Category: Currency Wars

Rickards: Predict the Unpredictable… We’re Heading Straight Into a Recession

Modern Wall Street/Olivia Bono-Voznenko/04-13-17

Before the holiday weekend begins, best-selling author James Rickards joins Olivia Bono-Voznenko outside the NYSE to talk all about the markets and his latest book, “The Road to Ruin.” Jim discusses the currency wars, Trump’s turnaround on China & the Fed and an inevitable crisis amid a weak system.

“Have 10% of your investable assets in [physical] gold.” — James G. Rickards

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Posted in Currency Wars, Debt, Economy |

Moscow and Beijing join forces to bypass US dollar in world money market

South China Morning Post/Wendy Wu/04-02-17

Russia’s central bank opened its first overseas office in Beijing on Thursday, marking a small step forward in forging a Beijing-Moscow alliance to bypass the US dollar in the global monetary system.

It was part of agreements made between the two neighbours to seek stronger economic ties since the West brought in sanctions against Russia over the Ukraine crisis and the oil-price slump hit the Russian economy.

PG View: ZeroHedge reports that the plan is to “phase-in a gold-backed standard of trade.” Such a move would be very positive for gold.

If Russia – the world’s fourth largest gold producer after China, Japan and the US – is indeed set to become a major supplier of gold to China, the probability of a scenario hinted by many over the years, namely that Beijing is preparing to eventually unroll a gold-backed currency, increases by orders of magnitude. — ZeroHedge
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Posted in Currency Wars, Gold News, Gold Views |

Trump is looking at new ways to go after countries that game their currencies

CNBC/Ylan Mui/03-30-17

The Trump administration is assessing the scope of its power to penalize countries whose currencies it believes are undervalued, according to two people with direct knowledge of the review, an effort to fulfill the president’s campaign pledge to crack down on what he frequently called unfair trade.

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Posted in Currency Wars |

Mnuchin Said to Focus on Currencies as G-20 Girds for Trump Era

Bloomberg/Saleha Mohsin & Alessandro Speciale /03-10-17

U.S. Treasury Secretary Steven Mnuchin plans to use his debut at a Group of 20 meeting in Germany next week to drive home the message that the U.S. won’t tolerate countries that engage in currency devaluation to gain an edge in trade, according to people familiar with the matter.

…Mnuchin will also say that the American trade deficit is a sign other major economies aren’t doing their part to support global demand, making the world’s economic growth unbalanced, according to one of the people.

PG View: The dollar has come under more intense pressure intraday, with the dollar index approaching the lows for the week. This is helping to underpin gold ahead of the weekend.

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Posted in Currency Wars, U.S. Dollar |

China will not devalue yuan to stimulate exports – PBOC deputy governor


Reuters/Sue-Lin Wong/03-10-17

“China will definitely not devalue the yuan to stimulate exports, it will definitely not engage in a currency war. This is because China is a responsible major economy,” Yi Gang told China’s Economic Daily newspaper on Friday.Watch movie online The Transporter Refueled (2015)

The yuan fell 6.5 percent against the dollar last year despite frequent interventions by authorities which have been chewing through the country’s foreign exchange reserves.

…If U.S. rate rises do come to pass and buoy the dollar, most market watchers expect the yuan to fall by around 5 percent this year.

PG View: The yuan is clearly devaluing against the dollar, regardless of what the PBoC might says . . .

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Posted in Currency Wars |

Trump’s vast power to reshape the Fed could lead to complete mayhem for markets

BusinessInsider/Pedro Nicolaci da Costa/02-14-17

President Donald Trump already had ample leeway to reshape the Federal Reserve, with Janet Yellen’s term as chair expiring early next year and two key slots on the central bank’s board left open after Republicans failed to bring President Barack Obama’s longstanding nominees to a vote.

Now, with the sudden resignation of Daniel Tarullo, Trump pretty much has free rein over the powerful US central bank.

