Friday, January 6, 2006
previous entry | main | next entry | TrackBack (0)
And the dollar watch starts for 2006
The Financial Times has two reports that provide contradictory signals on what the Pacific Rim economies will be doing about the 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.Here's a link to China's State Administration of Foreign Exchange, but damn if I can find the announcement in question.
On the other hand, Song Jung-a reports that South Korea is moving in exactly the opposite direction:
South Korea’s finance ministry said on Friday it would mobilise all possible means to curb the won’s recent sharp appreciation against the US dollar.China's dollar position is more significant than South Korea's, but my bet is that Beijing will move as slowly as possible in its diversification -- which means that South Korea's move in the opposite direction could leave the dollar pretty much where it is now.
This, by the way, is the dream scenario for China -- it can comply with U.S. requests, diversify away from an asset that will fall in the future, and still have the dollar be relatively strong against the yuan in the short term.posted by Dan on 01.06.06 at 09:50 AM
Right-Wing Darwinists say:
“Survival of the richest.”posted by: NeoDude on 01.06.06 at 09:50 AM [permalink]
The Brazilian real did the best against the dollar last year and already the Brazilian government is ending limits on banks long dolalr holdings in order to weaken the real and spur exports even more.posted by: Randy Paul on 01.06.06 at 09:50 AM [permalink]
I don't get it. This just doesn't make sense.
If the governments of south korea or brazil want to weaken their currencies relative to the dollar, all they have to do is runk the printing presses and create a lot of new wons or reals and spend them.
Or if those governments don't want to spend the money themselves, they can *give the money to voters*.
This is the fun way to weaken your currency. The american way. Why would they do it by buying depreciating dollars instead? It makes no sense.
Because it would spur inflation, that's why. Inflation in Brazil is a four letter word.posted by: Randy Paul on 01.06.06 at 09:50 AM [permalink]
Thank you, Randy.
So, they're stuck?
They can't compete with us at inflating the money supply.
And they can't let their currency appreciate against ours.
So they have to take our depreciating dollars and store them away, and lose that way.
Mmmm. If they could export to china instead, they could ignore dollars. But china isn't buying....
What a system! They give us stuff, and we give them paper. Or rather, we give them little blips in a computer. And they're concerned that we not give them too many blips per unit of stuff they give us, because they need the work! They can't work and give the stuff to each other, because they can't afford it, they don't have the blips!
What a sweet racket! Only -- what if the marks catch on?
Actually we give them dollars (they have a huge trade surplus) which they use to convert to reais (plural of real). A weaker real makes their exports even cheaper and helps their trade surplus.
Oh they are doing business with China.posted by: Randy Paul on 01.06.06 at 09:50 AM [permalink]
What I am surprised at is that you haven't commented on CNOC's purchase in Nigeria. As Magnum once said "May you live in interesting times."
Great article, that was interestingposted by: make money online on 01.06.06 at 09:50 AM [permalink]
Post a Comment: