Posts Tagged ‘Currency wars’

G20 kicks off today and currency war fears dominate

November 11, 2010

As countries jostle to weaken their currencies to stimulate growth, this G20 meeting in Seoul, Korea may not achieve much new. All agree that other countries should not engage in currency manipulation but each country wants to retain the right to do so. My reading is that if currencies followed the actual situation on the ground then the Dollar and Chinese Yuan ought to appreciate, the Yen should depreciate and the Euro should stay roughly where it is balanced between the German strength and the Ireland effect. The Indian Rupee and the Brazilian Real are probably undervalued as well.

Alan Greenspan continues to have his unsettling effect on the world economy.

"YES" Currency symbols sculpture:


Rancorous debate over global economic imbalances and currency strains dogged the G20 as world leaders gathered for a summit in Seoul on Thursday despite U.S. efforts to shore up the group’s unity. Behind the scenes, negotiators squabbled over the language in a closing statement to be issued at the summit’s conclusion on Friday. The final version may not venture far beyond agreements reached by G20 finance ministers last month, yet it was still proving difficult to agree on the wording.

A major irritant in the run-up to the meeting was the U.S. Federal Reserve’s bond-buying spree to revive the economy. Former Fed Chairman Alan Greenspan stirred that pot, saying the United States was pursuing a policy of weakening the dollar.

“The U.S. will never do that,” U.S. Treasury Secretary Timothy Geithner shot back a few hours later in an interview with CNBC. “We will never seek to weaken our currency as a tool to gain competitive advantage or to grow the economy.”

China’s yuan, also known as the renminbi, rose 0.25 percent on Thursday and has climbed almost 3 percent since Beijing loosened its grip on the tightly managed currency in June. Washington has welcomed the slow-but-steady appreciation, although it has said more movement is needed.

China downgrades US bonds as trade surplus expands

November 10, 2010

The Telegraph:

One of China’s leading credit rating agencies has downgraded United States of America government debt in response to what it sees as deliberate devaluation of the dollar by quantitative easing and other means.

If China, now the second biggest economy in the world, stops buying US government bonds this could have a very negative effect on the global recovery. The Dagong Global Credit Rating Company analysis is highly critical of American attempts to borrow their way out of debt. It criticises competitive currency devaluation and predicts a “long-term recession”.

Dagong Global Credit says: “In order to rescue the national crisis, the US government resorted to the extreme economic policy of depreciating the U.S. dollar at all costs and this fully exposes the deep-rooted problem in the development and the management model of national economy.

The analysis concludes:  “The potential overall crisis in the  world resulting from the US dollar depreciation will increase the uncertainty of the U.S.  economic recovery. Under the circumstances that none of the economic factors  influencing the U.S. economy has turned better explicitly it is possible that the US will continue to expand the use of its loose monetary policy, damaging the interests the creditors.

“Therefore, given the current situation, the United States may face much unpredictable risks in solvency in the coming one to two years. Accordingly, Dagong assigns negative outlook on both local and foreign currency sovereign credit ratings of the United States.”

Max King, global investment strategist at Investec Asset Management, said: “Dagong is well respected as an independent credit rating agency which takes a more conservative view than better-known American credit rating agencies.

“It is interesting to see what people with money outside the American sphere of influence think.  Until recently, the US had been regarded as beyond reproach but now independent analysts say the position is deteriorating and likely to deteriorate further.

Meanwhile Xinhua reports the trade figures for October:

China’s exports rose 22.9 percent in October from a year earlier to 135.98 billion U.S. dollars, while imports increased 25.3 percent to 108.83 billion U.S. dollars, the General Administration of Customs (GAC) said Wednesday.

China’s trade surplus expanded sharply to 27.15 billion U.S. dollars last month from 16.88 billion U.S. dollars in September, making the October figure the second highest this year after July’s 28.73 billion U.S. dollars.

The higher-than-expected trade surplus would add pressure for the yuan’s appreciation and exacerbate the already grave inflation problem in China, said ANZ Bank economist Liu Ligang.

In the first 10 months, China’s trade surplus totaled 147.77 billion U.S. dollars, down 6.7 percent compared with the same period last year.

Foreign trade with the European Union, China’s largest trade partner, grew 32.9 percent year on year to 388.42 billion U.S. dollars in the first 10 months.

Trade with the United States climbed 29.8 percent to 310.71 billion U.S. dollars during the January-October period. China-Japan trade totaled 239.28 billion U.S. dollars, up 31.3 percent year on year.

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