Chinese Yuan Could Take Over As New World Reserve Currency

[Mrs. Sharon B. Hodge]

Chinese Yuan Could Take Over As New World Reserve Currency


Jim Rogers – Dump the dollar, learn to speak Mandarin Chinese



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Meet the World's New Reserve Currency: The Chinese Yuan
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Information Clearinghouse
October 25, 2008

By Mike Whitney

http://www. informationclearinghouse. info/article21090. htm

Things are getting worse. On Friday morning, futures trading was halted for the first time ever after futures plunged more than 5 percent. The sell-off came after another 500-plus down day on the Dow followed by steep declines in equities markets across Europe and Asia. Japan's benchmark index, the Nikkei, slipped more than 9.5 percent after Toyota and Samsung reported disappointing earnings. The news was equally bad in Europe where shares were battered across the continent on fears of a global recession. Since September, $16 trillion has been erased from global stock market value. Losses in the US--where the financial turmoil originated--have been much smaller than other, more vulnerable markets. The Dow is down less than 40 percent from its peak of 14,000, whereas Hong Kong, Poland and China have all tumbled more than 60 percent.
Its a bloodbath

The Chicago Board Options Exchange Volatility Index, "the Fear Index", surged to 79.13 on Friday, the highest in its 18-year history, while the Dow clawed its way back from 500 points down to a 312 point loss on the day. The massive blow-off in stocks is mainly the result of ongoing deleveraging among the hedge funds which are dumping shares in at a record pace to cover the dwindling value of their asset base. According to the New York Times: "Hedge funds lost an estimated $180 billion during the last three months and some are near collapse. Investors are demanding their money back, and Wall Street is bracing for a shake-out in the $1.7 trillion industry." If a large fund, like Citadel, goes down, it will create a black hole in the financial system, similar to the loss of Lehman Bros.
and, once again, the US Treasury will have to come to the rescue by providing a multi-billion dollar taxpayer bailout

The dislocations caused by the unwinding of the hedge funds creates the possibility that US markets will have to be closed while assets are dumped on the market New York University Professor Nouriel Roubini summed it up like this:

"Policy makers may soon be forced to close financial markets as the panic selling accelerates
Indeed, we have now reached a point where fundamentals and long term valuation considerations do not matter any more for financial markets. There is a free fall as most investors are rapidly deleveraging and we are on the verge of a a capitulation collapse. What matters now is only flows - rather than stocks and fundamentals - and flows are unidirectional as everyone is selling and no one is buying as trying to buy equities is like catching a falling knife.
There are no buyers in these dysfunctional markets, only sellers and panic is the ugly state of this destabilizing game

We have reached the scary point where the dysfunctional behavior of financial markets has destructive effects on the financial system and - much worse - on the real economies.
So it is time to think about more radical policy actions and government interventions" (Nouriel Roubini's Global EconoMonitor)

The stock market rout has triggered gigantic swings in the currency markets, too. The dollar has surged 16 percent against the euro in a matter of weeks while every other currency in the world has steadily lost ground, excluding the yen.
The sudden fall in commodities and the unwinding of dollar-based bets in foreign capitals has bolstered the dollar and made US Treasurys the preferred "flight to safety" investment

The volatility is causing problems everywhere, particularly where foreign companies must pay back loans in dollars which have risen steeply in relation to their own currencies. Emerging "commodities based" markets are getting clobbered. The stronger dollar also threatens to make it harder on US exports which have been the one economic bright spot in recent months. If present trends continue, then foreign governments will have to allocate more of their reserves to prop up their own currencies which will make it even more difficult for the US to fund its current account deficit as well as the Treasury's expanding balance sheet. In other words, these violent and unprecedented currency swings foreshadow a funding crisis looming just ahead as credit is drained from the financial system and capital becomes even scarcer.
For now the dollar is flying high, but the future is looking grimmer by the day

The financial crisis is wringing credit from the system and pushing prices downward across the board.
No asset class has been spared, including gold which posted its biggest one week loss in 28 years and has plummeted from $1,040 in March to $734 at Friday's market close

Oil has also been hammered by speculative bets made by the hedge funds which are now forced to sell their positions to cover downgrades on their mortgage-backed assets. The erratic movement in oil prices makes it possible to see the real destructive power of the unregulated market, particularly the opaque buying and selling by the hedge funds. In just 14 months oil went from $70 to $145 and back to $67 again on Friday. Wall Street speculators drove up prices with money they borrowed from the investment banks and delivered a knockout blow to the US consumer.
The Fed played a critical role in this "gaming the system" by providing the low interest credit that created burgeoning profits for the investment class and falling living standards for everyone else

Now that the currency bubble has popped, its effects are being felt worldwide. Countries that benefited from the high commodities prices are now getting slammed everywhere from Russia to the Persian Gulf.
Ethanol producers are facing bankruptcy if things do not turnaround in the next 12 months As the Wall Street Journal notes:

"The tragedy of the second bubble is that it has left the economy in a weaker position to ride out the housing slump and credit panic. The American consumer has been whipsawed with $4 dollar gas and food inflation, while entire industries have been put on the edge of bankruptcy.
Detroit's auto makers have spent the last year taking down their truck and SUV assembly lines while gearing up to make hybrids and electric cars, even as their cash flow has been ravaged Their new investments are based on the expectation that oil will stay high permanently, but will the market for hybrids exist if oil is $50 a barrel?

As Congress plumbs the causes of our current mess, the main one is hiding in plain sight: Reckless monetary policy that did so much to create the credit mania and then compounded the felony with a commodity bubble and run on the dollar whose damage is now becoming apparent" (Wall Street Journal)

The effects of low interest rates and credit contagion are not limited to "bottom line" considerations As Marketwatch's Thomas Kostigen points out, monetary policy can be a death sentence for poor people across the planet who are invariably it biggest victims:


"The harsh reality of the economic fallout isn't that Joe the plumber can't buy his business or that people's retirement funds are being lost or that unemployment is rising; the harsh reality is that people will die

Already, since food prices began to rise 100 million more people have been pushed into poverty, according to the World Bank, with as many as two billion on the verge of disaster. Almost half the world's population, let's remember, live on less than $2.50 per day.
Millions die annually of hunger and starvation, and more than a billion do not have access to fresh water

These numbers are poised to rise dramatically with population growth, dwindling natural resources and higher consumer prices across all goods and services.
So as the stock market tumbles and the world economy falters, it's important to remember that it's more than financial losses we are talking about, it's the loss of life

And increasingly it isn't just people in far-off places around the world who are succumbing to such extreme hardships. Note this: Job losses in the state of Indiana have caused the child poverty rate there to spike 29% since 2000.
The wealth gap in the United States and around the world is at record levels -- and it has serious consequences

The Organization for Economic Cooperation and Development reported this week that the gap between the rich and the poor is getting bigger around the world, and that the U.S.
is experiencing the biggest dichotomy

We are experiencing the largest wealth gap in history.
Further erosion of the economic floor will only send more people plunging into destitution

This is why it's so important to fix the economic crisis -- now

We're all linked" (MarketWatch)

The Bush administration has called for an economic summit to be held by the 20 largest economies sometime after the presidential elections. US and EU officials are hoping to stitch together another Bretton Woods wherein control of the global economic system was delivered to those same nations. It's likely, however, that the outcome will turn out considerably different than anticipated. Already, under China's leadership, 12 Asian nations have agreed to set up an 80-billion-dollar fund to protect their economies from currency-runs, capital flight or other financial disruptions. China has the world's largest reserves at $1.9 trillion followed by Japan at more than $1 trillion.
Clearly the two richest nations will set the agenda and play a central role in deciding how best to deal with the global recession

The November summit in Washington could produce some unwelcome surprises which were hinted at by Thailand's Deputy Prime Minister, Olarn Chaipravat, who told Bloomberg News: ,

"The message of this initiative is for China to consider whether or not China would open up its banking system and allow the strongest currency in the world, which is the Chinese yuan, to be the rightful and anointed convertible currency of the world"

Surely, the present financial malaise which has its roots in Wall Street and at the Federal Reserve, has demonstrated that the dollar must be replaced as the world's "reserve currency" and that America must be deposed as the de facto steward of the global economic system. Leadership implies responsibility and the US must be held to account for its failings.
It's time for a change





The current amount of the U.S. national debt is shown on the National Debt Clock in New York, Thursday, Oct. 9, 2008. In a sign of the times, the National Debt Clock has run out of digits to record the growing figure.
As a short-term fix, the digital dollar sign on the billboard-style clock near Times Square has been switched to a figure _ the "1" in $10 trillion It's marking the federal government's current debt at about $102 trillion - updated October 12, 2008

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China Now Pulling the Strings on US Financial Policy
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Barbara L Minton
October 24, 2008

http://www. naturalnews. com/024599. html

(NaturalNews) The Times Square National Debt Clock, that unpleasant reminder of our national embarrassment, needs to be replaced. Since 1989 the clock has been tallying up all the money owed by the U.S. government. As of October 21, 2008, the outstanding national debt of the United States of America was $10,468,455,924,657.18 and mounting by the minute. In September, the dollar sign was removed to make way for an extra digit, as the national debt blew through $10 trillion and became a 14 digit disgrace. A new clock is on the drawing board that will allow for the reporting of a quadrillion dollars of debt. Anyone passing by the clock has got to wonder to whom all this money is owed, and what it means to the world standing of the country that the U.S.
is in hock up to its eyeballs

Currently, foreigners hold over $2.5 trillion of this U.S. government debt, mostly in Treasury securities. The largest foreign holders of these securities are Asian countries, primarily China and Japan. The Chinese Economic Review has confirmed that major Chinese banks own $8 billion in the Fannie Mae and Freddie Mac securities that were the targets of the bailout provisions. The Bank of China also holds $5.2 billion in mortgage-backed securities guaranteed by Freddie and Fannie. With the recent Wall Street bailout that sent the rise in the national debt absolutely parabolic, people are beginning to speculate as to whether this bailout is the result of pressure put on the U.S. by the Chinese and other Asian countries to get its financial house in order.
This pressure may be behind the inclusion of foreign banks in the bailout

The Chinese and other Asian countries now "own" the U.S. to such an extent that it is no longer free to determine a financial policy that would be in the country's best interests. Instead, it as in the position of being yanked around by its creditors who are not willing to be left holding the bag as the U.S. fiddles along and lets its financial system disintegrate. It is becoming apparent to many that these creditors decided to jerk the chain of the U.S. and insist that it shore up the system in which they hold such a vested interest.
This is why a bailout was suddenly announced, and why it had to be railroaded through the Congress and Senate with no deference to the arguments of elected officials or the will of the citizenry

Speculation is that at the same time that Treasury Secretary Paulson was twisting the arms of Congressmen, his own arm was being twisted by those higher up in the global financial chain. It may have been the vision of what would happen if the foreign banks decided to turn off the credit spigot to the U.S. that made him look so pale and haggard during the Congressional hearing.
And he may have used this ghoulish, pre-Halloween vision to scare Congress into voting for his plan

Without this bailout, most of the underlying assets of the country still would have had value on Main Street, and would have been the basis of a recovery after things settled out on Wall Street. The free market we claim to value so highly always works it out in the end. What needs to sink would sink, and then we would move on. But free market principals carry no weight in Beijing. The Chinese have no interest on our Main Street. They have no respect for free market principles any more than they respect the principles of a free society. They don't believe in the salutary effect of bankruptcy punishing those who made bad decisions, especially when they are the ones who stand to suffer the consequences of those bad decisions. All they care about is that their position as Big Daddy to the U.S.
credit markets is protected

People with a tendency to wonder also want to know why Fannie Mae and Freddie Mac were declared "too big to fail".
Looking back only a short period of time reveals many large companies that have collapsed, companies that were the largest in their areas

Look at Enron. This company, hailed as the most innovative company in American for six years in a row, created an over the counter trading market for electricity, natural gas, communications services and many other commodities. What the NYSE and the NASDAQ do for stock trading, Enron did for the utilities and telecommunications companies. When it went down in 2001, it took a lot of people with it including Arthur Anderson, one of the largest accounting firms in the U.
S Why wasn't it too big to fail?

And what about Worldcom? This telecom giant was the darling of everyone on Wall Street and held in almost every mutual fund and individual account in America.
When it went collapsed in 2002, everybody was crying Why wasn't it too big to fail?

Enron and Worldcom both went bankrupt and the people who ran them were sent to jail. The companies were allowed to fail, and after the dust settled, life went on. We still had the internet, gas and electricity, and telecom services.
Businesses still got their accounting done

Why? Because the underlying assets of those businesses still existed and were dispersed into the market. Enron sold all of its assets. Worldcom emerged from bankruptcy and was bought by Verizon. Employees from Arthur Anderson found other jobs, and the crooks that had been in control of these companies got what they deserved.
As a nation, we were cleansed and life went on

But now that China is running the financial show, the U.S. can no longer depend on natural market forces to expedite it through rough times. Now the country is no different than its citizens who have run up huge debts and are now at the mercy of their creditors. The U.S.
now dances to a Chinese tune




August 22, 2008 - ICBC becomes most profitable bank in world

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Chinese bank chooses NYC for first US branch
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The Associated Press
October 16, 2008

http://www. businessweek. com/ap/financialnews/D93RLGV00. htm

Gov. David Paterson says the largest commercial bank in China has chosen New York for its first U.S.
branch

Industrial and Commercial Bank of China will open the branch in Manhattan, giving the global financial hub a shot in the arm amid Wall Street's meltdown

There was no word on how many jobs might be created

Paterson says the bank is the largest in mainland China and its shares trade on the Shanghai and Hong Kong stock exchanges

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Chinese bank opening first U.
S branch in NYC
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The Business Review
October 16, 2008

http://www. bizjournals. com/albany/stories/2008/10/13/daily37. html

Gov.
David Paterson is touting two banking developments as proof that Manhattan can retain its identity as a hub of global finance—despite the ongoing shake-up on Wall Street and turmoil on the stock markets

Today, Paterson announced that the largest bank in mainland China will open its first U.S. branch in New York City. The announcement follows the news on Oct. 13 that Goldman Sachs Group Inc. is going to headquarter its U.S.
commercial bank in the city

“Once again, New York is proving itself to be the capital of global finance,” Paterson said in a statement. “When one of the largest banks in the world chooses New York City as their U.S.
base of operations, it is a reminder of the role that our state plays in global financial markets”

The Chinese bank, called Industrial and Commercial Bank of China, has shares traded in the Shanghai and Hong Kong stock exchanges.
At the end of last year, the bank had a market value of $339 billion

The bank has branches in 13 nations and serves 173 million clients.
It is the world’s largest bank, when ranked by market capitalization

Goldman Sachs, meanwhile, is seeking to turn its state-chartered trust company into a full-service, state-chartered bank called Goldman Sachs Bank USA.
As part of that move, Goldman Sachs will merge its Utah-based industrial loan company into the new headquarters in New York City

Goldman Sachs will become one of the nation’s 10 largest banks when the transition is completed

“New York is the hub for international finance and Goldman’s decision [on Monday] builds on a strong foundation,” Paterson said in a separate statement





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China Merchants Bank opens New York branch
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www. chinaview. cn
2008-10-08

http://news. xinhuanet. com/english/2008-10/08/content_10166545. htm

SHANGHAI, Oct.
8 (Xinhua) -- China Merchants Bank (CMB), the sixth largest domestic lender, opened a New York branch on Wednesday

It was the first branch of a Chinese bank to set up in the United States in 17 years

The branch is targeting Chinese companies investing in America, U.S. companies having branches in China and local companies dealing with Sino-U.S.
trade

The U.S branches of two conglomerates, China International Marine Containers. Co.
Ltd and China Ocean Shipping Company, have become the branch's first customers

"Opening our branch in such a special time and place is sure to face more difficulties and challenges," said CMB president Ma Weihua

"But we are confident of the long-term prospect of the U.S. economy and its financial sectors, especially the bilateral trade and investment between our two counties.
I am confident of our New York branch"

The bank, based in the southern boom city of Shenzhen, is listed on the Shanghai Stock Exchange. It had total asset worth 1.3 trillion yuan (191.8 billion U.S.
dollars) through 2007

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Top China bank opens Middle East subsidiary
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Gulf News
October 19, 2008

http://archive. gulfnews. com/business/Banking_and_Finance/10252895...

Dubai: The Industrial and Commercial Bank of China (ICBC) on Saturday announced the launch of its operations in the Middle East and North Africa region

ICBC (Middle East) is the first wholly-owned subsidiary bank established in the Middle East by any Chinese bank

"This launch also reflects that ICBC has successfully taken a major step towards expanding its overseas financial services offering and promoting its internationalisation strategy," the company said in a statement

Located in the Dubai International Financial Centre (DIFC), ICBC (Middle East) has been authorised to conduct the financial services listed under Category One, which covers the widest range of local financial operations

It includes accepting deposits, providing credits, trade finance, dealing in investments as principal, dealing in investments as agent, arranging credit or deals in investments, managing assets, advising on financial products or credit, arranging custody, etc

Since the 1950s, China and the UAE have been trading partners and in recent years, bilateral trade has witnessed sustained and rapid growth. In 2007, bilateral trade amounted to more than $20 billion (Dh73.
4 billion), an increase of 41 per cent over 2006

The UAE has become China's second largest trading partner and largest export market in the Arab world.
At the end of 2007, non-financial direct investment from Chin-ese enterprises in the UAE has amounted to $180 million, involving sectors such as petroleum and petrochemicals, telecommunications, trade, project contracting, logistics and real estate, while Chinese-funded companies registered in the UAE have topped 3,000

"ICBC Middle East is committed to building a more direct and accessible bridge for investment and trade activities between China, the UAE and other Middle East countries.
At the same time, ICBC (Middle East) will make full use of the geographic advantage and financial resources of the UAE and Qatar, and will gradually expand the scope of business to the entire Middle East and North Africa region," said Jiang Jianqing, Chairman of ICBC

As China's largest commercial bank, ICBC has a large client base, advanced IT platform and diversified products

Licence: SBI gets category 1

State Bank of India's branch, which started operations in Dubai International Financial Centre in January 2007, has recently obtained Category one licence from the Dubai Financial Services Authority (DFSA)

The branch can now accept deposits in foreign currencies like US dollars, euros, sterling etc from non-state markets.
Under its credit portfolio, the branch will provide non-dirham corporate credit

The branch will provide a whole range of corporate credit facilities such as working capital as well as trade finance, both fund-based and non-fund based term loans and project financing to name a few

- Staff Report