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>>> No, This Won't Cause a Gold Shock (Something Else I've Just Exposed Will)
http://dailyreckoning.com/no-wont-cause-gold-shock-something-else-ive-just-exposed-will/
The market has the technical setup for the greatest gold shock in history. When it rocks markets, gold will soar — ultimately to $10,000 if my full thesis plays out. But most gold investors won’t be happy when it does. In fact, most gold investors will face big losses when gold reaches that price. And most of the people who want to get hold of the physical metal won’t be able to.
I was recently in Switzerland, where I met with my secret gold contact. I call him “Goldfinger” to protect his identity. He’s one of the most plugged-in men in the gold industry. He meets with the heads of the world’s largest refineries… some of the highest-level bankers… finance ministers… gold dealers… and central bankers. He also controls tens of millions of dollars in physical gold.
“Goldfinger” knows why this gold shock is coming better than anyone else because of his first-hand knowledge of the gold market. He sees it playing out in front of his eyes.
What will trigger this gold shock? First, let me tell you what it won’t be…
Most people believe the gold shock could start if a large institution with a paper claim for a lot of physical gold, demanded delivery of that gold. The story goes: There’s not enough physical gold to back up all of the paper gold. So therefore, if a large player demands enough physical gold, that order won’t be filled. And a gold panic would ensue.
But the gold shock that’s coming will almost certainly not come from any of the large gold market participants. This surprises many people when I tell them that. But consider a hedge fund that’s long gold futures. Why would that hedge fund start a buying panic in the physical gold market by taking delivery of physical metal?
And if a large hedge funds is thinking of taking a large enough delivery of physical gold to cause a panic, they’ll probably hear from their lawyers. And those lawyers are going to advise against it because it would put the hedge fund in the crosshairs of the Justice Department or a Commodities Future Trading Commission (CFTC) investigation.
Smaller market participants can ask for delivery of physical metal if they own gold futures without causing a problem. But if too many request delivery, the powers that be can change the rules very quickly. They could work to make it illegal.
The U.S. government can decide they’re not a normal gold trader, but a manipulator. Manipulation is illegal. The feds can paint them as a mini-version of the Hunt brothers, who tried to corner the silver market in 1980.
That may sound far-fetched because there have been tons of manipulation on the short side of gold. If manipulation is illegal, why doesn’t the Justice Department simply go after the gold shorts?
The likely answer: Because the biggest gold short is China, and they’re beyond our jurisdiction. Nobody thinks the FBI is going to investigate Chinese gold manipulation. China is the second largest economy in the world and a sovereign nation. (And maybe the Fed doesn’t mind if the price of gold has a lid on it anyway). So we won’t see anti-manipulation enforcement against the gold shorts.
Or take another example of a large player in the gold market. A large “local” broker on the floor at major futures exchanges or commodity exchanges makes money every time a gold contract expires. They sell the current month’s gold contract, while buying the next month’s gold contract. That’s called “contango” — which is just a fancy way of saying that the price of gold delivery in the future is higher than the price of gold now. If gold is in contango, a trader can keep executing the same type of trade and profiting over and over again.
Now, that broker can use those gains to fund other trading activities. So why on Earth would it want to blow up the gold market by causing a panic? The broker’s making money on the gold trade and has every incentive to keep the game going.
The paper gold market is comprised banks, local traders at the exchanges, and hedge funds. All three of them are disincentivized to cause a panic in the gold market. The locals are making steady profits, so are the banks, and the hedge funds are being told by the lawyers that they could go to jail if they demand a large gold delivery. No large player in this market is looking to produce chaos.
So, if the large players aren’t going to cause the coming shock, what will? What will be the snowflake that triggers the avalanche? It could be many things…
It could be the bankruptcy of a medium-size commodities broker like MF Global, that went bankrupt in 2011. That type of medium-sized firm could suddenly go bankrupt and fail to make a delivery. (It’s one thing if J.P. Morgan and Goldman Sachs want to call a halt to the whole game. But it’s another thing if some medium-sized dealer that no one’s heard of suddenly can’t make a delivery.)
Then that firm’s customers will all rush at once into the physical market with a massive order. They need to cover the firm’s failure to deliver. And that sets off the panic.
The trigger could also be a geopolitical shock. It could also be an assassination, a suicide of an important player, or a natural disaster.
But aside from these possibilities, I’m eyeing one particular trigger that I believe is most likely to start the avalanche…
It’s coming very soon. When this trigger is pulled and the gold panic starts, it’ll run out of control very quickly. Gold prices will soar to heights no one thought possible just a short time ago. The dollar will plummet against gold. And very few people will be able to get their hands on gold when they need it most.
That’s why you need to understand what’s about to happen so you can prepare.
Regards,
Jim Rickards
for The Daily Reckoning
<<<
>>> SAIS and Your Inside Connection to the IMF
http://dailyreckoning.com/sais-inside-connection-imf-2/
The International Monetary Fund (IMF) is one of the most powerful institutions in the world. It acts as the de facto central bank of the world. The IMF makes loans to countries in distress, raises funds from its member nations and issues its own world money called the special drawing right (SDR).
