IMF calls for dollar alternative

IMF calls for dollar alternative

Postby The Dharma Bum » Mon Mar 02, 2015 9:37 am

IMF calls for dollar alternative
By Ben Rooney, staff reporterFebruary 10, 2011: 4:37 PM ET

NEW YORK (CNNMoney) -- The International Monetary Fund issued a report Thursday on a possible replacement for the dollar as the world's reserve currency.

The IMF said Special Drawing Rights, or SDRs, could help stabilize the global financial system.

SDRs represent potential claims on the currencies of IMF members. They were created by the IMF in 1969 and can be converted into whatever currency a borrower requires at exchange rates based on a weighted basket of international currencies. The IMF typically lends countries funds denominated in SDRs

While they are not a tangible currency, some economists argue that SDRs could be used as a less volatile alternative to the U.S. dollar.

Dominique Strauss-Kahn, managing director of the IMF, acknowledged there are some "technical hurdles" involved with SDRs, but he believes they could help correct global imbalances and shore up the global financial system.

"Over time, there may also be a role for the SDR to contribute to a more stable international monetary system," he said.

The goal is to have a reserve asset for central banks that better reflects the global economy since the dollar is vulnerable to swings in the domestic economy and changes in U.S. policy.

In addition to serving as a reserve currency, the IMF also proposed creating SDR-denominated bonds, which could reduce central banks' dependence on U.S. Treasuries. The Fund also suggested that certain assets, such as oil and gold, which are traded in U.S. dollars, could be priced using SDRs.

Oil prices usually go up when the dollar depreciates. Supporters say using SDRs to price oil on the global market could help prevent spikes in energy prices that often occur when the dollar weakens significantly.

The dollar alternatives
Fred Bergsten, director of the Peterson Institute for International Economics, said at a conference in Washington that IMF member nations should agree to create $2 trillion worth of SDRs over the next few years.

SDRs, he said, "will further diversify the system."

Dollar firms after starting 2011 weak

The dollar has been drifting lower so far this year as the global economy improves and investors regain their appetite for more risky assets such as stocks and commodities.

After rising above 81 in early January, the dollar index, which measures the U.S. currency against a basket of other international currencies, eased below 77 earlier this week.

However, the dollar was higher Thursday against the euro, pound and yen as disappointing corporate results weighed on stock prices following several days of gains on Wall Street. The rally in the commodities market also cooled, with the price of oil and metals backing off recent highs.

In addition, renewed concerns about the debt problems facing troubled European economies put pressure on the euro and supported the dollar. The yield on Portugal's benchmark bond rose to a record high Wednesday, and borrowing costs for Ireland, Spain and Greece remain elevated.

"The market is shedding risk, with equities and commodities weakening and the U.S. dollar broadly stronger" said Camilla Sutton, currency strategist at Scotia Capital.

Traders were also digesting comments from Federal Reserve chairman Ben Bernanke, who told Congress Wednesday that despite a strengthening economic recovery, the unemployment rate remains high while inflation is "still quite low."

Those remarks reaffirmed the view that "the Fed would be very slow to tighten policy given its dual mandate of price stability and employment," analysts at Sucden Financial wrote in a research report.

Bernanke also urged lawmakers to come up with a "credible plan" to bring down "unsustainable" federal budget deficits.

"We expect that the outlook for the U.S. fiscal position will weigh heavily on the U.S. dollar in the quarters ahead," said Sutton. In the near-term, however, she said "a strengthening growth profile" could help provide "a temporary period of dollar strength."


http://money.cnn.com/2011/02/10/markets/dollar/

the feds aggressive use of "unconventional" financial practices has destabilized the world's economy. 70 trillion in unfunded liabilities sitting sitting on only 562 in billion in capital reserves represents an unstable situation in which the US position is over leveraged. Temporary economic gains in the US are due to capital flight to stable markets in the US as financial actors seek to shed risk in response to the situation.

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Re: IMF calls for dollar alternative

Postby Dylan » Mon Mar 02, 2015 9:40 am

This will only happen if the US agrees though.
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Re: IMF calls for dollar alternative

Postby The Dharma Bum » Mon Mar 02, 2015 9:46 am

if they don't the global financial system will collapse.

Russia and China have stopped purchasing US debt, so we are covertly purchasing our own debt via a Belgian front group to prop things up. That can't go on forever.

http://nypost.com/2014/04/20/belgium-sn ... in-droves/
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Re: IMF calls for dollar alternative

Postby Dylan » Mon Mar 02, 2015 9:56 am

Are you aware that you posted a link to a very unreliable "news" outlet AND that said link directly contradicts your position?

Their guess is that China is buying Treasuries through the Euroclear settlement house in Brussels, and it shows up as a Belgium buy.
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Re: IMF calls for dollar alternative

Postby NAB » Mon Mar 02, 2015 10:05 am

Dylan wrote:Are you aware that you posted a link to a very unreliable "news" outlet AND that said link directly contradicts your position?

Their guess is that China is buying Treasuries through the Euroclear settlement house in Brussels, and it shows up as a Belgium buy.


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Re: IMF calls for dollar alternative

Postby Dylan » Mon Mar 02, 2015 10:06 am

Also based on some quick googling in 2014 China purchased enormous amounts of US bonds.

I'm not sure where you're getting your information.....?
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Re: IMF calls for dollar alternative

Postby NAB » Mon Mar 02, 2015 10:16 am

I realize this is just a blog post, but I found his speculation interesting.

http://blogs.marketwatch.com/thetell/20 ... treasurys/
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Re: IMF calls for dollar alternative

Postby The Dharma Bum » Mon Mar 02, 2015 10:17 am

Dylan wrote:Are you aware that you posted a link to a very unreliable "news" outlet AND that said link directly contradicts your position?

