China Ditches the Dollar

dailyreckoning.com...

After clamoring for a reserve alternative all year, the Chinese government agreed to a $50 billion currency-diverse deal with the IMF today. Back in June, the deal seemed imminent. This morning, it finally came to fruition.

In their deal with the IMF — the first of its kind for any nation, ever — China buys $50 billion worth of bonds denominated in Special Drawing Rights, which will represent a basket of global monies. (That basket will be a split between the dollar, euro, pound and yen… not exactly the gems of the global currency batch.)

I do not understand what this means. This is bad news, right?

How do we foresee when the dollar collapses altogether?

I had not heard of this source before. Someone gave me the article. I never did well in economics. How bad is this going to get?

It's bad news for those of you with dollar holdings. For those of us who have taken different positions... I DRRRRRINNNNK your milkshake!

But be that as it may...

This is only the beginning. As of the last quarter, China’s foreign reserves were close to $2 trillion, and around $1.5 trillion of it is invested in dollar assets. See below:

[atsimg]http://files.abovetopsecret.com/images/member/64643b33cf04.gif[/atsimg]


Thus we can see $50 bn is a relatively small number in comparison. But the move itself is significant because it signals that the concept of a "basket of currencies" or "special drawing rights" as a global reserve currency substitute for the dollar has crossed the line from much-bandied-about theory to actual practice for the US's biggest lenders. Of course other large lenders will follow suit. Japan's new ruling party has stated a move away from the dollar as one of their election platforms.

"They" in all countries will probably try to run the unwinding slowly to avoid panic and sudden losses, and it need not mean a total apocalypse for the dollar, although a vast diminishing over time is, at this point, an almost forgone conclusion.

Are your milkshakes protected?

I've been waiting for this for YEARS.

This is the signal that the US dollar market is looking for. The signal to start DUMPING.

Too me it just looks like a global "dollar" is going to take over. Not restricted and weighed by country v country restrictions.

I love how the elite can magically can create money and it has worth. It amazes me how money even works. I wonder what will happen when they start the rounds of debt collection. Depop?

Any more news / articles on this topic?

Originally posted by Alphard
Any more news / articles on this topic?

Well, I did come across this today:

China is now a net SELLER of U.S. Treasury notes and bonds

...Just a few days ago, the U.S. Treasury Department revealed that China actually REDUCED its note and bond holdings by $25 billion in June. Although China did NOT sell shorter-term Treasury bills — and isn’t expected to — it’s still the largest amount of Treasuries China has ever sold in a single month.

This is a huge development:

In 2006, China and Hong Kong accounted for more than 50 percent of the increase in the amount of Treasury debt sold to the public …

In 2008, their share had fallen to 22 percent as the U.S. government increased its public debt by a record $1.2 trillion …

In the first half of THIS year, China and Hong Kong acquired only 9 percent of the more than $800 billion worth of Treasury bonds that were sold — and now …

In June, China became a net SELLER of U.S. Treasury notes and bonds!
So what’s next? Will China dump the rest of its estimated $876 billion hoard of U.S. Treasuries and crash the Treasury market — and by doing so, kill the U.S. dollar, drive interest rates sky high and leave the U.S. economy a smoking ruin?

Absolutely not. Beijing’s leaders are far too smart for that. They’re well aware that doing that would crush the value of the Treasuries they own and cost them a king’s ransom.

But one thing seems clear: One of Washington’s most dependable sources of loans to finance our out-of-control deficits is drying up. That means demand for longer-term Treasuries is softening.

That also means you can pretty much count on much higher interest rates in 2010 and beyond — and you can count on those higher rates to crush any chances of a vigorous recovery or rapidly rising stock prices here.

Meanwhile — even as the U.S. stock market has rebounded by about 13 percent this year …

China’s Shanghai Index is up 46.5 percent — the average stock producing nearly $4 in profits for every $1 produced by the S&P!

Hong Kong is up 37.1 percent — three times more than the S&P 500 …

Singapore is up 47.2 percent, generating nearly $4 in profits for every $1 produced by the S&P 500, and …

Taiwan is up 48.7 percent, also beating the S&P 500 stock by nearly four to one.

In Vietnam, the average stock is up a resounding 73.2 percent — spinning off $5.63 in profits for every $1 being earned on the S&P 500

More at source:
www.moneyandmarkets.com...

[edit on 9/7/09 by silent thunder]