserves are invested. Some economists have called on Beijing to use the funds to finance infrastructure investment and clean up state-owned companies, or to invest in higher-yielding assets rather than financing US borrowing.

However, according to Stephen Green, economist for Standard Chartered in Shanghai, although the language was "vague", Thursday's statement was the first time Safe has publicly indicated a shift away from dollar assets.

"It is a subtle but clear signal that they are interested in moving away from the US dollar into other currencies, and are interested in setting up some kind of strategic commodity fund, maybe just for oil, but maybe for other commodities," he said.

The Group of Seven leading industrialised economies has repeatedly called for an adjustment in global trade imbalances, including a rise in the renminbi. The US has expressed frustration that China has not allowed its currency to rise significantly after last July's 2 per cent revaluation. That saw China move from a dollar peg to managing its currency against a basket of currencies, potentially allowing the renminbi to rise against the dollar.

John Snow, US Treasury secretary, speaking earlier on Thursday, repeated his call for China to allow the renminbi to rise against the dollar. "The trade deficit is influenced by lots of things, differential growth rates, differential savings rates and investment rates and so on. But clearly, getting the [Chinese currency] more appropriately valued will be helpful to the global adjustment process," he said.

However, some economists believe it would be a mistake for China to shift its reserves into domestic investment or other asset classes.

[Michael Fisher]

Yep, this is one of the signs that it's over for the US dollar.

Dump them!

[Dreepa]

Yep, this is one of the signs that it's over for the US dollar.

Dump them!

And the corner store is going to take...?
Also should I ask my company to pay me in silver or gold?

[Michael Fisher]

Yep, this is one of the signs that it's over for the US dollar.

Dump them!

And the corner store is going to take...?
Also should I ask my company to pay me in silver or gold?

Silver ounces, 1/2 oz, 1/4, 1/10, and 1/20.  Real copper coins.  Do I have to think of everything?   

[cathleeninnh]

foreign currencies?

[Eli]

I talked to the people at Pheonix silver, and they said they would be glad to work from a payroll EFT and sell you silver. 
Their forums are full of interesting people.

[Russell Kanning]

Maybe Walmart will take Chinese money since they buy some stuff from there.
Why not asked to be paid in something real? Food, gas ....

[Kat Kanning]

Another article:

China Set To Reduce Exposure To Dollar

Peter S. Goodman / Washington Post | January 10 2006

China has resolved to shift some of its foreign exchange reserves -- now in excess of $800 billion -- away from the U.S. dollar and into other world currencies in a move likely to push down the value of the greenback, a high-level state economist who advises the nation's economic policymakers said in an interview Monday.

As China's manufacturing industries flood the world with cheap goods, the Chinese central bank has invested roughly three-fourths of its growing foreign currency reserves in U.S. Treasury bills and other dollar-denominated assets. The new policy reflects China's fears that too much of its savings is tied up in the dollar, a currency widely expected to drop in value as the U.S. trade and fiscal deficits climb.

China now boasts the world's second-largest cache of foreign exchange -- behind only Japan -- and is on pace to see its reserves climb past $1 trillion later this year. Even a slight diminishing of the dollar as a percentage of those holdings could exert significant pressure on the U.S. currency, many economists assert.

In recent years, the value of the dollar has been buoyed by major purchases of U.S. Treasury bills by Japan, China and oil-exporting countries -- a flow of capital that has kept interests rates relatively low in the United States and allowed Americans to keep spending even as debts mount. Some economists have long warned that if foreigners lose their appetite for American debt, the dollar would fall, interest rates would rise and the housing boom could burst, sending real estate prices lower.

The comments of the Chinese senior economist, made on the condition of anonymity because the government disciplines those who speak to the press without express authorization, confirmed an analysis in Monday's Shanghai Securities News stating that China is inclined to shift some its savings into other currencies such as the euro and the yen, or into major purchases of commodities such as oil for a long-discussed strategic energy reserve.