PG View: If the plan is to cut taxes and unleash a massive infrastructure spending plan, it might behoove President Trump to pack the Fed with doves. Similarly, Trump’s concerns about dollar strength could easily be resolved by reversing expectations of further rate hikes.

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Posted in Central Banks, Currency Wars, Monetary Policy |

China’s Currency Policy Approaches Breaking Point

Bloomberg/Junheng Li/02-07-17

In his first few weeks in office, President Donald Trump has ordered the U.S. to withdraw from the Trans-Pacific Partnership and confirmed his intention to renegotiate the North American Free Trade Agreement. The consensus is that it won’t be long before he turns his focus to China, which he calls a currency manipulator.

China can weather such criticism, for now. But if Trump’s threats of trade sanctions and 45 percent tariffs become real, the economic impact for the world’s second-biggest economy would be meaningful and could upend financial markets, potentially leading to a global recession. With economic growth already slowing and capital fleeing the nation, China’s $11 trillion economy is operating from a position of weakness.

…Although China may be nearing the point where a significant devaluation of the currency would make sense, there are obvious reasons that the authorities would want to avoid a sharp weakening of the yuan anytime soon.

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Posted in all posts, Currency Wars |

Trump is right: Germany is running an illegal currency racket

Telegraph/Ambrose Evans-Pritchard/02-01-17

As a matter of strict objective fact, Donald Trump’s trade guru is correct. Germany is the planet’s ultimate currency manipulator.

The implicit Deutsche Mark is indeed “grossly undervalued” The warped mechanism of monetary union allows Germany to lock in a permanent ‘beggar-thy-neighbour’ trade advantage over Southern Europe, inflicting mass unemployment on the victim countries and blighting their futures.

Whatever you think of Peter Navarro’s trade philosophy, he is right that Germany’s chronic, huge, and illegal current account surplus – 8.8pc of GDP – saps global demand and seriously distorts the world economy.

PG View: Of course the Germans would argue that this is an unfortunate and unintended consequence of the singe currency. However, as Ambrose points out in this article, that’s not quite the truth . . .

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Posted in Currency Wars |

Rickards Warns of Impending Currency War


Agora Financial/James G. Rickards/01-18-17

Jim Rickards, the author of Currency Wars and The New Case for Gold, anticipates that Donald Trump will label China as a currency manipulator early in his new administration. His expectation is that China will respond with a massive devaluation of the yuan that will lead to extreme volatility in global markets.

Rickards suggests buying physical gold as a safe haven.

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Posted in Currency Wars, Gold News, Gold Views |

Trump team questions the almighty dollar

FT/Sam Fleming and Shawn Donnan/01-17-17
Donald Trump has threatened to overturn two decades of US economic policy by questioning the strong value of the dollar, raising fears that his presidency could set off a new round of currency wars between the world’s major economies.

On Monday the president-elect appeared to break from the longstanding “strong dollar” policy of successive administrations, declaring that the currency was too high and that this was preventing US companies from competing with Chinese counterparts. “It’s killing us,” he said in an interview with the Wall Street Journal.

PG View: Let’s be honest, our so-called “strong dollar” policy has been a farce. The greenback is in long-term secular decline, like pretty much every other fiat currency. Only within the last several years has the dollar really appreciated; largely as a result of divergent monetary policy. Those gains are eroding the competitiveness of U.S. corporations, which will likely put trade policy high on the Trump administration’s agenda. Speaking in Davos, an advisor to the President-elect, suggest Mr. Trump is likely to tear-up the rulebook on trade.

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Posted in Currency Wars, Politics, U.S. Dollar |

Fiat Money Quantity breaks $15 trillion

24hGold/Alasdair Macleod/01-06-17

“The fiat money quantity has now breached the $15 trillion level, standing at $15,108bn on November 1st 2016, the last calculable date. This is now $6.3 trillion above the pre-Lehman crisis trend-line, exceeding it by 72%. Instead of the Lehman rescue being a temporary fix, the increase in the quantity of fiat money has continued to grow over eight years later.”