It also acts as the regulatory and policy arm of the Group of Twenty, or G-20. The G-20 is a multilateral club that includes both the richest nations in the world (the U.S., Japan, the U.K., Germany, etc.) and the most populous emerging economies (China, India, Brazil) among others.
The G-20 has no permanent staff or bureaucracy, so it outsources policy tasks to the IMF. These combined roles as the world’s central bank and the G-20’s eyes and ears make the IMF the center of gravity for policy in the international monetary system.
Yet for such a powerful institution, the IMF is incredibly opaque and unaccountable. My favorite way to describe the IMF is “transparently nontransparent.” What I mean by that is the IMF is transparent in terms of making resources available for interested parties to learn about what it is doing.
The IMF website is loaded with links to position papers, financial statements and facts and figures about its missions and personnel. The IMF publishes a value for the SDR every business day. Even the IMF’s plan to replace the dollar with SDRs as the global reserve currency is available.
The problem is that all of this material is written in highly technical jargon that requires specialized training to interpret. That’s where the “nontransparent” part comes in.
Reading the IMF website is like picking up an advanced textbook on quantum physics. You may be able to read the words in a row, but unless you have specialized training, it might not make much sense.
Where is such specialized training available, and who has it?
There are a number of fine schools teaching international economics, but the leading center of learning for working at the IMF is undoubtedly the School of Advanced International Studies, SAIS, part of the Johns Hopkins University located in Washington, D.C.
SAIS offers graduate programs in international economics as well as American foreign policy, area studies, languages and other courses in diplomacy, intelligence and strategy. It has many distinguished graduates, including former secretary of state Madeleine Albright and CNN anchor Wolf Blitzer.
In addition to its graduates, SAIS has an outstanding faculty, including many visiting scholars drawn from the Washington, D.C., policy community. Former secretary of the Treasury Hank Paulson was in residence at SAIS after leaving the Bush administration.
For purposes of understanding the international monetary system today, the two most important SAIS connections are former secretary of the Treasury Timothy Geithner and former head of the IMF John Lipsky.
Geithner is a SAIS graduate, and Lipsky is a visiting scholar at SAIS today. Geithner (who worked at the IMF before joining the Treasury) presided over the aftermath of the Panic of 2008 and was one of the architects of the IMF/G-20 process that started the currency wars in 2010.
Lipsky ran the IMF in the dangerous period after the abrupt resignation of IMF head Dominique Strauss-Kahn amidst a sexual-assault scandal in May 2011.
Lipsky performed a crucial role in organizing the first bailout of Greece after the sovereign debt crisis erupted in 2010. When it comes to global bailouts and their aftermath, the imprint of SAIS through players such as Paulson, Geithner and Lipsky is everywhere.
SAIS
Former U.S. Treasury secretary Timothy Geithner (left) is a graduate of the School of Advanced International Studies (SAIS) in Washington, D.C. Former head of the International Monetary Fund John Lipsky (right) is currently a distinguished visiting scholar at SAIS.
Fortunately, as a Daily Reckoning reader, you have your own SAIS connection. I graduated from SAIS in 1974, just after Wolf Blitzer and a decade ahead of Tim Geithner.
For all intents and purposes, SAIS is the intellectual boot camp for the IMF. Many SAIS graduates go directly into the IMF. Other leading career choices are banking, the foreign service and the national security community.
My class marked a turning point. Many observers believe the gold standard of Bretton Woods ended on Aug. 15, 1971, when President Nixon gave his surprise speech shutting the gold window.
That is not quite correct. Nixon ordered the conversion of dollars into gold to be “temporarily” suspended. It was expected that the world might be able to return to some kind of gold standard once new parities of paper money to gold were established. Of course, that never happened.
In 1975, the IMF declared that gold was dead as a form of money. Yet from 1971-74, the world of international finance still considered gold to be money. That’s when I received my technical graduate training. Mine was the last class to study gold as a form of money in international finance.
Jim Rickards' College ID
Your correspondent as a 23-year-old graduate student in international economics at the School of Advanced International Studies, class of 1974. This was the last class to study gold as a monetary asset in international reserve positions.
Today, for the first time in decades, gold is once again being discussed as an international reserve asset. This is because Russia, China, Iran and other nations have been acquiring thousands of tons of gold to add to their reserves.
Equally important, other central banks that already have gold, such as Germany, France, Italy and the U.S., have completely stopped selling. The scramble for gold is back after decades of official dumping by the central banks.
Another topic that is in the news is the role of the SDR. Financial blogs and newsletters are filled with dire prognostications about how the SDR is poised to replace the dollar as the global reserve currency.
Even more digital ink has been spilled on the topic of including the Chinese yuan in the so-called “basket” of currencies that make up the SDR.
The technical nature of SDRs has led to ill-informed speculation, hysteria and dire forecasts that have no basis in reality.
This is not surprising. Most of the people who are expert on SDRs actually work at the IMF or finance ministries of IMF member nations.
