China Takes Another Stab At The Dollar, Launches Currency Swap Line With France

Tyler Durden's picture




 

One more domino in the dollar reserve supremacy regime falls. Following the announcement two weeks ago that "Australia And China will Enable Direct Currency Convertibility", which in turn was the culmination of two years of Yuan internationalization efforts as summarized by the following: "World's Second (China) And Third Largest (Japan) Economies To Bypass Dollar, Engage In Direct Currency Trade", "China, Russia Drop Dollar In Bilateral Trade", "China And Iran To Bypass Dollar, Plan Oil Barter System", "India and Japan sign new $15bn currency swap agreement", "Iran, Russia Replace Dollar With Rial, Ruble in Trade, Fars Says", "India Joins Asian Dollar Exclusion Zone, Will Transact With Iran In Rupees", and "The USD Trap Is Closing: Dollar Exclusion Zone Crosses The Pacific As Brazil Signs China Currency Swap", China has now launched yet another feeler to see what the apetite toward its currency is, this time in the heart of the Eurozone: Paris. According to China Daily, as reported by Reuters, "France intends to set up a currency swap line with China to make Paris a major offshore yuan trading hub in Europe, competing against London." As a reminder the BOE and the PBOC announced a currency swap line back in February, in effect linking up the CNY to the GBP. Now it is the EUR's turn.

More on this curious move by the Bank of France and the PBOC from Reuters:

"The Bank of France has been working on ways to develop a RMB liquidity safety net in the euro area with due consideration of a supporting currency swap agreement with the People's Bank of China," Noyer told the English-language newspaper.

 

The yuan's internationalization and bilateral financial cooperation could be among the main topics during French President Francois Hollande's visit to China in late April, the paper said.

 

French Foreign Minister Laurent Fabius paid a two-day visit to Beijing this week.

 

The planned swap line would be the latest in a string of bilateral currency agreements that China has signed in the past three years to promote use of the yuan in trade and investment.

 

It followed a similar step by the Bank of England to set up a reciprocal three-year yuan-sterling swap line with China.

It appears that France may be a far more strategic European hub for China than London:

In 2011 and 2012, the total value of offshore yuan-denominated bonds issued by French corporates was nearly 7 billion yuan, twice the value of bonds issued by their British counterparts, according to a report by Paris Europlace, an association that supports the French financial industry and promotes Paris as an international financial center.

 

A survey by the association, the China Daily reported, also showed that 50 percent of French companies have used yuan-denominated products and services.

 

European and U.S. officials have for years been pressing China to do more to open up the yuan to international markets, saying its artificial weakness was one of the key imbalances of the global economy.

Sadly, the last sentence is dead wrong. The question why China has been scrambling to internationalize the CNY has nothing to do with succumbing to Western demands at reflating its currency to appreciate it and thus to push its current account even lower in the country with the shallowest stock market and the most bank deposits (i.e., most prone to sudden, abrupt bursts of inflation), nearly double those of the US, and everything to do with preparing the world for the "final monetarism frontier", which will take place when the BOJ's reflation experiment fails, and last remaining source (at least before Africa, but that is the topic for another day) of credit formation - the PBOC - finally ramps up.

As we pointed out a few days ago when we discussed the accelerating Chinese credit impulse and its soaring 240% debt-to-GDP ratio:

What should become obvious is that in order to maintain its unprecedented (if declining) growth rate, China has to inject ever greater amounts of credit into its economy, amounts which will push its total credit pile ever higher into the stratosphere, until one day it pulls a Europe and finds itself in a situation where there are no further encumberable assets (for secured loans), and where ever-deteriorating cash flows are no longer sufficient to satisfy the interest payments on unsecured debt, leading to what the Chinese government has been desperate to avoid: mass corporate defaults.