PG View: The proliferation of paper — paper in the form of debt and paper in the form of fiat currency — is one of the primary driving forces behind gold price appreciation over time. I concur with Mr. MacLeod when he says, “gold must be regarded as significantly undervalued relative to fiat dollars.”

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Posted in Central Banks, Currency Wars, Debt, U.S. Dollar |

Offshore yuan set for biggest weekly gain as China bears down on speculators


Reuters/Winni Zhou and John Ruwitch/01-06-17

“China’s offshore yuan pared some of its sharp gains racked up this week, but is still on course for its biggest weekly rise after Beijing was suspected of pushing up overnight borrowing costs to discourage bearish bets on the currency.”

PG View: A weaker currency is seen as being in the best interest of exporting nations, however they typically like to do things at their own pace and they certainly don’t want to encourage excessive capital outflows. Good to smack the speculators down from time to time.

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Posted in Currency Wars, Markets |

Bears Scramble for Yuan as China Chokes Flows, Aids Currency

Bloomberg/01-05-17

“China’s efforts to choke capital outflows are beginning to pay off, with the offshore yuan surging the most on record as traders scrambled for a currency that’s becoming increasingly scarce outside the nation’s borders.”

PG View: The overnight yuan deposit rate jumped to a record 80%! If capital outflows are indeed to be cut-off, it will likely further intensify gold demand. In fact, much of the recent rise in physical demand for the yellow metal is being attributed to China.

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Posted in Currency Wars |

Yuan’s Share of World Currency Trading Doubles, BIS Survey Shows

02-Sep (Bloomberg) — China’s yuan has doubled its share of global currency trading in the three years through April 2016, according to the latest triennial survey conducted by the Bank for International Settlements.

The yuan’s average daily turnover rose to $202 billion in April from $120 billion in the same month of 2013, boosting its ratio of global foreign-exchange trading to 4 percent from the previous 2 percent, the survey results show. That puts the currency in eighth place overall. Dollar-yuan became the sixth-most traded currency pair, advancing from ninth place in 2013, BIS said, while the yuan overtook the Mexican peso as the most actively traded emerging-market currency.

…“China’s internationalization agenda and official efforts to encourage greater yuan usage” have contributed to the increase in yuan trading, Eddie Cheung, a foreign-exchange strategist at Standard Chartered Plc, said before the release of the BIS data. “Investor accessibility to yuan products and currency volatility are the main obstacles now.”

The Bank for International Settlements report comes a month before the yuan is scheduled to join the dollar, euro, British pound and Japanese yen in the International Monetary Fund’s basket of global reserves.

China has been trying to increase the yuan’s global usage, setting up clearing banks around the world and issuing bonds denominated in the currency in London. On Aug. 10, the People’s Bank of China said it plans to increase the yuan’s internationalization by seeking more cooperation with other countries and improving the infrastructure needed to support wider use of the yuan.

[source]

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Posted in Currency Wars, Markets |

Yuan Heads for Worst Quarter on Record as Outflows Seen Rising

30-Jun (Bloomberg) — The yuan’s worst quarterly performance on record is raising the risk of capital flight.

China’s currency has slumped 2.9 percent since the end of March, the most since the nation unified the official and market rates at the start of 1994, to trade near its lowest level in five years. Losses deepened after the U.K.’s vote to secede from the European Union led to a jump in the dollar and dented the outlook for Chinese exports.

After turmoil in its currency and stock markets in the past year shook investor confidence, China stopped granting quotas for residents to invest overseas and clamped down on illegal fund transfers to restrain capital outflows. Policy makers are trying to guide the currency lower versus its trading partners as the economy slows while simultaneously damping expectations of faster depreciation. Goldman Sachs Group Inc. warned in a June 29 note that metals investors are concerned China may sharply weaken its exchange rate.