In a report circulated this week, Stephen Green, senior economist with the bank Standard Chartered PLC in Shanghai, identified several signals that China is intent on limiting its exposure to the dollar -- not least, a recent pledge from the State Administration of Foreign Exchange to "actively explore more efficient use of our foreign exchange reserves."

"We believe this adds to the downside pressure the USD [U.S. dollar] is currently facing," Green wrote. "It is the first official expression from SAFE that they are looking at switching away" from the dollar.

The comments on SAFE's Web site reinforced earlier public warnings from Yu Yongding, an economist on the monetary policy committee of China's central bank, that the country's reserves are now vulnerable to a drop in the value of the dollar.

"The general trend for the U.S. dollar is continuously weakening," Yu said, speaking to reporters at a conference in Beijing last month. "Countries with huge foreign-exchange reserves will have their assets shrunken."

Last week, Hu Xiaolian, director of the foreign exchange administration, said China plans to "optimize the structure" of its reserves. Analysts took that to mean China would pursue a higher return than it can get from holding dollars by diversifying its reserves.

Not all economists anticipate negative repercussions for the U.S. economy. Were China and Japan to engineer a significant fall in the dollar, those nations also would suffer the consequences -- sharply diminished exports as Americans lose spending power, plus a drop in the value of their dollar assets.

"It is thus extremely unlikely that China would do anything to harm its own balance sheet," wrote Stephen Jen, an economist with Morgan Stanley, in a research note distributed Monday.

In 2005, the dollar rebounded against major foreign currencies as the Federal Reserve raised short-term interest rates -- making dollar assets relatively more attractive than others -- but has slid a bit early this year. Meanwhile, China continues to amass foreign-exchange reserves at a pace of roughly $15 billion per month.

Warnings about an impending Chinese sell-off in dollars emerged in July, as China slightly altered the way it sets the value of its currency, the yuan, bumping it up against the dollar by about 2 percent. At the time, China announced that it would gradually allow greater movement in the exchange rate -- something that has yet to materialize -- while also shifting from a system in which the yuan moves with changes in the dollar to one where it tracks a basket of currencies including the yen, the euro, the Hong Kong dollar and the South Korean won.

The move temporarily muted criticism on Capitol Hill from those who accuse China of currency manipulation, asserting that an artificially low yuan has made China's goods unfairly cheap on world markets. But as the implications of the new currency policy rippled out, some analysts suggested that China would thereafter have less need for dollars and greater need for the other currencies in the new basket, sending the greenback down and risking higher U.S. interest rates that would dampen economic growth.

China sought to quash such talk. In September, a senior central bank official told a ballroom full of international executives gathered in Beijing that China would not sell significant quantities of U.S. bonds, cognizant that such a move would "cause the price to plunge."

Even if a Chinese shift away from the dollar weakened the currency, that would probably not soothe tensions with those in Washington calling for an increase in the value of the yuan to help U.S. manufacturers. Unless China severs the link between the value of its currency and the dollar -- a move Beijing says could destabilize its economy -- then a weaker dollar would simply mean a weaker yuan as well, leaving in place the current debate over whether China's export earnings are being netted unfairly.

[Michael Fisher]

Maybe Walmart will take Chinese money since they buy some stuff from there.
Why not asked to be paid in something real? Food, gas ....

Barter!   

[Lloyd Danforth]

While barter has it's usefullness, if all we had was barter, now, that? would be the end of civilization as we know it.

[Kat Kanning]

That's another thread.
http://forum.soulawakenings.com/index.php?topic=2615.0

[president]

While barter has it's usefullness, if all we had was barter, now, that  would be the end of civilizatio as we know it.

And that is a good or a bad thing?

[Russell Kanning]

You can get a index fund that is filled with international companies.

[Fluff and Stuff]

You can get a index fund that is filled with international companies.

Thanks.  Is the one that you recommend has being very good for this purpose?

[Russell Kanning]

If you want to counter balance your mutual fund investments best you could short the S&P500.