Their guess is that China is buying Treasuries through the Euroclear settlement house in Brussels, and it shows up as a Belgium buy.


the fact remains, someone is using euroclear to purchase vast amounts of US debt.

There is no way its china, they are the ones who want to adopt SDR, and they just made a deal with germany to internationalize their currency so both are moving away from the dollar. Its definitely not russia. Whose left after that?

connect the dots, who benefits from maintaing the price of US bonds?
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Re: IMF calls for dollar alternative

Postby Dylan » Mon Mar 02, 2015 10:22 am

The Dharma Bum wrote:
Dylan wrote:Are you aware that you posted a link to a very unreliable "news" outlet AND that said link directly contradicts your position?

Their guess is that China is buying Treasuries through the Euroclear settlement house in Brussels, and it shows up as a Belgium buy.


the fact remains, someone is using euroclear to purchase vast amounts of US debt.
True. Many speculate it is indeed China though, or Russian investors.

Some fixed income experts have told CNBC that the logical conclusion would be to believe that Russian investors, worried about having their assets frozen due to tensions over Ukraine, are now using clearing houses in Brussels rather than buying directly. However, a decline of $25.8 billion in Russian Treasury holdings in March to $100.4 billion can't fully explain this reason.


http://www.cnbc.com/id/101679440#.


There is no way its china, they are the ones who want to adopt SDR, and they just made a deal with germany to internationalize their currency so both are moving away from the dollar. Its definitely not russia. Whose left after that?
And yet, Chinese demand for US bonds remains enormous.

China gobbled up Treasury debt maturing in more than a year at the fastest clip on record in 2014, while shedding some very short-term debt, a Wall Street Journal analysis of the latest U.S. data show.

The net increase in China’s purchases of Treasury notes and bonds, those maturing in two to 30 years, soared by $185.683 billion last year, surpassing the previous high of $123.454 billion set in 2009, based on capital-flow data released this week by the Treasury.

China’s total holdings of U.S. government debt fell by $25.8 billion last year to $1.2443 trillion at the end of December, the Treasury said. The decline reflects large sales of Treasury bills, which mature in a year or less.

The latest data underscore China’s role in sending long-term Treasury bond prices soaring and yields tumbling over the past year. The yield on the benchmark 10-year Treasury note fell to 2.173% at the end of 2014 from 3.03% at the end of 2013. The yield was 2.112% on Thursday.

The decline in Treasury yields has confounded bond traders on Wall Street and U.S. money managers who had expected yields to climb, given a brighter U.S. growth outlook.

Analysts have long cautioned that the Treasury’s monthly capital-flow report, released on a two-month lag, is just part of the puzzle in assessing global flows into and out of U.S. markets. Among other shortcomings, the data doesn’t account for China’s holdings at third-party custody institutions in other nations, such as the U.K. and Belgium.

Overall Treasury debt holdings by Belgium rose by $78.6 billion last year to $335.4 billion at the end of December, and the U.K.’s holdings increased by $25.5 billion to $189.2 billion.

The Treasury also notes on its website that “it is difficult to draw precise conclusions about changes in the foreign holdings of U.S. financial assets by individual countries” from the capital-flow data.

Meanwhile, China’s buying of long-dated bonds has slowed down in recent months. The average monthly net purchases for the first half of 2014 was $21.8 billion, as China actively intervened to weaken the yuan, much higher than $9.1 billion a month during the second half of 2014, Jonathan Rick, interest rate derivatives strategist at Crédit Agricole in New York, said, based on his calculation from the Treasury data.

China reported $91.2 billion in capital and financial outflows in the final quarter of 2014, the largest in more than a decade. Frank Warnock, a professor at the Darden Business School of the University of Virginia who specializes in international capital flows, said China may slow down purchases of U.S. bonds more if capital outflows continue this year.

That is an outcome many traders and analysts expect, with China’s growth slowing and money pouring into the U.S. amid expectations the Federal Reserve will raise short-term rates this year for the first time since 2006.

In the longer term, Mr. Warnock said China’s demand for U.S. bonds will decline as China’s domestic capital markets develop, the yuan becomes a global currency and the nation’s economy moves slowly away from exports and toward domestic consumption.

“We are in a phase of transition, though it is a long one,’’ said Mr. Warnock, a former Federal Reserve economist.


http://www.wsj.com/articles/china-gobbl ... 1424381644

connect the dots, who benefits from maintaing the price of US bonds?

China, since they hold gobs of it.

I don't disagree with your conclusion that we will eventually move away from the US dollar as the global reserve currency. I just think your speculation is baseless at best and Infowars level paranoid at worst.
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Re: IMF calls for dollar alternative

Postby Saz » Mon Mar 02, 2015 10:26 am

The Dharma Bum wrote:
Dylan wrote:Are you aware that you posted a link to a very unreliable "news" outlet AND that said link directly contradicts your position?

Their guess is that China is buying Treasuries through the Euroclear settlement house in Brussels, and it shows up as a Belgium buy.


the fact remains, someone is using euroclear to purchase vast amounts of US debt.

There is no way its china, they are the ones who want to adopt SDR, and they just made a deal with germany to internationalize their currency so both are moving away from the dollar. Its definitely not russia. Whose left after that?

connect the dots, who benefits from maintaing the price of US bonds?


Of course it's f**k China. No one else has that sort of cash to toss into treasuries. The obvious reason they do it through euroclear is because the Chinese would look like idiots if they vigorously push SDR while buying up treasuries supporting the dollar. You don't have to connect any dots, you just need bloomberg alerts on your phone to realize there is no where else for investors to park their money.
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