Featured StoryThe 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.
People's Bank of China
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.
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.
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 for all three...
The chart above is for the most popular of the three ETFs, the Xinhua China 25 (Read More...
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.
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... Read More...
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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