First, the weather here at Bradfield is ok, sunny, light breeze but on the cool side. No whinging today.
One thing that is still holding up the US economy is its dollar USD. It is still the de facto world currency where people, business and trade still trust. It is also a curse as moneys poured into USA and allow USA to live beyond its means. The Europeans have had a dream that its EURO might provide some competition to USA. Alas, the EURO dream is now in ashes.
In unlikely that USD can be replaced as the world de facto currency in the near future, not via IMF, World Bank, China’s RMB, Japan’s Yen or EURO. So many countries are now starting to manage the USD currency risks by bi-lateral currency swap deals. How would the little Aussie Battler AUD survive, especially China, Japan and India are our biggest trading partner?
DECEMBER 27, 2011 – Tokyo and Beijing Agree on Currency Pact
BEIJING—A wide-ranging currency agreement between China and Japan is expected to give the Chinese yuan a more powerful role in international trade, but Beijing still must make substantial changes in how it manages its economy before the yuan becomes a currency powerhouse on the scale of the dollar or euro. Economic woes in Europe and U.S. have undermined market confidence in the dollar and euro, but investors looking for a safe place to store their money have few other currency options. China, among other nations, has objected to the primacy of the dollar in international trade, and has suggested other ways to run the international monetary system, including giving a bigger role to the International
Monetary Fund and a wider role for the yuan. Those discussions have largely been theoretical. But during a visit to China by Japanese Prime Minister Yoshihiko Noda, which ended on Monday, China and Japan announced a series of deals that promote the use of the yuan in trade and investment between the world’s second- and third-largest economies, which would limit somewhat the use of the dollar in Asia, the world’s fastest growing region. Specifically, the two countries agreed to promote direct yuan-yen trade, rather than converting their currencies first to dollars, and also for Japan to hold yuan in its foreign-exchange reserves, which are now largely denominated in dollars. READ MORE
Aussie dollar flips head to tail, Gareth Hutchens, December 26, 2011 – THE Australian dollar had two stories to tell this year,
like the sides of a classic gold coin. In the first half of the year, it was a tale of dollar “strength”, when the Chinese-led mining boom put a rocket under commodity prices, lifting the currency to a post-float high in July.Its record US110.81¢ price tag forced a rethink on how the dollar fitted into the global economy.
Traders started to call it a “safe haven”, a harbour from wobbles on jittery sharemarkets, when previously it had been considered a ”barometer of risk”, the sort of currency investors would dump when they worried about global economic conditions. By midyear, some economists were predicting the dollar would jump past US115¢, even US120¢, if China’s economic growth continued apace and stability returned to Europe and the US, where the “debt ceiling” crisis was then at its pointy end. Read more
Japan PM in Delhi, currency pact soon, HT Correspondent, Hindustan Times, New Delhi, December 27, 2011
Japanese Prime Minister Yoshihiko Noda arrived in India on Tuesday for a two-day visit with a power-packed economic and business agenda including a multi-billion dollar bilateral currency swap pact. The deal aims at preventing adverse contagion effects during crises fuelled by speculative investment, a move likely to stem the rupee’s fall.
This is Noda’s first visit to India since he became the Japanese Prime Minister in September. Currency swaps involve an exchange of cash flows in two different currencies. By its special nature, these instruments are used for hedging risk arising out of volatility in the foreign exchange markets. The agreement would effectively mean that Japan will accept rupees and give dollars to India up to a stipulated limit, and similarly India will take yen and send dollars to Japan if speculators seek to thrash down the respective currencies.
The idea is to allow a country that finds itself with short-term liquidity problems to borrow from its partners’ foreign reserves to absorb heavy selling pressure on its currency. READ MORE
G’Day to ALL.