“We see a rising risk that capital outflows could pick up again causing negative headlines and adding to the fragility of current market sentiment,” said Allan von Mehren, Copenhagan-based chief analyst at Danske Bank A/S. “We expect the depreciation pressure on the Chinese currency to continue over the coming years.”

[source]

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Posted in Currency Wars |

China’s yuan drops to a five-year low ahead of US Fed rate meeting

15-Jun (South China Morning Post) — China’s yuan currency dropped to its lowest in five years against the US dollar on Wednesday morning, with the central bank setting the reference price down ahead of a decision by the US Federal Reserve on interest rates.

Onshore yuan traded at 6.6043 on Wednesday morning, the lowest since January 14, 2011 when it touched 6.6367. The currency later bounced back to 6.5945 by 11.30am. The onshore yuan has dropped three days in a row, losing a total of 0.7 per cent this week.

The People’s Bank of China set the yuan reference point at 6.6001, the weakest in five years and 0.31 per cent or 210 basis points lower than Tuesday’s setting.

“The PBOC is guiding this path of gradual depreciation with expectations that the US Federal Reserve will start on the road of interest normalisation sooner than later,” said Stephen Innes, senior trader at OANDA Asia Pacific.

[source]

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Posted in Currency Wars |

Bring On the Currency War

18-May (Bloomberg) — The U.S. government seems concerned about what will happen if other big nations push down the value of their currencies against the dollar. Actually, it could be good for the global economy.

Ahead of this week’s meeting of finance ministers from the Group of Seven developed nations, Treasury Secretary Jacob Lew has warned that the U.S.’s counterparts — the three largest euro-area nations plus Canada, Japan and the U.K. — might undermine global growth if they engage in policies that cause their currencies to depreciate against the dollar. In my view, his concerns are misplaced.

In one way or another, all the G7 countries are suffering from a dearth of inflation, which is running well below their central banks’ targets. All would be more likely to achieve their inflation objectives in a timely fashion if their currencies were to depreciate persistently against the dollar.

…But wouldn’t a stronger dollar harm the U.S.? I see two reasons why it wouldn’t, as long as the appreciation isn’t too large.

For one, the U.S. is in a different monetary policy position, with the Fed on track to raise interest rates. By slowing (or even reversing) planned interest rate increases, it can undo much of the adverse effects of a moderate dollar appreciation on inflation and employment. (In this regard, Canada is in a similar position.)

…Bottom line: Currency depreciations would help many of the U.S.’s G7 partners a lot while hurting the U.S. little, if at all. In other words, a G7 currency war would be fine as long as the U.S. remained a pacifist.

[source]

PG View: Once the beggar-thy-neighbor policies are launched, controlling them may prove far harder to limit than Mr. Kocherlakota seems to believe. The U.S. only has so much room to maneuver before Fed funds are back at the zero-bound.

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Posted in Central Banks, Currency Wars, Monetary Policy |

Yen surges to 18-month high

29-Apr (FT) — The yen is on track for its biggest weekly gain since the depths of the 2008 financial crisis after the Bank of Japan’s reluctance to fire another easing “bazooka” emboldened traders and raised doubts over the central bank’s ability to reverse the currency’s searing rally this year.

A 4 per cent surge in the currency drove the yen to Y106.92 per dollar, its loftiest level since October 2014, when Haruhiko Kuroda, the governor of the BoJ, shocked financial markets by aggressively expanding a quantitative easing programme designed to lift inflation and quicken economic growth.

Foreign-exchange markets had begun the week primed for further action from a Japanese central bank still grappling with deflation. Analysts at UBS forecast “big easing”, so the decision of Mr Kuroda and his colleagues not to do anything amplified the reaction in the yen.

The lack of action from a central bank which, since the election of Shinzo Abe as Japanese prime minister in late 2012 has built a reputation for bold moves, triggered a 3 per cent leap in the yen on Thursday — its seventh-biggest one-day gain of the past decade.

