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Malaysia Slaps "Dollar As Reserve Currency" Thesis, As It Buys Renminbi-Denominated Bonds
Overnight gold hit a fresh all time record as increasingly more people make their own decision to go back to the gold standard, away from endless currency dilution, and away from the dollar as reserve currency. Curiously, the latest salvo in the case of the latter came from Malaysia which, courtesy of the FT, we learn has "bought renminbi-denominated bonds for its reserves, marking a
significant advance for Beijing’s attempts to internationalise the use
of its currency, pitched by Chinese policymakers as a long-term rival to
the US dollar." While relatively under the radar, this development will have huge implications for global capital flows: as Credit Agricole's Dariusz Kowalczyk, says, "the central bank’s move is also expected to herald further diversification into Chinese government securities by other Asian countries. This brings the renminbi’s credibility to a whole new level. It will have a domino effect, starting among China’s trading partners in Asia. Then it will gradually spread globally." Of course, it also shows that what China does to Japan by buying up its bonds, the world can do to China. However, in exchanging the renminbi for the dollar as global reserve currency of choice, Beijing will be more than happy to allow this, even as the US, its infinite budget deficit, and its outright lack of a budget, grows increasingly isolated.
More from the FT:
The Malaysian central bank refused to comment on the move, saying that it never discusses the composition of its reserves, which amounted to M$311bn (US$100bn) at the end of August, which was then equivalent to US$95bn.
However, people with knowledge of the transaction said it had taken place recently and was thought to have been accompanied or followed by purchases by other Asian central banks, although none of these has yet been identified.
In August, China opened its domestic interbank bond market to foreign central banks that have access to renminbi through a series of bilateral currency swaps totalling Rmb800bn ($120bn).
The agreements, signed since 2008, are with Argentina, Belarus, Hong Kong, Iceland, Indonesia, Malaysia, Singapore and South Korea, although there are no details about how many of these swap lines have actually been activated. Commercial banks such as HSBC and Citigroup that have accumulated renminbi through cross-border trade settlement were also told last month they would be able to invest in China’s interbank bond market, although none has yet been given formal approval.
The decision to allow some central banks to invest in the domestic bond market is part of a push by Beijing to increase the international use of the Chinese currency. An expanded role for the renminbi would be a threat to the position of the US dollar, although many economists believe it will be years before it becomes a major reserve currency, given China’s tight financial market controls.
To be sure, our idiot politicians are sure to welcome this move as it will lead to further appreciation of the CNY, and more dollar destruction, which presumably will make the export of US-based financial innovation cheaper. Which of course, when faced with $10 trillion in budget deficits over the next decade, which will need about $15 trillion in incremental debt issuance, is completely irrelevant. Instead of focusing all its attention on the one thing that matters, i.e., making US Treasury debt purchases as attractive as possible for as long as possible, the US is now happy to throw future bond buyers under the bus, just so a few incumbents can get reelected on a myopic campaign promise. In the meantime, follow the price of gold: it speaks volumes about what the world thinks of the current reserve currency system.
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Malaysian common sense, bitchez!
Looks like BNP just backed up the truck on silver.
http://www.theaustralian.com.au/business/mining-energy/silver-looks-ready-to-rip/story-e6frg9ex-1225926785632
Don't you worry about nothing, baby. They will dump Yuan & gold and come back holding US$ happy now that the recession is officially over.
Turbo Timmy and Bennie B. can fix this with higher usa executive bonuses.
The bailout should have been at least 7 Trillion USD !!
Dictionary says: after lending comes SPENDING!
Set the animal spirits free!
Remember, higher bonuses creates higher tax revenues!
And executive spending on jets and gigayachts drives aggregate demand! Yayayyayayayayay!
Should've bought gold, bitchez.
So they are buying chinese bonds that are backed by US dollars?
There you go again, injecting logic into a discussion about international finance. Big brother won't like that.
lol, you think Yuan are backed by dollars rather than the other way around.
Because people around the world are scrambling for cheap American goods.