 

At that point it will be up to the PBOC to do what the Fed, the ECB, the BOE and the BOJ have been doing: remove any pretense of money creation via the commercial bank complex (even if these are merely glorified government-controlled entities), and proceed to outright monetization of de novo created assets, thus flooding the system with as much money as is needed to preserve the illusion of growth. Naturally, with the Chinese stock market having proven itself to be a horrible inflation trap (and as a result the bulk of new levered money creation goes into real estate), the inflation explosion that would result would be epic.

And that, in a nutshell, is the reason why China is doing all it can to prepare for the moment when capital flows will soar once the PBOC no longer has the option to extend and pretend its moment of entry into the global reflation race. Yes, it will be caught between a rock (hyperinflation) and a hard place (a very hard crash landing), but the fact that neither of those outcomes has a happy ending will hardly stop the PBOC from at least preserving the alternative. That alternative will of course be to be ready and able to hit the switch when the BOJ's printer burns out, and someone else has to step in and fill its shoes in the global "money creation" strategy, which sadly is the only one the world has left.

Finally, the question then will be not if, or how long, the US Dollar will remain the world's reserve currency, when even the Developed world is forced to admit the PBOC's monetarist primacy over the Fed, but just how much unencumbered gold one has to hedge against what will be the final, global bout of hyperinflation, the one spurred by every single DM and EM central bank is forced to print for dear fiat status quo life, or else.

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Sat, 04/13/2013 - 21:54 | 3445732 Muessin
Muessin's picture

Wee fart in yooor jeneral direction, Ameréca!

Sat, 04/13/2013 - 22:19 | 3445772 Stuart
Stuart's picture

If the physical gold market in London was locked on Friday, as per this report, here is the smoking gun of an orchestrated takedown.   This needs to be exposed, if verified.

http://goldtrends.net/FreeDailyBlog?mode=PostView&bmi=1267250

Sat, 04/13/2013 - 22:19 | 3445774 SafelyGraze
SafelyGraze's picture

and in maine, they're declaring food independence

http://rickmick.com/sedgwick-maine-is-first-town-to-declare-total-food-s...

 

Sat, 04/13/2013 - 23:04 | 3445820 Ahmeexnal
Ahmeexnal's picture

The fact that Beijing made this deal with PARIS, and not with the ECB means one and only one thing: FRANCE IS BAILING OUT OF THE EURO AND GOING BACK TO THE FRANC.

Meanwhile, Rio Tinto's Kennecott mine has unexpectedly suffered a shutdown event. In a world where the state intervenes in the supply and demand (aka markets), this means the price of PMs will once again go down.

 

http://silverdoctors.com/10-of-us-annual-silver-supply-just-vaporized/

*BREAKING
4 million ounces of annual silver supply and 400,000 ounces of annual gold supply have just been vaporized landslided.
Rio Tinto’s Kennecott mine in Utah- the US’ 2nd largest silver mine and largest copper mine has just suffered a massive landslide which will likely shut down production at the mine for years as upwards of 1 billion tons of dirt and ore have collapsed into the basin. 
10% of US annual silver production just vanished. 

Sat, 04/13/2013 - 23:16 | 3445871 Peter Pan
Peter Pan's picture

This is called blowback!!

Sun, 04/14/2013 - 00:05 | 3445956 Supernova Born
Supernova Born's picture

Abuse it, you lose it.

Abused like a rented mule.

Sun, 04/14/2013 - 00:44 | 3445994 Rubbish
Rubbish's picture

I'm still trying to figure out when this whole thing blows.

 

I'll just keep making ammo.

Sun, 04/14/2013 - 07:48 | 3446206 Winston Churchill
Winston Churchill's picture

That depends on the Saudi's. and Emirates.An Iran escalation will give the

US an excuse for de facto ME occupations.Just a coincidence I'm sure that all

these distractions are blowing up elsewhere.Pax Americana is being stretched thin.

There are no coincidences in politics,especially geo politics.

Tyler is confirming my guesstimate of next year.They have to get the actual

trade settlement system up ,and running ,and proven for a year or so.

Sun, 04/14/2013 - 10:41 | 3446390 Fukushima Sam
Fukushima Sam's picture

Time for team US to play that North Korea card to destabilize Asia (China)?

