People's Bank of China

Currency War: China Stands Firm on Yuan as Global Criticism Escalates

Germany and Japan are joining the U.S. in pressuring Beijing to let the yuan appreciate to prevent an international currency war from spiraling out of control. Still, China remains firm that a gradual rate change is all it will allow.

German Economy Minister Rainer Bruederle warned yesterday (Wednesday) that a trade war could erupt if China didn't float its currency for a more fair value. As the China-U.S. currency tensions have heated up, other countries are saying China's unfair trade advantage is threatening export-driven recoveries around the globe.

"We have to take care that the currency war doesn't become a trade war," Bruederle told German business paper Handelsblatt. "China bears a lot of responsibility for ensuring that it doesn't come to an escalation."

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You Heard it Here First: China's Plan to Dethrone the Dollar Continues to Unfold

The U.S. dollar is on the way out as the world's top reserve currency. And as Money Morning Chief Investment Strategist Keith Fitz-Gerald predicted more than a year and a half ago, the yuan could be set to replace it.

The greenback has served as the world's benchmark reserve currency since the mid-20th century, but soaring deficits and the U.S. Federal Reserve's loose monetary policy have drained the dollar's value. Meanwhile, emerging markets - many of which are vibrant manufacturing hubs, net creditors, and have rich caches of commodities - are more fiscally sound than the United States, which has a $1.3 trillion budget deficit.

"If you look at the fundamentals of a lot of these emerging markets, they are considerably better than developed markets," Kenneth Akintewe, a Singapore-based investment manager at Aberdeen Asset Management PLC told Bloomberg in an Oct. 11 interview. "Who wants to be holding U.S. dollars at this stage?"

China, which leads the world with more than $2 trillion in currency reserves held mostly in U.S. Treasuries, is chief among the countries seeking respite from the dollar's decline. Beijing has long bemoaned the depreciation of the dollar, stating outright that it should be replaced as the world's main reserve currency.

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China Trade Surplus Reignites Tensions Over the Yuan

China in August posted its third straight trade surplus of more than $20 billion, putting friction with the United States over the nation's currency back in the spotlight.

Exports rose 34.4% in August and imports climbed a greater-than-expected 35.2%, leaving the country with a $20.03 billion surplus, a customs bureau report showed Friday.

But a sustained trade gap with the United States could embolden American lawmakers who are pushing to penalize China for what they consider unfair trade practices.

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China Dumps the Dollar as Yields Sink

China cut its holdings of Treasury notes and bonds by the most ever in June, instead favoring the debt of Europe, Japan and Korea. The move has fueled speculation that plummeting U.S. yields are driving away the Asian giant, which has ambitions for its currency, the yuan, to replace the dollar as the world's main reserve currency.

China's holdings of long-term Treasuries fell by $21.2 billion in June to $839.7 billion, a U.S. government report showed recently. Total Chinese investment in U.S. debt declined 2.8% to $843.7 billion, the smallest in a year, following a 3.6% slide in May.

The shift comes as President Barack Obama increases U.S. debt to record levels, making it harder to finance sales to sustain the U.S. economic expansion.

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Taipan Daily: Reasons to sell in the aftermath of the Agricultural Bank of China IPO

In the aftermath of the $19 billion Agricultural Bank of China IPO, the dragon is struggling… and there are plenty of reasons to consider selling. A few months back we broke down the major China ETFs – FXI, HAO and PGJ. (You can access that piece here.) Today the technical and fundamental picture looks bearish […]

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China Draws Plan to Reduce Risk While Continuing Economic Growth

Chinese Premier Wen Jiabao on Friday pledged to maintain economic growth of at least 8% in 2010, while gradually drawing down government spending and taking measures to guard against inflation and potentially devastating asset bubbles.

The remarks came during Wen's annual report to the National People's Congress in Beijing - which is the equivalent of the United States' State of the Union speech - and they highlight the central government's determination to promote responsible levels of growth.

The call for 8% annual economic growth is the same goal that has been maintained since 2005 - and one that was easily passed last year with the implementation of a sprawling $586 billion stimulus package.

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The Chinese Are Selling Treasuries – So What Are They Buying?

In the monthly U.S. Treasury report this week, it was announced that China had sold $34.2 billion of Treasuries in December (or allowed short-term ones to run off), making Japan once again the largest holder of U.S. Treasuries.

The battle between China and Japan for the title of largest holder of this dubious asset is not very interesting. What's more interesting is the question of where China is instead opting to invest. After all, $34.2 billion is a fair chunk of change, and China's overall reserves are growing - not shrinking - and now total $2.4 trillion.

The People's Bank of China usually keeps its holdings a carefully guarded secret, much more so than for most central banks - our knowledge of its holdings of Treasuries comes from U.S. data, not from China. We do, however, have some evidence about the Chinese government's investment thinking, thanks to the holdings of China Investment Corp., the country's $200 billion sovereign wealth fund.

To discover the details of China’s global investments, please read on...

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China Tells Banks to Curb Lending After a Generous January Start

Stocks worldwide plunged yesterday (Wednesday), commodities sank, and the dollar pushed higher after Chinese authorities demanded domestic banks slowdown lending amid concerns about asset bubbles growing in the economy.

Overall credit growth in China will be capped at $1.1 trillion (7.5 trillion yuan) for 2010, Liu Mingkang, chairman of the China Banking Regulatory Commission, told Bloomberg News in an interview in Hong Kong. Some banks were asked to limit credit because they failed to meet standards for capital reserves and other regulatory requirements, Liu said.

New loans in the first 10 days of this year were "relatively high," he told the Asian Financial Forum.

That may be understating the situation.

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China Looks to 2010 After Another Strong GDP Report

China today (Thursday) may report 9% growth in third-quarter gross domestic product (GDP), as the government's $585 billion stimulus plan and a massive surge in lending kept business humming. But now that stimulus measures have ensured strong growth for the year, Beijing must look forward to 2010 when it will have to keep inflation at […]

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Who’s Benefiting from the Dollar’s Demise?

The dollar is out as the world's predominant reserve currency. Central banks around the world increased their foreign currency holdings by $413 billion in the second quarter, the most since at least 2003, according to data compiled by Bloomberg News. But 63% of that new cash was put into currencies other than the dollar. That's […]

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Investment News Briefs

With our investment news briefs, Money Morning provides investors with a quick overview of the most important investing news stories from all around the world. B&D Raised 3Q Outlook; Barrick Buys Controlling Stake in Xstrata Mine; Soros Invests $1.1 Billion in Clean Energy Reform; Blackstone Prepping IPOs; Philips Electronics Profits While Sales Fall; China Raising […]

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Gold Prices Soar to Record High on Report of Secret Plan to Dethrone the Dollar

Gold prices surged to record high $1,045 an ounce yesterday (Tuesday), after a report surfaced that global oil producers are planning to stop using the U.S. dollar for oil trade. "There's no telling the veracity of these reports, but the general trend has been going in this direction anyway: a weaker dollar and rising gold," […]

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Buy, Sell or Hold: The SPDR Gold Trust ETF (NYSE: GLD) Continues to Offer Investors a Hedge Against Inflation

The just-concluded Group 20 (G20) meeting left us with a chorus of very "prudent" governments and central bankers singing the praises of easy monetary and fiscal conditions. So where can we take refuge when all the central banks in the world print money and governments run deficits in order to spend like drunken sailors? The […]

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