[source]

PG View: Hard to believe Kuroda couldn’t foresee the upside extension in the yen as a likely result of the BoJ’s decision to hold steady.

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Posted in Currency Wars |

Japan lashes out against yen’s rise

07-Apr (FT) — Japanese officials stepped up their hints of possible intervention to weaken the yen as the currency soared to its highest levels since the Bank of Japan fired its second stimulus bazooka in October 2014.

But despite government warnings of “one-sided” moves, a signal that would usually put traders on high alert, the Japanese currency forged higher to trade at Y107.99 against the dollar.

The yen’s momentum is the latest sign that the Herculean efforts undertaken by central banks to spur growth in Asia and Europe are still struggling. Like the BoJ, the European Central Bank has intervened in the capital markets at unprecedented levels to little effect.

[source]

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Posted in Central Banks, Currency Wars, Monetary Policy |

Japan negative interest rate policy weirdness abounds

16-Feb (FT) — In Volume 30 of the Japanese comic book series Doraemon, the eponymous cartoon cat is transported to a mirror-image of modern Japan: a world where, among glaring oddities, people who sleep longest are the most revered. Japan’s negative interest rate policy (NIRP), which came into effect on Tuesday, has taken us somewhere similar.

NIRP weirdness is everywhere. Take, for example, the debt restructuring agreement between GLP J-Reit and Nomura, in which the former will be paid about $5,000 a year to borrow $47m.

Or the multiple suspensions of money market funds, amid pleas by their managers for a NIRP exemption.

Or the abrupt decision by Japan Post Bank to cancel the launch of a Japan-US government bond fund, over fears that it “could not be managed stably”.

When at least two of Japan’s megabanks admitted that their computer systems were unable to handle negative rates, it only completed the unsettling picture.

…Doraemon the cat eventually returns from the world that worships sleep, after a car crash involving a man snoozing at the wheel. Japan’s investors may also have to learn their lesson the hard way.

[source]

PG View: “Weirdness” is cute; as in the Keep Austin (Texas) Weird campaign. It should not be viewed as troubling when it comes to the global economy at all . . .

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Posted in Currency Wars, Economy, Monetary Policy |

Yellen Re-Examining Negative Rates; Top Lawmaker Doubts Legality

yellen
11-Geb (Bloomberg) — A top U.S. lawmaker questioned the Federal Reserve’s authority to cut interest rates below zero after Janet Yellen disclosed that the central bank was re-examining the tool as a policy option if the economy faltered.

The Fed chair was asked during two days of congressional testimony to clarify her views on pushing borrowing costs below zero in the U.S., which some investors see as increasingly likely amid a darkening outlook for global growth that has panicked financial markets.

“We had previously considered them and decided that they would not work well to foster accommodation back in 2010,” Yellen told the Senate Banking Committee Thursday. “In light of the experience of European countries and others that have gone to negative rates, we’re taking a look at them again because we would want to be prepared in the event that we needed to add accommodation.”

Yellen said that she wasn’t aware of any law that would prevent the Fed from imposing negative rates. Richard Shelby, a Republican from Alabama who chairs the Senate banking panel, had a different view.

[source]

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Posted in Central Banks, Currency Wars, Monetary Policy |

Riksbank cuts rates again in surprise move sending krona plunging

11-Feb (CityAM) — One thing’s for sure: the Riksbank doesn’t do things by halves. The Swedish central bank just took its benchmark interest rate even further into negative territory than economists were expecting.

The Riksbank announced this morning it would be cutting rates to minus 0.5 per cent, from the current minus 0.35 per cent.

This is a move even bolder than the minus 0.45 per cent rate cut the market was expecting – but then, the Riksbank does like to surprise.

The bank is working to weaken the Swedish krona to push the country’s inflation up, announcing in a statement this morning that inflation looks to be lower in 2016 than previously forecast, weakening their confidence in Sweden’s two per cent inflation target.

