Second comments on Ronald McKinnon “The appreciation of the yuan: A compromise solution”, 30/03/2010, http://www.eastasiaforum.org/2010/03/30/the-appreciation-of-the-yuan-a-compromise-solution/
Maybe, a potential solution is for the US and the Chinese governments to sign an agreement to change the denomination of Chinese official holdings of bonds from current $US alone into a mixed denomination of the two currencies, so the impact of the relative movement of the two currencies on the yuan value of those assets can be cushioned to a certain degree.
This de-coupling between trade issues and assets holdings may make both sides more comfortable and leave them enough flexibility and rooms to make changes to the exchange rate to address trade imbalances should they be deemed as important.
I am, however, not sure how they can handle the official reserves of $US, though. That is an issue that the Chinese central bank has to confront and consider how to handle it.
Showing posts with label US dollar. Show all posts
Showing posts with label US dollar. Show all posts
2009-11-16
It's contradictary and it's Peter Morici again
Comments on Peter Morici “Choked by China”, 16/11/2009, http://www.businessspectator.com.au/bs.nsf/Article/US-dollar-Australian-dollar-yuan-China-pd20091116-XU56V?OpenDocument&src=sph
Peter Morici is blaming everyone else but the US itself for the its economic problems.
US had maintained the strong dollar policy for so long, now Peter Morici is saying the following:
"China amasses huge trade surpluses that power its impressive growth, and the rest of the world suffers slower growth to compensate. An economic miracle sold to the world as policy genius but really built on currency mercantilism and beggar-thy-neighbor protectionism.
Japan has propped up its economy by purchasing dollars and permitting private investors to borrow yen at near zero interest rates and trade those for dollars-denominated Treasury securities. Now, Tokyo signals it will not let the yen drop much below 90 per dollar when a market equilibrium value would be closer to 80.
Other Asian export powerhouses have practised variants of the Chinese and Japanese currency model too. It is no wonder the dollar was so strong for so long."
Can't you have the courage to look at yourselves for your problems?
Professor Peter Morici needs to be mature enough to be logical and rational in his argument.
No wonder that US has had trade deficit problems for so long, since it had so incompetent people, such as Professor Peter Morici as its chief economist in its International Trade Commission.
Peter Morici is blaming everyone else but the US itself for the its economic problems.
US had maintained the strong dollar policy for so long, now Peter Morici is saying the following:
"China amasses huge trade surpluses that power its impressive growth, and the rest of the world suffers slower growth to compensate. An economic miracle sold to the world as policy genius but really built on currency mercantilism and beggar-thy-neighbor protectionism.
Japan has propped up its economy by purchasing dollars and permitting private investors to borrow yen at near zero interest rates and trade those for dollars-denominated Treasury securities. Now, Tokyo signals it will not let the yen drop much below 90 per dollar when a market equilibrium value would be closer to 80.
Other Asian export powerhouses have practised variants of the Chinese and Japanese currency model too. It is no wonder the dollar was so strong for so long."
Can't you have the courage to look at yourselves for your problems?
Professor Peter Morici needs to be mature enough to be logical and rational in his argument.
No wonder that US has had trade deficit problems for so long, since it had so incompetent people, such as Professor Peter Morici as its chief economist in its International Trade Commission.
2009-11-06
Danger of carry trade in the US
I personally know little about carry trade, but am interested in understanding it. The following article is about the potential danger of carry trade in the US as the current low interest rate there and depreciating $US. The article also mentions
See Stephen Bartholomeusz "Greed and the greenback", 5/11/2009, http://www.businessspectator.com.au/bs.nsf/Article/US-dollar-Federal-Reserve-interest-rates-financial-pd20091105-XHA33?OpenDocument&src=sph
The following is a copy of the article:
Overnight the US Federal Reserve Board’s open market committee restated its commitment to keeping official rates at "exceptionally low levels" for an extended period, with a target range for the federal funds rate of 0 to 0.25 per cent. That promise would have been greeted with great enthusiasm by the traders in investment banks and hedge funds.
As discussed previously (Risky business as usual, October 16) effectively the Fed is paying banks to borrow from it by keeping rates negative in real terms. That has helped swell the profits of the investment banks by enabling them to undertake relatively low-risk carry trades, borrowing from the Fed to buy government-guaranteed securities.
However, it may have done something rather more dangerous than that.
Writing in the Financial Times earlier this week, Nouriel Roubini referred to the dramatic rallies in equities, oil, energy and commodity prices since the markets bottomed in March. A combination of the Fed’s policy of a zero federal funds rate, quantitative easing and massive purchases of long-term debt instruments, he argued, was seemingly making the world safer today but creating the "mother of all carry trades and mother of all highly-leveraged global asset bubbles".
Roubini says that while the recovery in risky assets is partly driven by better economic fundamentals, and partly by the huge injections of liquidity from monetary and fiscal policies, the more important factor has been the weakness of the US dollar.
Investors were, he said, shorting the dollar to buy higher-yielding assets using lots of leverage and effectively borrowing at very negative rates – negative 10 to 20 per cent annualised – as the declining US dollar generated massive capital gains.
The problem with too-good-too-ignore carry trades is that everyone piles into them. Initially that exaggerates the gains but in the process it increases the risk of a bubble forming and of damaging and destabilising fallout when it eventually bursts.
The longer these so-called momentum trades – where the weight of money creates or amplifies trends in asset prices and attracts more money to the trade – continue, the bigger the bubble and the more potentially destructive its bursting.
At the moment borrowing in US dollars at zero or negative interest rates to invest in almost anything would appear a relatively safe play. There are good reasons for US official rates to be low and the dollar weak – the US economy itself remains weak and fragile and the legacies of the crisis should keep a lid on growth and weigh on the dollar for a very long time to come.
However, dollar-funded carry trades would be exceptionally vulnerable to any stabilisation or even modest appreciation of the dollar. That would spark an instant rush for the exit gates as traders scrambled to cover their short positions – which would in turn cause the dollar to bounce and exacerbate the squeeze on their positions.
Any material improvement in the US economy or any event that triggered the usual flight to the traditional safe haven of US treasuries could be a catalyst for massive losses and another meltdown of the financial system.
For the moment it is easy to rationalise the Fed’s position. It has, with the extraordinary measures taken to support the US financial system, helped avert an implosion in the global financial system. However, the still-parlous state of the system and the US economy says that it is too early and too risky to start unwinding those emergency settings just yet.
However, the longer they remain in place the more risk and instability is again being built up within the system and the more difficult it will be to unwind the trades without causing massive dislocations.
See Stephen Bartholomeusz "Greed and the greenback", 5/11/2009, http://www.businessspectator.com.au/bs.nsf/Article/US-dollar-Federal-Reserve-interest-rates-financial-pd20091105-XHA33?OpenDocument&src=sph
The following is a copy of the article:
Overnight the US Federal Reserve Board’s open market committee restated its commitment to keeping official rates at "exceptionally low levels" for an extended period, with a target range for the federal funds rate of 0 to 0.25 per cent. That promise would have been greeted with great enthusiasm by the traders in investment banks and hedge funds.
As discussed previously (Risky business as usual, October 16) effectively the Fed is paying banks to borrow from it by keeping rates negative in real terms. That has helped swell the profits of the investment banks by enabling them to undertake relatively low-risk carry trades, borrowing from the Fed to buy government-guaranteed securities.
However, it may have done something rather more dangerous than that.
Writing in the Financial Times earlier this week, Nouriel Roubini referred to the dramatic rallies in equities, oil, energy and commodity prices since the markets bottomed in March. A combination of the Fed’s policy of a zero federal funds rate, quantitative easing and massive purchases of long-term debt instruments, he argued, was seemingly making the world safer today but creating the "mother of all carry trades and mother of all highly-leveraged global asset bubbles".
Roubini says that while the recovery in risky assets is partly driven by better economic fundamentals, and partly by the huge injections of liquidity from monetary and fiscal policies, the more important factor has been the weakness of the US dollar.
Investors were, he said, shorting the dollar to buy higher-yielding assets using lots of leverage and effectively borrowing at very negative rates – negative 10 to 20 per cent annualised – as the declining US dollar generated massive capital gains.
The problem with too-good-too-ignore carry trades is that everyone piles into them. Initially that exaggerates the gains but in the process it increases the risk of a bubble forming and of damaging and destabilising fallout when it eventually bursts.
The longer these so-called momentum trades – where the weight of money creates or amplifies trends in asset prices and attracts more money to the trade – continue, the bigger the bubble and the more potentially destructive its bursting.
At the moment borrowing in US dollars at zero or negative interest rates to invest in almost anything would appear a relatively safe play. There are good reasons for US official rates to be low and the dollar weak – the US economy itself remains weak and fragile and the legacies of the crisis should keep a lid on growth and weigh on the dollar for a very long time to come.
However, dollar-funded carry trades would be exceptionally vulnerable to any stabilisation or even modest appreciation of the dollar. That would spark an instant rush for the exit gates as traders scrambled to cover their short positions – which would in turn cause the dollar to bounce and exacerbate the squeeze on their positions.
Any material improvement in the US economy or any event that triggered the usual flight to the traditional safe haven of US treasuries could be a catalyst for massive losses and another meltdown of the financial system.
For the moment it is easy to rationalise the Fed’s position. It has, with the extraordinary measures taken to support the US financial system, helped avert an implosion in the global financial system. However, the still-parlous state of the system and the US economy says that it is too early and too risky to start unwinding those emergency settings just yet.
However, the longer they remain in place the more risk and instability is again being built up within the system and the more difficult it will be to unwind the trades without causing massive dislocations.
2009-10-27
No need for Aussies to panic and learn to live with prosperity
Comments on Alan Kohler “Australian dollar disaster”, 27/10/2009, http://www.businessspectator.com.au/bs.nsf/Article/Australian-dollar-disaster-pd20091027-X7R9U?OpenDocument&src=sph
Alan, there is no need to be so alarming about the rise of the Aussie dollar.
While the so called Dutch disease may present a problem, it can also present some opportunities to Australia.
One is that it will force manufacturing and construction to upgrade their structure to a higher level, through enhanced productivity and better entrepreneurship and management.
A second opportunity is that it may afford the RBA to be a little more relaxed on inflation and hence on its interest rate. A more relaxed inflation target will make the interest rate differential between Australia’s and the international ones smaller and reduce capital inflow for portfolio capitals. It also benefits Australians with low mortgage rates.
The third one is that Australian’s can use the higher purchasing power of the Australian dollar to either enhance their lifestyle, or invest overseas to reap more reward.
So, I am not as pessimistic as some of the commentators or some policy advisors are. One should learn to live with prosperity.
At the same time, I am appalled by the panic some people have shown regarding the rise of the Aussie dollar.
Alan, there is no need to be so alarming about the rise of the Aussie dollar.
While the so called Dutch disease may present a problem, it can also present some opportunities to Australia.
One is that it will force manufacturing and construction to upgrade their structure to a higher level, through enhanced productivity and better entrepreneurship and management.
A second opportunity is that it may afford the RBA to be a little more relaxed on inflation and hence on its interest rate. A more relaxed inflation target will make the interest rate differential between Australia’s and the international ones smaller and reduce capital inflow for portfolio capitals. It also benefits Australians with low mortgage rates.
The third one is that Australian’s can use the higher purchasing power of the Australian dollar to either enhance their lifestyle, or invest overseas to reap more reward.
So, I am not as pessimistic as some of the commentators or some policy advisors are. One should learn to live with prosperity.
At the same time, I am appalled by the panic some people have shown regarding the rise of the Aussie dollar.
2009-10-15
Dollar's role to be seen
Comments on "Dollar’s death is exaggerated" by Martin Wolf, Financial Times, FT.com, 14/10/2009, http://www.businessspectator.com.au/bs.nsf/Article/US-dollar-economy-policymakers-currency-pd20091014-WSVX4?OpenDocument&src=sph
Will coment on this later on.
Will coment on this later on.
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