As long as the Yuan is fixed to the dollar, the Chinese bonds are just a derivative of American dollars. May as well own the "real thing".
Now when China finally lets its currency float, things will change quickly.
Collapse of faith in a currency. Hmm, one wonders what the logical outcome of that is.
Oh yea domino effect. Remember the Real/Renminbi trading story from 2008? I remember that was hailed as the death knell for the Dollar. Before it rallied 20%.
What's your time horizon?
And I remember that you were one of the 'Gold is going to $.50c, and anyone who buys it is a moron' crew last year How'd that work out for ya?
You were wrong then, and you're wrong now. The dollar has no superpowers which make it immune from the effects of gross fiscal mismanagement combined with willful debasement.
That will show the damn yanks. Invest in octogenarian, communist butchers. The Vietnamese dong would be a better choice, and funnier.
Interesting flag, a muslim-usa hybrid:
http://en.wikipedia.org/wiki/File:Flag_of_Malaysia.svg
Gold, equity paper, food prices, energy prices, home prices, you cant lose theyre all going higher for eternity its the psychos ball.
JP Morgan is making their usual Tora,Tora,Tora attack this morning on both Gold & Silver. I think they like to try and retrace their marks on the Kitco Charts for fun.
They're not doing a very good job at it - I see 1283 and 20.86.
Doesn't stop the paper shorts from their massive daily increase, though. It should be fun to see what happens once all the Gold producers have closed their hedge books.
Oh, and question for the deflationists - why would the Gold producers close their hedge books at a massive cost, if they didn't believe the prices were ultimately moving up?
As said by me many times as well as recent articles on this site, deflation and hyperinflation are only mutually exclusive at the same specific point in time. Wasn't there an article on here maybe 6 months ago outlining the performance of gold in both deflationary and inflationary environments and didn't deflation prevail? (inference being the expectation of QE/stimulus/etc.). Regardless, we have not only deflation, but mixed signals from a currency crisis... Further, not all asset classes have to decline in unison...
The USDX keeps bouncing out of 81.20 or so and gold keeps banging up against 1285. I'd expect some further $ strength and a brief push lower in gold to 1272 or so. The next two weeks are going to be fun, however. Gold is headed to 1350-65 before pausing.
It is then headed to 1500 before 12/10/10.
It's like parallel parking practice to them.
Interesting slant with the USD xor CNY...what happened to a happy basket of currencies and commodities?
A why pretend that currencies are more important than energy anyway?
Price oil in rutabagas, it'll still be a prereq for civ as we know it.
With Geithner's pitiful tirade against China at the weekend (think petulant teenager) and now this, I'm reminded of the Chinese students last year when Geithner was presenting to them - they must be laughing their backsides off.
DavidC
Red October?
http://www.youtube.com/watch?v=Jc6xUj7ujYg
Thank you Rusty, excellent site for the news i got. Put options in a major way oct 16.
Subtle pressure to pick the West or East will increase on Australia as time passes. Straddling the fence will become more uncomfortable.
The used to say; "Follow the money."
You will start to say; "Follow the machines."
As despotic as the Chinese central government can be, the vampire squid and all the other cuttlefish will issue their tentacles into China for a piece of the pie. In the end, there is nothing there for them, you or your kids.
Let's just hope we are not a nation of complete and toothless morons by then.
?????????.
Dude, they are cool.....
GS,is/has opened up offices there now...........
The TBTF's are moving into Vescrewju .
DOW weekly chart shows key resistance around 10,700
http://stockmarket618.wordpress.com
Dooopidooo. 95 bn in reserve. How much is that of the US reserve currency? That is what the US citizens borrow each day to fund their breakfast.
Non event.
Until it is...
That subprime mortgage situation is well contained also.
What a moronic move...CNY inflation is the worst out there.
China will straight fucking STEAL from you whatever you bring into their hands. At least in the US we honor IP rights.
Looks like people steal what they can.
The US could have enforced property rights but they would have missed the biggest land grabbing in human history.
Malaysia, proxy of China.