The lower rate has been set to “provide support for inflation so that it rises and stabilises around two per cent in 2017”.

[source]

PG View: Deeper into negative territory goes Sweden as the currency war continues. Others will likely follow, but many believe the Fed still has more hikes queued up for this year . . .

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Posted in Central Banks, Currency Wars, Monetary Policy |

SNB Suffers Record 23 Billion-Franc Loss on Strong Currency

08-Jan (Bloomberg) — The Swiss National Bank estimates that it incurred a record loss of 23 billion francs ($23 billion) last year after it abandoned its currency cap.

The appreciation of the franc that followed the Jan. 15 decision resulted in a loss of 20 billion francs on its foreign-currency positions, the central bank said in a statement on Friday based on preliminary calculations. It said it would still pay a dividend of 15 francs per share and distribute 1 billion francs to the federal government and cantons.

While the SNB doesn’t need to generate a profit for monetary-policy purposes, municipalities have come to rely on an annual handout from the central bank to fund local spending. Their circumstances are already straitened by slower economic growth, brought on by the currency’s ascent from the cap of 1.20 per euro to about 1.09 now.

[source]

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Posted in Currency Wars |

Yuan Seen Needing Bigger Depreciation for China to Reap Benefits

08-Jan (Bloomberg) — The yuan, which has fallen 5 percent since China’s central bank devalued the currency in August, probably needs to fall an additional 14 percent if the nation’s economy is to see any real benefits.

A decline to 7.7 per dollar, from about 6.6, is needed to boost gross domestic product expansion by 0.7 percentage point, according to estimates by Bloomberg Intelligence Economics. The move, a scenario which none of the analysts in Bloomberg surveys expects, would lead to $670 billion in capital outflows.

The trick for Chinese officials is to manage the currency lower without sparking a mass exodus of capital from the country. The drop in China’s exports is mainly the result of sluggish global demand, and the collapse of the yuan would only increase the risk of competitive devaluations in neighboring countries — creating a so-called currency war.

[source]

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Posted in Currency Wars |

Hillary Emails Reveal True Motive for Libya Intervention

06-Jan (Foreign Policy Journal) — The New Year’s Eve release of over 3,000 new Hillary Clinton emails from the State Department has CNN abuzz over gossipy text messages, the “who gets to ride with Hillary” selection process set up by her staff, and how a “cute” Hillary photo fared on Facebook.

But historians of the 2011 NATO war in Libya will be sure to notice a few of the truly explosive confirmations contained in the new emails: admissions of rebel war crimes, special ops trainers inside Libya from nearly the start of protests, Al Qaeda embedded in the U.S. backed opposition, Western nations jockeying for access to Libyan oil, the nefarious origins of the absurd Viagra mass rape claim, and concern over Gaddafi’s gold and silver reserves threatening European currency.

…Most astounding is the lengthy section delineating the huge threat that Gaddafi’s gold and silver reserves, estimated at “143 tons of gold, and a similar amount in silver,” posed to the French franc (CFA) circulating as a prime African currency. In place of the noble sounding “Responsibility to Protect” (R2P) doctrine fed to the public, there is this “confidential” explanation of what was really driving the war [emphasis mine]:

This gold was accumulated prior to the current rebellion and was intended to be used to establish a pan-African currency based on the Libyan golden Dinar. This plan was designed to provide the Francophone African Countries with an alternative to the French franc (CFA).

(Source Comment: According to knowledgeable individuals this quantity of gold and silver is valued at more than $7 billion. French intelligence officers discovered this plan shortly after the current rebellion began, and this was one of the factors that influenced President Nicolas Sarkozy’s decision to commit France to the attack on Libya.)

Though this internal email aims to summarize the motivating factors driving France’s (and by implication NATO’s) intervention in Libya, it is interesting to note that saving civilian lives is conspicuously absent from the briefing.

Instead, the great fear reported is that Libya might lead North Africa into a high degree of economic independence with a new pan-African currency.