Sun, 04/14/2013 - 11:02 | 3446444 Winston Churchill
Winston Churchill's picture

Or is team China doing it to give team USA more than it can handle ?

The disputed island with Japan, and now this ?

We will see who is pulling whose strings.

The Chinese appear to be playing GO, and the US checkers at this point IMO.

Sun, 04/14/2013 - 11:02 | 3446440 smlbizman
smlbizman's picture

these currency deals have been going on....what i question is the feds and their mouthpiece congress, non-response  to all this....

Sun, 04/14/2013 - 11:14 | 3446482 jekyll island
jekyll island's picture

At least China has all ready nationalized their banks.  That will spare the sheeple the TBTF reach around explanation TPTB used in the US

Sat, 04/13/2013 - 23:29 | 3445889 strannick
strannick's picture

A capitalist country in a currency swap with a communist country? China is lowering its standards.

Sat, 04/13/2013 - 23:39 | 3445907 akak
akak's picture

Well, I have always heard that the French invented 69.

Sun, 04/14/2013 - 06:15 | 3446159 Oldrepublic
Oldrepublic's picture

soixante-neuf

Sun, 04/14/2013 - 09:06 | 3446280 Davalicious
Davalicious's picture

My GF always thought that soixante-neuf was a bit of a mouth full.

Sun, 04/14/2013 - 09:10 | 3446284 knukles
knukles's picture

And auto-fellating

Sun, 04/14/2013 - 01:33 | 3446036 Joe A
Joe A's picture

Correction: France has a socialist model for its population and China has a communist model for hers. This however does not apply for their respective elites.

Sun, 04/14/2013 - 04:12 | 3446099 The Big Ching-aso
The Big Ching-aso's picture

The Froguan. A currency destined to leap over all others from the fire into the frying pan.

Sat, 04/13/2013 - 23:48 | 3445925 paddy0761
paddy0761's picture

Ahmeexnal

While this might be significant for silver prices, it is not so much so for gold. The high stock to flow ratio for gold makes annual production variance less significant for price.

http://youtu.be/M9A7CZgPld8?t=1m36s

 

Sun, 04/14/2013 - 00:02 | 3445952 Muddy1
Muddy1's picture

Thanks for the link, the pictures were VERY impressive.  Thankfully nobody was killed, or hurt.  

Sun, 04/14/2013 - 00:18 | 3445972 Abi Normal
Abi Normal's picture

Shutdown temporary...will still be able to mine and wont affect all ops.  Life goes on, manipulations and all...ugh!!! Not even a disaster is negative news...moar higher DOW/S&P, moar crushing of PMs, as that would be the true price discovery to expose Ben's real shorts...crayon pants and all, that batrastard!

Sun, 04/14/2013 - 05:06 | 3446118 Jendrzejczyk
Sun, 04/14/2013 - 00:58 | 3446007 seek
seek's picture

Rio doesn't happened to be owned by someone named Francisco D'Anconia, does it?

Sun, 04/14/2013 - 01:05 | 3446013 groundedkiwi
groundedkiwi's picture

not neccessarily. France still has a Franc that it deals in. 

http://m.thinkafricapress.com/?url=http%3A%2F%2Fthinkafricapress.com%2Fe...

Sun, 04/14/2013 - 07:17 | 3446189 Urban Redneck
Urban Redneck's picture

The BDF is Central Bank for TWO non-Euro franc currencies, both of which are used by countries whose #1 & #2 trade and FDI partners tend to be #1 China & #2 France (just more cutting out the extraneous NY bankster middleman, and more bang for the buck coupled with less headline risk then a dozen bilateral treaties that would feed into the China is taking over Africa meme)

Sun, 04/14/2013 - 01:17 | 3446026 Kirk2NCC1701
Kirk2NCC1701's picture

So, no BTFD, with nothing left to buy?

Sun, 04/14/2013 - 05:14 | 3446122 Ghordius
Ghordius's picture

Because otherwise the Bank of France is a mere subsidiary and puppet of the ECB?

DUH

When I write of the EuroSystem/ECB as being a (loose) confederation what does your highly hierarchical brain understand? Cricket music?

It ain't the FED, it ain't the US. Get it in your head, you have the wrong comparison framework for Europe

Sun, 04/14/2013 - 09:49 | 3446308 dow2000
dow2000's picture

Who is John Galt?

Sun, 04/14/2013 - 10:22 | 3446355 Blano
Blano's picture

Reduction of supply makes prices go DOWN????  Man I really need to bone up on this new math.

Sun, 04/14/2013 - 11:09 | 3446469 Rossalgondamer
Rossalgondamer's picture

Landslide = mattress?

Sun, 04/14/2013 - 12:48 | 3446686 Jack Burton
Jack Burton's picture

This mine being shut down by disaster is good news for my area. Northern Minnesota is home to newly discovered large copper, nickel and possible silver deposits, on the order of Canada's Sudbury deposits.

Already several mines are approved and wil soon begin development. Including what will be the world's largest underground mine. The projects are in the pipeline and physical working of the deposits are about to begin. Meanwhile the state of MN is fast tracking approval for more mines.

Any production short fall from this mine out west will only juice the profits of the new mines opening here. We will gladly pick up the slack!

Sat, 04/13/2013 - 22:50 | 3445821 Xibalba
Xibalba's picture

China>USSA

Sat, 04/13/2013 - 23:52 | 3445931 Schmuck Raker
Schmuck Raker's picture

@ SafelyGraze

This is a remarkably important development, as far as I'm concerned.

Thanks for the link, I hope more read it.

Sun, 04/14/2013 - 10:09 | 3446332 Mototard at Large
Mototard at Large's picture

I regularly do a coast crawl in New Brunswick, Maine and Vermont on the murdercycle.  I think this summer's trip might include a side trip to Sedgwick to see what the locals are up to.  Sounds interesting.

Sun, 04/14/2013 - 12:06 | 3446599 DosZap
DosZap's picture

and in maine, they're declaring food independence

http://rickmick.com/sedgwick-maine-is-first-town-to-declare-total-food-s...

 

This wont get far, they have regs in place to stop this.It's illegal.

Wait till the feddies crackdown on them.

 

Sat, 04/13/2013 - 22:49 | 3445819 Bicycle Repairman
Bicycle Repairman's picture

Thanks, Stuart.

Sat, 04/13/2013 - 22:51 | 3445822 PeakOil
PeakOil's picture

Fascinating.

London physical Gold market "bitcoined" - would not surprise me in the least. Anyone connected to the London market care to comment?

Sat, 04/13/2013 - 23:04 | 3445845 Mine Is Bigger
Mine Is Bigger's picture

Thank you.  It was an interesting read.

Sat, 04/13/2013 - 23:28 | 3445884 Stuck on Zero
Stuck on Zero's picture

One by one China is pushing direct Yuan trade with nations all over the world.  Soon Obama will announce dollar yuan swap line. </sarc>

 

Sun, 04/14/2013 - 01:04 | 3446010 palmereldritch
palmereldritch's picture

Snap quiz!

Name the Steven Seagal movie title that currently does not describe the state of the US dollar:

http://www.imdb.com/name/nm0000219/?ref_=fn_al_nm_1

 2009/I The Keeper (producer)

  2009 Driven to Kill (video) (executive producer)

  2009 Against the Dark (video) (producer)

  2008 Kill Switch (video) (executive producer)

  2008 The Marker (video) (producer)

  2007 Urban Justice (video) (producer)

  2007 Flight of Fury (video) (executive producer)

  2006 Attack Force (video) (producer)

  2006 Shadow Man (video) (producer)

  2006 Mercenary (video) (executive producer)

  2005 The Foreigner: Black Dawn (video) (producer)

  2005 Dragon Squad (executive producer)

  2005 Today You Die (video) (producer)

  2005 Submerged (video) (executive producer)

  2005 Into the Sun (producer)

  2004 Out of Reach (video) (executive producer)

  2003 Belly of the Beast (video) (producer)

  2003 Out for a Kill (video) (producer)

  2003 The Foreigner (producer)

  2002 Half Past Dead (producer)

  2001 The Path Beyond Thought (video documentary) (executive producer)

  2000 Prince of Central Park (producer)

  1998 The Patriot (producer)

  1998 Not Even the Trees (producer)

  1997 Fire Down Below (producer)

  1996 The Glimmer Man (producer)

  1995 Under Siege 2: Dark Territory (producer)

  1994 On Deadly Ground (producer)

  1992 Under Siege (producer)

  1991 Out for Justice (producer)

  1990 Marked for Death (producer)

  1988 Above the Law (producer)

 

....and why

Sat, 04/13/2013 - 22:30 | 3445788 ImReady
ImReady's picture

The slope is getting slipperier. 

Sat, 04/13/2013 - 23:46 | 3445921 willwork4food
willwork4food's picture

Please enlighten me why this article is here, besides the obvious reason to make the US hate China even more then Iraq when they were taking babies out of their incubators. Oh, wait Iraq wasn't doing that, but I digress.

Isn't FX a direct form of trading with another countries currency? If you are long EUR/USD then you are a tourraist and shorting the USD..right?

Sun, 04/14/2013 - 00:28 | 3445981 myne
myne's picture

This is exciting!

Several major currencies competing to be the second to collapse!

It's like watching a game of chicken between submarine captains where crush depth is relative to how hard they ram eachother and how much higher their opponents are.

It doesn't get much more ridiculous.

 

Sat, 04/13/2013 - 21:57 | 3445734 Yen Cross
Yen Cross's picture

  http://www.google.com/finance?q=USDCNY    China Yuan Hits Record High Against the Dollar - WSJ.com

  China is trying to increase internal demand. A strong yuan helps stave off inflation and increases purchasing power for importers. The fed. is f**ked. This is a slow motion train wreck.  :-(

Sat, 04/13/2013 - 22:06 | 3445747 fonzannoon
fonzannoon's picture

the argument goes ( i thought) that as other countries arrange for trade in currencies other than dollars, those dollars come flooding back to the U.S in the form of massive inflation. 

Something is not matching up.

Sat, 04/13/2013 - 22:08 | 3445750 Tyler Durden
Tyler Durden's picture

The final frontier: the Chinese "wealth effect" (but only priced in CNY) - coming to the monetarist system in 2014. What's that? Soaring pork inflation - why look over there, the SHCOMP just hit new all time highs!

Sat, 04/13/2013 - 22:33 | 3445790 ekm
ekm's picture

There has never been a "china miracle". It's just a MSM invention.

The legend goes that 300 million people were taken out of subsistence living in villages and became middle class in the cities.

Seeing how those workers at Foxconn are "middle class", I'd say the word SLAVE depicts the situation a lot better.

 

The truth is that 40 million people living on the shoreline where all the ports are who living very comfortably.

The rest of of the population is enslaved (at Foxconn at al) to maintain the lifestyles of these 40 million, nothing different from former communist russia and eastern europe.

Sat, 04/13/2013 - 22:41 | 3445804 newengland
newengland's picture

Add the pollution, Aids epidemic, and the Politburo's corruption. The China trade...with a Rothschild zionist central bank. 

Sat, 04/13/2013 - 22:54 | 3445810 ekm
ekm's picture

The whole system is based on some kind of slavery.

 

1) The only way for china to grow is to import commodities.

2) But the only way to import commodities is to overproduce anything at cheap price for export.

3) But the only way to produce anything cheap is to employ almost slave labor.

 

1) So, if people no longer want to be enslaved for nothing, they demand higher wages (which is now), then:

2) Higher wages means no more cheap products.

3) No more cheap products means reduction of commodities imports.

4) Reduction of commodities imports means no growth.

No growth means, people will have to go back to susbsistence living in villages, as opposed to factory slavery.

 

Choose one, no other option. Typical chinese.

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