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Former China Central Bank Advisor Repeats Call To Cut US Treasurys
The Chinese rhetoric on US Treasury holdings is once again heating up. After a year ago former PBOC advisor Yu Yongding called for a reduction in China's holdings of US Treasurys, popular magazine Caijing published another call to arms by the disgruntled ex-central banker. In apparent disagreement with traditional monetary policy and the Yuan peg, Yu said that moving towards a more market-driven exchange rate would mean
reduced intervention in the foreign currency markets, giving China the
option of winding down its holdings of U.S. debt. "China should strive to reduce instead of further increasing (its
holdings of) dollar assets," he said. "Specifically, China should reduce
the growth of its foreign exchange reserves as soon as possible. Furthermore, with the Fed now firmly holding far more US debt than China, the world's fastest growing economy is realizing that is negotiating power when it comes to US leverage via bond holdings is getting smaller with every day. Perhaps the country is finally realizing that it would be best to sell to the Fed now when it can, rather than some time in the future, when it has to, and do so on Bernanke's terms.
More from Market News:
Yu recently retired from the Chinese Academy of Social Sciences in a tenure which included a stint as the academic member of the Monetary Policy Committee under the People's Bank of China.
He has become well known for airing views that are out of step with official government thinking, including advocating a more aggressive exchange rate reform policy and, as recently as last July, calling for Beijing to sell down its holdings of U.S. Treasuries.
Yu reiterated that the latest round of U.S. government stimulus could lead to a weaker dollar which would, in turn, erode the value of China's dollar-denominated holdings. These are estimated to total about 70% of its $2.65 trillion in foreign exchange reserves.
But he argued the Chinese government must strike a balance between yuan appreciation and maintaining employment in the export sector, adding that it should work towards convincing the public they would benefit from a stronger yuan, and that any move in this direction would not simply be a consequence of U.S. pressure.
Lastly, and probably most important from a
strategic point of view, is China's recent shift toward buying up
European sovereign debt: after all it is now in China's interest to keep
the euro as strong as possible, even if that means bilateral debt
purchasing arrangements such as the one being developed between Beijing
and Spain. Very soon China may move from funding America to Europe just to keep its own currency cheap courtesy of the USD peg. Which in turn only means that the only natural future buyer of US debt will continue to be for an indefinite amount of time non other than the US Federal Reserve. Which of course means continuing monetization under the guise of quantitative easing.
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Treasuries and the U.S. Dollar are now rallying on this news.
Now at new highs for the move.
Same "Wash, Rinse, Repeat" cycle over and over.
Risk assets get crushed, investors flee to safety of U.S. Fiatscos.
Market calling Chinese bluff?
China sells USA debt back to the Fed who is now main buyer of USA debt..China will not anger the FED until it has dumped what it needs to.. then things get nasty.
PM's have so much to support them in this current FRN world. One would think FRN inflation would have oil prices skyrocketing..oops.
Gold backed Yuan sounds like a logical outcome.
"Gold backed Yuan sounds like a logical outcome."
The Chinese are well aware of that old saw... 'Bad money always drives out good'.
Meaning that if China introduced a gold backed currency at this time it would be hoarded and the non gold backed currency would remain in circulation.
I certainly believe that in the future we will see a gold backed currency again but it will be after the crash of the current crop of fiat currencies has cleared the path for a sound currency.
I don't know about Yu, but many asian central banks have orders out there to buy the dip on the euro since the start of the year, not sure why since all of them are complaining about USD weakness and being flooded by toilet paper soaked in Ben's puke.
Gonzalo Lira believes that the Fed is buying over 60% of Treasury Issues. Printing lots of funny FRNs in the process, although electronically.
Could be true...
http://gonzalolira.blogspot.com/2011/01/is-federal-reserve-really-purchasing.html
Who cares, Ben or one of his non associated anonymous billionaire buddies will pick up the slack.
China reduces its holdings of US dollar securities only by eliminating its trade surplus or by increasing the value of the remninbi.