French intelligence “discovered” a Libyan initiative to freely compete with European currency through a local alternative, and this had to be subverted through military aggression.

[source]

PG View: This is an astonishing revelation, providing a broader definition of the term “currency war”! It also reflects just how far some governments are prepared to go in order to prevent gold from encroaching on their fiat currency monopoly.

The CFA franc (in French: franc CFA [fʁɑ̃ seɛfɑ], or colloquially franc) is the name of two currencies used in Africa which are guaranteed by the French treasury. The two CFA franc currencies are the West African CFA franc and the Central African CFA franc. Although theoretically separate, the two CFA franc currencies are effectively interchangeable.

Both CFA Francs currently have a fixed exchange rate to the euro: 100 CFA francs = 1 former French (nouveau) franc = 0.152449 euro; or 1 euro = 655.957 CFA francs exactly. — Wikipedia

 

One cite from Wikipedia says the CFA “helps stabilize the national currencies of Franc Zone member-countries and greatly facilitates the flow of exports and imports between France and the member-countries.”

The 14 African countries that make up the Franc Zone have a combined GDP of US$166.6 bln (as of 2012). Apparently to some, that’s worth fighting for.

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Posted in Currency Wars, Geopolitical Risks, Gold News, Gold Views |

China lets yuan fall faster, share trading suspended as prices tumble

yuan2
07-Jan (Reuters) — China allowed the biggest fall in the yuan in five months on Thursday, pressuring regional currencies and sending global stock markets tumbling as investors feared the Asian giant could trigger competitive devaluations from its peers.

China’s stock markets were suspended for the day less than half an hour after the open as a new circuit-breaking mechanism was tripped for the second time this week.

The People’s Bank of China again surprised markets by setting the official midpoint rate on the yuan, also known as the renminbi (RMB), 0.5 percent weaker at 6.5646 per dollar, the lowest since March 2011.

That tracked record losses in the more open offshore market in the currency and was the biggest daily fall since last August, when an abrupt near 2 percent devaluation of the currency also roiled markets.

Dealers, however, said the PBOC had intervened later to reverse a more than 1 percent fall in offshore rates for the yuan after they hit a record low of 6.7600 per dollar.

[source]

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Posted in Currency Wars, Markets, U.S. Dollar |

China’s yuan closes weaker for 10th day, longest losing streak on record

17-Dec (EconomicTimes) — China’s yuan weakened against the dollar on Thursday for the 10th session in a row, the longest weakening streak on record, after the central bank guided the Chinese currency lower after U.S. interest rates rose for the first time in nearly a decade.

The spot market closed at 6.4837, 0.16 percent weaker than the previous close. It was the longest losing streak since 1994 when China established the foreign exchange market.

[source]

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Posted in Currency Wars |

Peso Slumps 30% as Macri Propels Argentina Into New Currency Era

17-Dec (Bloomberg) — Argentina’s peso tumbled as much as 30 percent as newly inaugurated President Mauricio Macri fulfilled his campaign promise of letting the currency float freely.

Macri’s push for a devaluation was a key part of the economic overhaul he says is needed to lure investment that can jump-start an economy suffering from lackluster growth, inflation estimated at 25 percent and a shortage of dollars. The decline brought the official rate closer in line with where the peso had been trading in unregulated markets.

The move also carries risks, with the plunge potentially leading to skyrocketing consumer prices and a backlash from Argentines who see the value of their savings sink in dollar terms. Finance Minister Alfonso Prat-Gay, in announcing the move to end the central bank’s support for the peso and currency controls that limited the ability of Argentines to buy dollars, said Wednesday that the central bank is ready to intervene should declines in the peso spiral out of control. In addition, Argentina expects between $15 billion and $25 billion in inflows over the next month to bolster reserves.

…Morgan Stanley estimates that quick devaluation of the peso may lead inflation to accelerate to 35 percent in 2016.

[source]

PG View: Think about that for a moment. If you had 10,000 pesos in the bank yesterday, you woke up this morning and your savings had only ARD7000 in purchasing power. And that’s not even taking into consideration the 227% decline in the value of the peso over the last 7-years, prior to today’s tanking. It is a shame that the people of Argentina have to suffer such a crisis every 10-years or so. Smart Argentines own gold.

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Posted in Currency Wars, inflation |

Bill Gross on Central Banks: They’re ‘Casinos’

03-Dec (WSJ) — While European Central Bank President Mario Draghi expounds on the latest tweaks and twists to ECB policy, Bill Gross has a far less wordy explanation for what the banks are doing.

“Central banks are casinos.” That is the curt definition the Janus Capital money manager gives them in his monthly outlook letter. “They print money as if they were manufacturing endless numbers of chips that they’ll never have to redeem.”

The banks in these post-crisis years have been essentially relying on two old gambler strategies, Mr. Gross says: the bluff and the “Martingale.” Everybody knows what a bluff if, but the Martingale is a little more obscure (hey, we had to look it up, too). It’s a strategy of doubling down on the previous bet, no matter whether the previous bet was a winner or a loser. The idea is that eventually, the odds are that you will win a pot big enough to cover all your bets. Whether or not it actually works is debatable.

…This game can go on for as long as the citizenry retains faith in the bank and the currency, he wrote. If they lose faith in the practical value of the currency, the game will unravel quickly. “Venezuela, Argentina, and Zimbabwe are modern-day examples. Germany’s Weimar Republic is a great historical one.”

[source]

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Posted in Central Banks, Currency Wars, Monetary Policy, QE |

IMF Lifts Chinese Yuan to Elite Lending-Reserve Currency Status

yuan2
30-Nov (WSJ) — The International Monetary Fund on Monday is adding the Chinese yuan to the basket of elite currencies comprising its lending reserve, marking a milestone in the country’s ascendancy as a global economic power.

Many China watchers say the IMF’s decision is in large part a political one designed to encourage stronger economic overhauls in the world’s No. 2 economy.

“It’s a milestone in a journey that will include certainly more reforms,” IMF Managing Director Christine Lagarde said after the board approved the yuan’s inclusion.

The IMF’s move—which won’t become effective until late next year—could help accelerate a mild pickup in international demand for the yuan. It confers a measure of international legitimacy to China’s currency as the government starts to liberalize its rigidly controlled exchange rate and financial system.

[source]

PG View: When the IMF staff made the recommendation that the yuan be made a reserve currency, USAGOLD’s President and founder Michael Kosares wrote the following:

MK note: The China/IMF linkage translates to a long-term positive for gold. Back in the late 1990s, the European Union advertised its gold reserves as part of the push to build confidence in the new euro currency, even though it was not directly backed by the metal. At the time, Europe as a whole had about 12,000 tonnes of gold in reserves spread throughout the nation states. China’s acknowledged reserves stand at 1700 tonnes – a fraction of European reserves at the time of euro introduction. In order to build international confidence in the yuan, China will likely continue its current policies with respect to gold, i.e., directing its world-leading gold production into reserves, encouraging its citizenry to own gold, and importing large quantities of bullion to spread among private and quasi-public investors. All of that puts a bid under the market likely to affect the demand side of the fundamentals’ ledger for a long time to come.

Note 2: Some analysts believe that China is fudging on its reported reserves. I have seen estimates as high as 5000 tonnes, but most estimates settle around the 3000 tonne mark. Even at 3000 tonnes, China has a long way to go if it wants to play ball in gold’s major leagues. The U.S. gold reserve is a little over 8,000 tonnes and collectively the European Union, as mentioned above, holds roughly 12,000 tonnes. As much as central bankers downplay gold’s importance in monetary affairs, it is interesting to note that when the prestige and credibility of a currency needs elevation, the shortest distance between two points is the presence of significant national gold reserve.

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