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Author Topic: Escaping the dollar trap  (Read 7591 times)

hillbilly-joe

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Escaping the dollar trap
« on: June 06, 2012, 01:33:21 AM »
I kind of think the dollar is losing its edge now in Asia.

Direct yen-yuan trading is another step in China's bid to extricate itself from excessive dependence on US currency

As part of efforts to boost bilateral trade and investment, China and Japan started direct trading of their currencies in Shanghai and Tokyo on June 1.

Allowing the yuan to directly trade with another major currency other than the US dollar will help China in its efforts to acquire a wider trading and financial presence.

The biggest lesson China has learned from the global financial crisis is that it should push for reforms of the international monetary system and accelerate the internationalization of the yuan. It has also become increasingly evident that the dollar-dominated global monetary system has not only interrupted the world's normal economic growth mechanism, but also caused global economic and financial chaos. The "dollar trap" can be found in every corner of the world.

The establishment of the "dollar era" during the latter half of the 20th century was to a large degree a consequence of the United States' decisive role in the making of global market rules and institutions. The US dollar has thus become the center of the world's monetary system while other countries, either export or resources-dependent, have to peg their currencies to the dollar, thus weakening the independence of their monetary policies.

Such an imbalance has resulted in "appreciation against the dollar, but depreciation at home" for some currencies and aggravated the imbalances in global trade. Against this backdrop, how to gradually depeg their currencies from the dollar and increase their monetary independence has become a pressing concern for some countries.

For a long time, China only allowed the yuan to be directly traded with the dollar and all transactions with other currencies had to be via the greenback. As a result, the value of the yuan and its issuance have been influenced by the monetary policies of the US. This has made it difficult for a real exchange rate of the yuan to be established.

The internationalizing of the yuan has accelerated since 2010, especially this year with the HSBC issuing yuan bonds in London in April, a move that started the establishment of another offshore financial center of the yuan besides Hong Kong, and the World Bank's agreement with China's central bank for commissioned investment in China's inter-bank securities market.

China remains Japan's largest trading partner. In 2011, the bilateral trade volume increased to a record high of $344.9 billion, an increase of 14.3 percent year-on-year. However, 60 percent of the bilateral trade volume between the two countries is settled via the dollar, thus bringing both countries increased transaction costs and settlement risks and prompting them to raise the ratio of trade settlements via their own currencies.

There have been great motivations within Japan for direct trading of yen with the yuan. Japan's accelerated industrial and population ageing over the past decade has been a key factor in its failure to pull out of a lingering recession. To alleviate the impact of the yen's appreciation upon its economy, Japan began moving its focus of economic growth overseas in the 1980s. Under such a strategy, some Japanese enterprises that have lost advantages at home have moved their manufacturing and operation bases overseas in pursuit of bigger profits.

Since the catastrophic earthquake and the ensuing tsunami in March last year, Japan has accelerated the shift of its industrial development and investment to other countries, especially to China. In this context, direct yuan-yen trading without the involvement of the US dollar will not only offer more opportunities for Japan's industrial and trade growth, it will also promote deeper Asian economic integration.

Past practices indicate that if a currency is to become a leading international currency, it starts from acquiring pricing and settlement position in the trade of international bulk commodities, especially energy sources, as indicated by the establishment of the dollar's hegemony in world's energy trade over the past decades. The formation of a "dollar, oil dollar and commodity dollar" cycle, a closed cycle of global capital flow, has to a large extent decided the distribution of global wealth.

A key element to judge whether a country's currency is a leading international currency is its share in global foreign reserves. According to the International Monetary Fund, more than 60 percent of global foreign reserves was in US dollars by the end of the third quarter of 2011. Behind the dollar are the euro, sterling and the yen, the yuan is only accepted by a few countries as a reserve currency.

Despite facing a tortuous path before its internationalization, the yuan's direct trading with the yen marks a substantial step forward in China's bid to extricate itself from excessive dependence on the US dollar. Depegging from the dollar will facilitate its process of free conversion with other currencies and make it play a bigger role in global wealth distribution.

DetroitBlues

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Re: Escaping the dollar trap
« Reply #1 on: June 06, 2012, 03:35:44 PM »
They'll have a hard time convincing the largest importer of Chinese goods to accept their monetary terms.

reb

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Re: Escaping the dollar trap
« Reply #2 on: June 06, 2012, 05:30:34 PM »
joe, going back to j.m. keynes calling for the 'bancor'...

https://en.wikipedia.org/wiki/John_Maynard_Keynes

...and current goings on...

http://online.wsj.com/article/SB123780272456212885.html

as the pound came under attack due to britain's foolish monetary policy, so is the dollar now.

the old chinese curse 'may you live in interesting times' has come upon us.

hillbilly-joe

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Re: Escaping the dollar trap
« Reply #3 on: June 06, 2012, 08:32:06 PM »
They'll have a hard time convincing the largest importer of Chinese goods to accept their monetary terms.

Maybe not.  The Euro dollar made its way into history

hillbilly-joe

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Re: Escaping the dollar trap
« Reply #4 on: June 06, 2012, 08:47:33 PM »
joe, going back to j.m. keynes calling for the 'bancor'...

https://en.wikipedia.org/wiki/John_Maynard_Keynes

...and current goings on...

http://online.wsj.com/article/SB123780272456212885.html

as the pound came under attack due to britain's foolish monetary policy, so is the dollar now.

the old chinese curse 'may you live in interesting times' has come upon us.

The html thing I could not access.

There is and already a trend here in Asia that the countries are going to be using the Yuan in their business dealings.  The article does make a lot of sense though. My feeling is that the dollar has seen it days in Asia. May take another 20 years or less, but has now started with Japan and a few other countries, which I forgot.

reb

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Re: Escaping the dollar trap
« Reply #5 on: June 07, 2012, 09:15:48 AM »
i have a friend who lives in greece on another forum. i'm going to ask her, when the idea occurs to me next and i am there, what conditions are like 'on the ground'. the last i heard, the u.s., due to the budget deficit, has worse numbers than greece. greece is thumbing their nose at the eu...'no, we won't control our spending'. like everyone else 'owes them'. that entitlement thinking is throughout u.s....people think 'we don't have to work, and we can have an lcd tv, a new car, a nice house or apartment, and the government will pay for it'. bullsquat.

despite the fact that 'money is an idea', it is a stand in for 'resources'. iow, it represents food, clothing so forth...'actual value'. in order to 'have' something, one has to work for it in some way or steal it. these 'entitled ones' are stealing from everyone else.

the chinese, the japanese...all the oriental people i know or have known...they don't generally believe in entitlement.

the 'you know what' is going to hit the fan worldwide at some point. if you go back, joe, and look up some history of when the british pound sterling lost its status as the world currency standard, you may get some idea of how the stuff hits the fan. as i recall, some of the brits wrote that they had to use candles for heat and were danged hungry from time to time. in the u.s., that will provoke riots and who knows what else. none of these dips understand where we are headed.  cannot read history and see parallels, i suppose. too much inbreeding.

hillbilly-joe

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Re: Escaping the dollar trap
« Reply #6 on: June 27, 2012, 09:12:15 PM »
I read the stuff on Harmony Central Political forum and seems like America is in a no hope situation these days to recover. Mainly because the politicians are stuffing their pockets and don't give a hoot about you or I.

reb

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Re: Escaping the dollar trap
« Reply #7 on: June 28, 2012, 01:00:54 PM »
you heard the supremes upheld 'obamacare'?  the Constitution has no more meaning here. thusly, we are down the tubes, i think. money is only an idea...value is separate from ideas. an egg or a steak or a loaf of bread has 'real value'. paper has only the value we assign to it. kinda like momma used to say...'sticks and stones may break my bones, but words will never hurt me.'. one has to be internally solid to live like that, though. there are too many here who hang on the every word of someone else.....

be glad you're over there, joe. maybe the japanese have more sense due to their last 30 years of economic 'learning'. deming taught them a lot after wwII. i hope they remember it all.

DetroitBlues

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Re: Escaping the dollar trap
« Reply #8 on: June 28, 2012, 03:38:42 PM »
Health care does work in Cananda and in the UK being Government run... But accountability and qualification of patients to receive care goes away.  Government can now chose who gets what health care treatments and who doesn't....

hillbilly-joe

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Re: Escaping the dollar trap
« Reply #9 on: August 08, 2012, 07:20:31 AM »
Health care does work in Cananda and in the UK being Government run... But accountability and qualification of patients to receive care goes away.  Government can now chose who gets what health care treatments and who doesn't....


I think its the same even if you have private insurance. Wife has a baby, want them out in 2 days, Japan 2 weeks