nmap
06-08-2009, 14:00
Perhaps a better title would be "Probing the perimeter", or even "First shots in the economic war."
The proposal suggests that the U.S. issue bonds denominated in the Yuan for sale to China. This is the same sort of thing that is destroying Eastern Europe. When a debt is denominated in someone else's currency, any decline in the domestic currency (in this case, the dollar) means that the debt becomes even larger, and hence more difficult both to service and to pay.
So - if we borrowed $100 from China, and the dollar went down by 20% relative to the Yuan, our debt would now take $125 to pay back. Given our current tendency to spend far more than we take in, we could easily get on a track where the debt could never be paid back. National bankruptcy would destroy our economy.
It is my contention that a failing economy may not be able to support a robust military. If that's true, China might have hit on a strategy to defeat us without firing a shot.
LINK (http://www.reuters.com/article/newsOne/idUSTRE5561QK20090607)
NEW YORK (Reuters) - A top Chinese banker on Sunday called on the U.S. government and the World Bank to sell yuan-denominated bonds in Hong Kong and Shanghai to encourage the development of debt markets in those centers and to promote the yuan as a major international currency.
"I think the U.S. government and the World Bank can consider the possibility of issuing renminbi bonds in the Hong Kong market and the Shanghai market," said Guo Shuqing, the chairman of state-controlled China Construction Bank (CCB), the world's second-biggest bank by market value.
In an interview with Reuters, Guo said it was in American interests to see the yuan, also known as the renminbi, become a currency that is traded across the globe. He said that is largely because of the symbiotic relationship between U.S. purchases of Chinese goods and China's purchases of U.S. assets with the proceeds.
Guo, who is a former head of China's foreign exchange administration, said there should be "mutual cooperation" between the U.S. and China to promote China's financial sector and markets.
Guo, who was visiting New York to mark the upgrading of CCB's representative office in the city to branch status, said that the bond issues could be relatively small -- perhaps 1-3 billion yuan ($142 million-$436 million).
He said that developing the Chinese debt markets would help major U.S. companies such as General Electric Co, which needs to fund major investments in China, as well as institutions such as the World Bank, with major commitments there.
He said that foreign currency risk, particularly the risk that the yuan would continue to appreciate against the U.S. dollar as it has in recent years, could be hedged.
Last Wednesday, banking groups HSBC Holdings Plc and Standard Chartered Bank both said they were preparing for yuan-denominated bond issuance in China to help the country develop its local-currency financial markets.
The two are the first foreign banks to announce plans to issue yuan bonds in China since the Chinese government last month said it would open up issuance to locally incorporated overseas lenders.
China last month also granted permission to HSBC and Bank of East Asia to issue yuan bonds in Hong Kong.
China is stepping up efforts to increase the international status of the yuan and aims to develop Shanghai into a global financial center over the next decade, including allowing foreign companies to sell shares publicly in China.
Guo said he is confident that the yuan will become a global currency in the medium-to-long term. He said that China is likely to continue to progressively ease controls on the convertibility of the yuan, with cross-border direct investments one of the next targets.
He said that Beijing would be careful, though, to have in place some protection against speculation in yuan-related derivatives contracts.
The proposal suggests that the U.S. issue bonds denominated in the Yuan for sale to China. This is the same sort of thing that is destroying Eastern Europe. When a debt is denominated in someone else's currency, any decline in the domestic currency (in this case, the dollar) means that the debt becomes even larger, and hence more difficult both to service and to pay.
So - if we borrowed $100 from China, and the dollar went down by 20% relative to the Yuan, our debt would now take $125 to pay back. Given our current tendency to spend far more than we take in, we could easily get on a track where the debt could never be paid back. National bankruptcy would destroy our economy.
It is my contention that a failing economy may not be able to support a robust military. If that's true, China might have hit on a strategy to defeat us without firing a shot.
LINK (http://www.reuters.com/article/newsOne/idUSTRE5561QK20090607)
NEW YORK (Reuters) - A top Chinese banker on Sunday called on the U.S. government and the World Bank to sell yuan-denominated bonds in Hong Kong and Shanghai to encourage the development of debt markets in those centers and to promote the yuan as a major international currency.
"I think the U.S. government and the World Bank can consider the possibility of issuing renminbi bonds in the Hong Kong market and the Shanghai market," said Guo Shuqing, the chairman of state-controlled China Construction Bank (CCB), the world's second-biggest bank by market value.
In an interview with Reuters, Guo said it was in American interests to see the yuan, also known as the renminbi, become a currency that is traded across the globe. He said that is largely because of the symbiotic relationship between U.S. purchases of Chinese goods and China's purchases of U.S. assets with the proceeds.
Guo, who is a former head of China's foreign exchange administration, said there should be "mutual cooperation" between the U.S. and China to promote China's financial sector and markets.
Guo, who was visiting New York to mark the upgrading of CCB's representative office in the city to branch status, said that the bond issues could be relatively small -- perhaps 1-3 billion yuan ($142 million-$436 million).
He said that developing the Chinese debt markets would help major U.S. companies such as General Electric Co, which needs to fund major investments in China, as well as institutions such as the World Bank, with major commitments there.
He said that foreign currency risk, particularly the risk that the yuan would continue to appreciate against the U.S. dollar as it has in recent years, could be hedged.
Last Wednesday, banking groups HSBC Holdings Plc and Standard Chartered Bank both said they were preparing for yuan-denominated bond issuance in China to help the country develop its local-currency financial markets.
The two are the first foreign banks to announce plans to issue yuan bonds in China since the Chinese government last month said it would open up issuance to locally incorporated overseas lenders.
China last month also granted permission to HSBC and Bank of East Asia to issue yuan bonds in Hong Kong.
China is stepping up efforts to increase the international status of the yuan and aims to develop Shanghai into a global financial center over the next decade, including allowing foreign companies to sell shares publicly in China.
Guo said he is confident that the yuan will become a global currency in the medium-to-long term. He said that China is likely to continue to progressively ease controls on the convertibility of the yuan, with cross-border direct investments one of the next targets.
He said that Beijing would be careful, though, to have in place some protection against speculation in yuan-related derivatives contracts.