They have no interest in commenting publicly about what is really going on. Most of those who are commenting lack the expertise to know what they are talking about. This is why the blogs are filled with misinformation and hyperbole that only serves to alarm and confuse investors.
There are almost no sources readers can turn to for expert opinion willing to discuss these matters publicly. Fortunately, at Rickards’ Strategic Intelligence, we specialize in these topics and report on them in a way that’s accessible. We provide the most timely and accurate information on the IMF and SDRs.
SDRs are the coming reserve currency of the world. Massive issuance of SDRs in a future liquidity panic will be highly inflationary. These outcomes have enormous implications for investors with assets in U.S. dollars. Yet the process will be gradual and proceed in ways that markets barely notice, at least at first.
Commentators who “cry wolf” about SDRs are doing a disservice to investors because markets may be complacent by the time the wolf actually arrives.
Regards,
Jim Rickards
for The Daily Reckoning
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>>> The Day The Dollar Died, Part II
http://dailyreckoning.com/day-dollar-died-part-ii/
There is a concept, advanced by a philosopher named Karl Popper. Karl Popper decades ago called piecemeal engineering. What he meant by this is if you’re one of the power elites in the world — a political leader, finance minister or head of a globalist institution who wants to run the world or tell other people how to live their lives — you can’t do it all at once.
Many have tried. Caesar, Napoleon, Hitler, the great dictators in history have tried to do everything at once. But they were all defeated because they invite retaliation and pushback of various kinds.
Popper said that if you want to change the world, you must do it slowly, one piece at a time, in ways that people don’t notice. An analogy is something called the ratchet. A ratchet tool is a tool that only turns one way. You can turn it one way… but you can’t turn it back. It’s an irreversible process.
Now let’s take that concept of piecemeal engineering and apply it to the elimination of the U.S. dollar and the rise of the special drawing right (SDR), because that’s what we are looking at in the future.
The SDR was invented in 1969 and there were a number of issues of SDRs in the 1970s. During the ‘70s we had massive liquidity crisis, borderline hyperinflation, a quadrupling of oil prices, and a stock market crash. The dollar almost collapsed between 1977 and in 1981. The situation was so bad that in 1977, the United States Treasury borrowed money in Swiss francs. Nobody wanted U.S. dollars, at least not at an interest rate the U.S. was willing to pay.
That was when the IMF issued SDRs to provide liquidity to the world at a time when the dollar was collapsing. That was the last time prior to 2009 when the IMF issued SDRs.
But it moved the ratchet forward.
Then there was a 30-year period from roughly 1980 to 2010 which has been described as the age of King Dollar. They didn’t need SDRs because the banking system was doing its job.
But in 2009-2010 two things happened. First, in 2009 the IMF issued SDRs for the first time in almost 30 years. That was in response to the global liquidity crisis when it looked like the world’s central banks couldn’t act fast enough. So the IMF issued over $100 billion of SDRs. Few people are even aware it happened.
But it moved the ratchet forward once again.
At the time, I went on CNBC and said, “What they’re doing is testing the plumbing.” The SDR hadn’t been used since 1980. The IMF needed to make sure the system still functioned, like an air-conditioning or plumbing system that hasn’t been used in years.
It did, and the system worked perfectly. Now they know the system works.
And we won’t be seeing anymore 30-year gaps of the kind we had between 1980 and 2009. In January 2010, the IMF issued another paper really speculating on the rise of the SDR as world money or a global currency. It was really a blueprint for the permanent establishment of the SDR. In other words, not a special, temporary SDR issue in case of emergency — but making the SDR a permanent global reserve currency.
But there’s a problem. In order to be a global reserve currency, the IMF can’t just print money to hand out. To create a reserve currency it needs to create an SDR-denominated bond market.
The reason the dollar is the world’s leading reserve currency is because there’s a very large liquid dollar-denominated bond market. Investors can go buy 30-day 10-year, 30-year Treasury notes, etc. The point is, there’s a deep, liquid dollar-denominated bond market to invest in that creates a lock-in effect. There is currently no equivalent bond market in SDRs. It will need to create one before SDRs can be considered a global reserve currency.
Well, last July, the IMF published a technical paper introducing the concept of a private SDR market…
In the IMF’s vision, private companies and corporations can issue bonds denominated in SDRs. Who are the logical issuers of the bonds?
Probably multinational or multilateral organizations like the Asian Development Bank and maybe big corporations like IBM and General Electric.
Who would buy these SDR-denominated bonds? Mostly sovereign wealth funds. China will be substantial buyers. The point is, these issues are coming.
Now the deployment of the SDR is coming closer to fruition…
The SDR has been composed of four currencies — the U.S. dollar, British pound sterling, the euro and the Japanese yen. But that’s about to change…
At midnight on September 30, the IMF will include the Chinese yuan in its basket of currencies. That will be a major event in monetary history. The IMF is welcoming China to the club.
For many people in the West, Americans in particular, this is just some technical IMF procedure. But that’s not how the Chinese look at the world. The Chinese are all about saving face and gaining face. One way to gain face in the Chinese concept is by gaining prestige. Being included in the IMF’s exclusive club of currencies affords them that prestige, even though westerners tend to think of it as a mere technical readjustment.
Yesterday I said September 4, 2016 could well go down as the day the dollar died. Why did I pick that date instead of September 30, the official date when the yuan is included in the IMF’s basket of currencies?
Because September 4 is when the leaders of the world’s larger economies will gather in Hangzhou, China for the G20 annual summit. This will be China’s coming-out party. This is China saying, “We are an equal partner, maybe more than the equal partner of the United States of America and Europe. They will no longer dictate the world’s financial system.”
The symbolism and the visuals at the upcoming meeting will be spectacular.
The IMF is essentially told what to do by the G20. If you think of the IMF as the central bank of the world, think of the G20 as the Board of Directors of the central bank of the world. It’s the committee that runs the world. This is not a conspiracy theory. It’s a fact.
And it’s important to realize that one G20 memo calls for “expanding the role of the IMF’s SDR (Special Drawing Rights).”
The pace is really picking up. The SDR bond issues I mentioned above are probably going to happen within the next couple of weeks. Between now and Labor Day we’ll see announcements about multibillion SDR bond issuance coming from the Asian Development Bank, some major Chinese commercial banks, the Asian Infrastructure Investment Bank, etc.
The point is, so these issues are coming. And over time, the SDR market will grow. It will not compete with the dollar-denominated bond market anytime soon, but the groundwork is being laid. Every time an institution invests in SDRs, they’ll be indirectly supporting the yuan. And it’ll help move the world that much further away from the dollar. This will have vast implications for anyone who holds their wealth in dollars.
The mechanics are too far along, the piecemeal social engineering was too well thought out, the ratchet is locked in place. It won’t be reversed. The next time there is a financial crisis, which I expect sooner than later, it’s not going to be the Fed that bails us out. It’s going to the IMF and the SDRs.
Then the ratchet effect will be completed.
In 10 years many people are going to look back and point at September 2016 as the point in time the dollar era ended. They can’t see it now.
But we do.
Regards,
Jim Rickards
for The Daily Reckoning
<<<
>>> Jim Rickards – The Day The Dollar Died Part I
August 16, 2016
by Jim Rickards
http://thedailycoin.org/2016/08/16/jim-rickards-the-day-the-dollar-died-part-i/
Will history record September 4th, 2016 as the day the dollar died? Before continuing, let me make it clear that you aren’t going to wake up on September 5th to find anything noticeably different…
The dollar won’t lose its reserve currency status overnight. It won’t be instantaneously inflated into worthless piece of currency, and we aren’t going to see immediate 90% hyperinflation. None of these things are going to happen.
What I mean is that in the not-too-distant future, maybe five years, maybe three years, maybe less, we’ll look back and say, “That was the date when everything changed. That was the turning point for the dollar and we didn’t see it at the time.” But those who know what to look for will understand the significance of that date.
It all has to do with the International Monetary Fund (IMF) and something called the Special Drawing Right, or SDR for short. World money is another term for it. The SDR is a kind of world money issued by the IMF, based in Washington. The U.S. Federal Reserve has a printing press to can print dollars. The Bank of England has a printing press to can print Sterling. The European Central Bank (ECB) can print euros. That said, the IMF can print SDRs.
When I say print, of course, the money is digital and you won’t be using it to buy groceries or gasoline. SDRs will be digitally created and handed out to member states to serve as a new form of world money. I simply use the word “printing” and “paper money” as shorthand.
On September 4th, does the dollar disappear, replaced overnight by SDRs? No. We are not there yet. But it will be a significant turning point. Before getting to the significance of September 4th, let’s look back in history a bit to frame the context…
Let’s say, pound sterling, if you were sitting around the government ministries in London in June of 1914, you would’ve looked around the world and said, “All is fine with the world.” It was the height of the British Empire.
Pound sterling was backed by gold issued by the Bank of England. It was the world money at the time. You could use a British gold sovereign, a one-ounce British gold coin, virtually anywhere in the world. And everything looked like it would maybe stay that way for the next hundred years.
Then in a very quick sequence of events from the end of June to the end of July, the Archduke of the Austro-Hungarian Empire was assassinated by a Serbian terrorist backed by Russia. That event set in motion the events that led to World War I and the ultimate decline of the British Empire.
When the war started, markets around the world crashed because the belligerents were liquidating their assets to raise money. The U.S. started shipping a lot of gold to the U.K. and Europe because Europeans were selling U.S. stocks to raise cash, convert it to gold to ship it back to Europe. It’s a fascinating story in and of itself. The point is, within a few months, gold was flowing out of New York to the U.K. because England initially sold U.S. securities to get gold.
Today the gold has primarily been going from London to China. But in the summer and fall of 1914 it was going from New York to London and other parts of Europe who needed the gold to finance the war effort. Gold was flowing out of the United States at enormous rate. But by November 1914 it turned around because now the U.K. was desperate for war material. It needed to buy agricultural produce, cotton, steel, weapons, whatever the U.S. could produce. In those days of the classical gold standard, nations had to pay for it with gold, or with paper that could be redeemed for gold.
Suddenly the gold started flowing back to the United States. By the late 1920s, the U.S. was the leading gold power in the world. Britain lost its world standing, unthinkable in June 1914. By the time of Bretton Woods in 1944, the U.S. had about two-thirds of all the official gold in the world because it had been a major manufacturing powerhouse and a major export powerhouse while the rest the world was fighting.
The U.S. eventually entered both World Wars I and II. But World War II started almost three years before the U.S. got involved, World War I started nearly three years before the U.S. got involved. We had a long period of time as a neutral power in both wars to ship war material to allies for gold, which we did.
At Bretton Woods in 1944, the U.S. dollar was enshrined for the next 30 years as not only the number one reserve currency in the world, but the only currency that was convertible to gold. All the other currencies were pegged to the dollar and the dollar was pegged to gold. The dollar became from then on the dominant reserve currency of the world up until today. Now that role is in doubt.
Now here is the point: many people look at Bretton Woods and say, “That was the day the dollar replaced the sterling. From then on the dollar was the leading reserve currency, the U.S. had all the gold. Sterling went into a long decline.”
That’s not what happened…
The actual turning point was 1914, was 30 years earlier. You can look at the entire 30-year period from 1914 to 1944 as a long, slow displacement of sterling by the dollar. At the end of the process, the dollar was King and sterling was a very weak currency that couldn’t backup its obligations. It had been given to Commonwealth Trading Partners, but they didn’t want it. By 1944 the U.K. economy was flat on its back because of the war. But the process started in 1914 when the gold started flowing to the U.S.
Nothing that happens on September 4th, 2016, will produce an overnight calamity for the dollar. But it’ll be a key turning point, not unlike November 1914 when the gold flow reversed out of England to New York. Then the dollar began its long ascent and sterling lost its dominance. If you had been a large investor in the U.K. and had seen that turning point, you would have gotten out of sterling assets and converted to dollar assets. You would’ve made a fortune and avoided enormous losses.
The point I’m making about September 4th is that it could be one of those dates in history that people will point to as a similar turning point. Except this process probably isn’t going to take 30 years. It could take 10 years or less. No one knows exactly what’s going to happen. We do know enough to say this will be one of those times when a very small number of astute individuals will know it at the time.
They’ll be able to look at September 4th and see it for what it is, the end of the dollar. 10 years from now it will become apparent that this was the time to get into gold, energy, silver, hard assets, land, fine art, and other assets that will preserve value. It won’t be apparent to most people until years into the future.
Another good example of a turning point that not many recognize at the time is Pearl Harbor. The U.S. suffered thousands of casualties and a good percentage of its Pacific fleet was destroyed or badly managed. It was enormous setback for the United States. But an astute observer would have concluded that, given our vast resources and manufacturing capability, it was just a matter of time before we would overwhelm the Japanese Empire.
A sharp analyst could have said, “No, this is a turning point in world history. This is the end of the Japanese Empire, this is the rise of the American Empire.” It would have been the perfect time to bet on America and against Japan. But few people were thinking in those terms when the U.S. Pacific fleet was in ruins on December 8th, 1941. It’s important to see these historic turning points for what they are.
Tomorrow, I’ll look specifically at September 4th and why I think it’ll be one of those historical dates few will recognize for what it is. But I want to give you the chance to understand exactly what’s going on. The dollar replaced sterling over a 30-year process. Now we’re looking at the process of replacing the dollar with SDRs. And it could start September 4th.
Tune in tomorrow for part II.
Regards,
Jim Rickards
for The Daily Reckoning
<<<
>>> Gold, Oil, Africa and Why the West Wants Gadhafi Dead
By Brian E. Muhammad
Jun 7, 2011
http://www.finalcall.com/artman/publish/World_News_3/article_7886.shtml
Muammar Gadhafi's decision to pursue gold standard and reject dollars for oil payments may have sealed his fate
Attacking Col. Gadhafi can be understood in the context of America and Europe fighting for their survival, which an independent Africa jeopardizes.
(FinalCall.com) - The war raging in Libya since February is getting progressively worse as NATO forces engage in regime change and worse, an objective to kill Muammar Gadhafi to eradicate his vision of a United Africa with a single currency backed by gold.
Observers say implementing that vision would change the world power equation and threaten Western hegemony. In response, the United States and its NATO partners have determined “Gadhafi must go,” and assumed the role of judge, jury and executioner.
“If they kill Brother Gadhafi, I submit to you that American interests in Africa will come under severe strain,” warned the Honorable Minister Louis Farrakhan on WPFW-FM's "Spectrum Today” program with Askia Muhammad.
“That man has invested in Africa more than any other leader in the recent history of Africa's coming into political independence,” he continued. The Muslim leader said America needs access to the mineral resources in Africa to be a viable power in the 21st century.
Minister Farrakhan further pointed out in the April 1 radio interview that the current plot to kill Col. Gadhafi comes at a time of great distress and decline for America. The fall of the dollar is a manifest loss of America's prestige and influence among the nations of the earth and an indicator of her end.
“How's America's wealth today? How is she doing financially? What is the deficit? Some say it's about $56 trillion counting Social Security and Medicare. That's a big number. She's printing money, but there's nothing backing it,” said Min. Farrakhan.
In the book, “The Fall of America,” the Most Honorable Elijah Muhammad wrote, “One of the greatest powers of America was her dollar. The loss of such power will bring any nation to weakness, for this is the media of exchange between nations.”
“The English pound and the American dollar have been the power and beckoning light of these two great powers. But when the world went off the gold and silver standard, the financial doom of England and America was sealed,” he explained. Mr. Muhammad said further that “the Fall of America is now visible and understandable.
“Long has Allah (God) been gradually removing the power of the great and mighty America while few have noticed it. This has been done by degrees, and they do not perceive it.”
Mr. Muhammad warned America's fall serves as a sign of fate for her European counterparts.
Analysts say introducing the gold dinar as the new medium of exchange would destroy dependence on the U.S. dollar, the French franc and the British pound and threaten the Western world. It would “finally swing the global economic pendulum” that would break Western domination over Africa and other developing economies.
Attacking Col. Gadhafi can be understood in the context of America and Europe fighting for their survival, which an independent Africa jeopardizes.
“Gadhafi's creation of the African Investment Bank in Sirte (Libya) and the African Monetary Fund to be based in Cameroon will supplant the IMF and undermine Western economic hegemony in Africa.”
—Gerald Pereira, an executive board member of the former Tripoli-based World Mathaba
“Gadhafi's creation of the African Investment Bank in Sirte (Libya) and the African Monetary Fund to be based in Cameroon will supplant the IMF and undermine Western economic hegemony in Africa,” said Gerald Pereira, an executive board member of the former Tripoli-based World Mathaba.
The moves are also bad for France because when the African Monetary Fund and the African Central Bank in Nigeria starts printing gold-backed currency, it would “ring the death knell" for the CFA franc through which Paris was able to maintain its neocolonial grip on 14 former African colonies for the last 50 years.
“It is easy to understand the French wrath against Gaddafi,” said Prof. Jean-Paul Pougala of the Geneva School of Diplomacy.
“The idea, according to Gaddafi, was that African and Muslim nations would join together to create this new currency and would use it to purchase oil and other resources in exclusion of the dollar and other currencies,” said political analyst Anthony Wile in an editorial for The Daily Bell online.
According to the International Monetary Fund, Libya's Central Bank is 100 percent state-owned and estimates that the bank has nearly 144 tons of gold in its vaults. If Col. Gadhafi changed the purchasing terms of his oil and other Libyan commodities sold on the world market and only accepted gold as payment; a policy like that wouldn't be welcomed by the power elites who control the world's central banks.
“That would certainly be something that would cause his immediate dismissal,” said Mr.Wile.
Furthermore, pricing oil in something other than the dollar would undercut the pedestal of U.S.. power in the world. Although in trouble, the dollar is the reserve currency based on a deal made with Saudi Arabia in 1971 in which the Saudis, as the world's largest oil producer, agreed to accept only dollars for oil, Mr. Wile observed.
The Libyan affair has sparked a divide in the world community with the African Union and nations like Venezuela, China and Cuba—and until recently Russia—on one side as voices of reason, caution and respect for international law and honoring the UN mandate which set the parameters for engagement in Libya.
On the other side are war hawkish America, France, Britain and Italy pursuing regime change and actively trying to assassinate Col. Gadhafi, though they deny that aim.
“Why all of a sudden, this rush to destroy Gadhafi?” asked Min. Farrakhan during his March 31 press conference on America's Middle East and Libya policy. “I know why you are angry with him; because he never agreed with your policies when it came to sucking the resources of Third World peoples, and putting in place dictators that would be amenable to America's policies.”
Other analysts concur that the control of Africa is front and center as the prize in the scramble to kill Col. Gadhafi and preserve Western domination on the world stage, making the African Union critical at this time.
The AU stood with Libya since NATO forces began their missile bombardment. The AU has also accused Western nations of marginalizing an African solution to an “African problem.”
The AU criticized NATO for bombing Tripoli, targeting Gadhafi family compounds and violating the stated UN mandate to uphold a no fly-zone and protect civilians.
AU negotiations to end the conflict were brokered by South African President Jacob Zuma, which the Libyan government accepted, but were discarded by the rebels who set preconditions—in conjunction with NATO—that demanded Col. Gadhafi's removal.
The AU is the framework the Libyan leader was using to establish African self determination and economic self-sufficiency. Col. Gadhafi financed the restructuring of the former Organization of African Unity—formed by African leaders Dr. Kwame Nkrumah of Ghana, Sekou Toure of Guinea, Gamal Abdel Nasser of Egypt and others—into the AU and revived the concept of a United States of Africa with one continental army and a single currency backed by gold.
However critics of U.S. foreign policy objectives in Africa say efforts toward the continent becoming a unified bloc have been consistently weakened for fear that Africa will leverage more equity and control in the arena of global economics.
But the plan for an independent African currency backed by gold appears to be the real reason behind the frenzied attack on Col. Gadhafi.
“The US, the other G-8 countries, the World Bank, IMF, BIS (Bank for International Settlements), and multinational corporations do not look kindly on leaders who threaten their dominance over world currency markets.”
—John Perkins, author of “Confessions of an Economic Hit Man"
Whenever a government and leader arose that desired to use the resources of that nation for its people, America—through the CIA—would plan insurrections, coups, terrorist activities and even assassination of good leaders, observed Min. Farrakhan.
Despite the ire of Western foes, Muammar Gadhafi gained the clout to lead creation of a single currency because of strong oil profits versus a small population.
“The US, the other G-8 countries, the World Bank, IMF, BIS (Bank for International Settlements), and multinational corporations do not look kindly on leaders who threaten their dominance over world currency markets,” wrote John Perkins, author of “Confessions of an Economic Hit Man,” on Johnperkins.com. It is redolent of Saddam Hussein advocating similar policies shortly before the U.S. invaded Iraq, he said.
“Gadhafi knew how to play the West at their own game. He dared to wield real economic power in the name of Africa and anyone who dares to do so will feel the full wrath of Empire,” remarked. Perrier.
With the hopes of breaking Col. Gadhafi, foreign governments froze nearly $70 billion of Libyan assets belonging to the Libyan Investment Authority, the 13th largest international investment fund in the world. Although designed to hurt Col. Gadhafi, it injures Africa, because Libya assists with development projects throughout Africa.
An example of such projects was installing independent satellite communications across Africa, cutting off an expensive dependency on Europe for the same services. Col. Gadhafi infused $300 million into the project after the IMF, America and Europe broke repeated promises of finance.
In the 1990s forty-five African governments started RASCOM—Regional African Satellite Communication Organization—so Africa would have its own satellite and control communication costs on the continent.
Before RASCOM, costs for telephone calls to and from Africa were the highest worldwide and the continent was burdened with an annual $500 million fee paid to Europe for satellite usage. African satellites cost a onetime payment of $400 million and no annual fee—a move for self determination led by Col. Gadhafi that agitated Europe.
The rebels and collaborators
Since the beginning of the hostilities, the 69-year-old Gadhafi has consistently called for ceasefires and a political solution only to be rebuffed and have NATO missiles aimed at him and his family. However, with the stakes so high, what kind of Libya will emerge if Col. Gadhafi is killed?
“It will not be the rebels and the transitional council who will take power in Libya—it will be the imperialist powers who take over and the implications for Libya will be a complete re-colonization,” said Mr. Pereira.
Some nations officially recognized the NTC as the new legitimate government; however the NTC will face severe challenges as a government post Gadhafi. The NTC and other rebel groups lack cohesive unity, strengthening possibilities for ongoing civil strife.
Furthermore, the insurgency has become a nightmare wrought with hard financial and military questions. Xinhua News-English reported the group is cash poor and has difficulty raising money; while the only commodity available to them is oil, which still belongs the Gadhafi government and is embroiled in UN sanctions.
“I don't have any resources. Not a single dinar came in to the treasury,” lamented NTC oil and finance head Ali Tarhouni during a May 29 press conference. “We only exported one shipment (of oil) and got $150 million for that. So far we've spent $408 million on fuel. It's not a good number.”
The Benghazi-based rebels include remnants of the monarchy deposed by the 1969 Al-Fateh revolution. Several times over the years, the royalists attempted assassination of Col. Gadhafi and destabilization of the revolution, but lacked military ability and popular support.
On May 24, U.S. assistant secretary of state Jeffery Feltman announced the NTC will establish an office in Washington at the invitation of President Barrack Obama. Comparable arrangements exist with France and Britain.
For now, after several months of military intervention, betrayal by former comrades of the revolution and continued assassination attempts by NATO, Muammar Gadhafi is still standing. For the imperialists however, his elimination means the future of their power in Africa.
“Make no mistake, if NATO succeeds in Libya it will be a massive setback for the entire continent,” said Mr. Pereira.
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>>> The Global De-dollarization and the US Policies
http://journal-neo.org/2015/02/02/rus-dedollarizatsiya-i-ssha/
In its quest for world domination, which the White House has been pursuing for more than a century, it relied on two primary tools: the US dollar and military might. In order to prevent Washington from establishing complete global hegemony, certain countries have recently been revising their positions towards these two elements by developing alternative military alliances and by breaking with their dependence on the US dollar.
Until the mid-twentieth century, the gold standard was the dominant monetary system, based on a fixed quantity of gold reserves stocked in national banks, which limited lending. At that time, the United States managed to become the owner of 70% of world’s gold reserves (excluding the USSR), therefore it pushed its weakened competitor, the UK, aside resulting to the creation of the Bretton Woods financial system in 1944. That’s how the US dollar became the predominant currency for international payments.
But a quarter century later this system had proven ineffective due to its inability to contain the economic growth of Germany and Japan, along with the reluctance of the US to adjust its economic policies to maintain the dollar-gold balance. At that time, the dollar experienced a dramatic decline but it was saved by the support of rich oil exporters, especially once Saudi Arabia began to exchange its black gold for US weapons and support in talks with Richard Nixon. As a result, President Richard Nixon in 1971 unilaterally ordered the cancellation of the direct convertibility of the United States dollar to gold, and instead he established the Jamaican currency system in which oil has become the foundation of the US dollar system. Therefore, it’s no coincidence that from that moment on the control over oil trade has become the number one priority of Washington’s foreign policy. In the aftermath of the so-called Nixon Shock the number of US military engagements in the Middle East and other oil producing regions saw a sharp increase. Once this system was supported by OPEC members, the global demand for US petrodollars hit an all time high. Petrodollars became the basis for America domination over the global financial system which resulted in countries being forced to buy dollars in order to get oil on the international market.
Analysts believe that the share of the United States in today’s world gross domestic product shouldn’t exceed 22%. However, 80% of international payments are made with US dollars. As a result, the value of the US dollar is exceedingly high in comparison with other currencies, that’s why consumers in the United States receive imported goods at extremely low prices. It provides the United States with significant financial profit, while high demand for dollars in the world allows the US government to refinance its debt at very low interest rates.
Under these circumstances, those heding against the dollar are considered a direct threat to US economic hegemony and the high living standards of its citizens, and therefore political and business circles in Washington attempt by all means to resist this process.This resistance manifested itself in the overthrow and the brutal murder of Libyan leader Muammar Gaddafi, who decided to switch to Euros for oil payments, before introducing a gold dinar to replace the European currency.
However, in recent years, despite Washington’s desire to use whatever means to sustain its position within the international arena, US policies are increasingly faced with opposition. As a result, a growing number of countries are trying to move from the US dollar along with its dependence on the United States, by pursuing a policy of de-dollarization. Three states that are particularly active in this domain are China, Russia and Iran. These countries are trying to achieve de-dollarization at a record pace, along with some European banks and energy companies that are operating within their borders.
The Russian government held a meeting on de-dollarization in spring of 2014, where the Ministry of Finance announced the plan to increase the share of ruble-denominated contracts and the consequent abandonment of dollar exchange. Last May at the Shanghai summit, the Russian delegation manged to sign the so-called “deal of the century” which implies that over the next 30 years China will buy $ 400 billion worth of Russia’s natural gas, while paying in rubles and yuans. In addition, in August 2014 a subsidiary company of Gazprom announced its readiness to accept payment for 80,000 tons of oil from Arctic deposits in rubles that were to be shipped to Europe, while the payment for the supply of oil through the “Eastern Siberia – Pacific Ocean” pipeline can be transferred in yuans. Last August while visiting the Crimea, Russia’s President Vladimir Putin announced that “the petrodollar system should become history” while “Russia is discussing the use of national currencies in mutual settlements with a number of countries.” These steps recently taken by Russia are the real reasons behind the West’s sanction policy.
In recent months, China has also become an active member of this “anti-dollar” campaign, since it has signed agreements with Canada and Qatar on national currencies exchange, which resulted in Canada becoming the first offshore hub for the yuan in North America. This fact alone can potentially double or even triple the volume of trade between the two countries since the volume of the swap agreement signed between China and Canada is estimated to be a total of 200 billion yuans.
China’s agreement with Qatar on direct currency swaps between the two countries are the equivalent of $ 5.7 billion and has cast a heavy blow to the petrodollar becoming the basis for the usage of the yuan in Middle East markets. It is no secret that the oil-producing countries of the Middle Eastern region have little trust in the US dollar due to the export of inflation, so one should expect other OPEC countries to sign agreements with China.
As for the Southeast Asia region, the establishment of a clearing center in Kuala Lumpur, which will promote greater use of the yuan locally, has become yet another major step that was made by China in the region. This event occurred in less than a month after the leading financial center of Asia – Singapore – became a center of the yuan exchange in Southeast Asia after establishing direct dialogue regarding the Singapore dollar and the yuan.
The Islamic Republic of Iran has recently announced its reluctance to use US dollars in its foreign trade. Additionally, the President of Kazakhstan Nursultan Nazarbayev has recently tasked the National Bank with the de-dollarization of the national economy.
All across the world, the calls for the creation of a new international monetary system are getting louder with each passing day. In this context it should be noted that the UK government plans to release debts denominated in yuans while the European Central Bank is discussing the possibility of including the yuan in its official reserves.
Those trends are to be seen everywhere, but in the midst of anti-Russian propaganda, Western newsmakers prefer to keep quiet about these facts, in particular, when inflation is skyrocketing in the United States. In recent months, the proportion of US Treasury bonds in the Russian foreign exchange reserves has been shrinking rapidly, being sold at a record pace, while this same tactic has been used by a number of different states.
To make matters worse for the US, many countries seek to export their gold reserves from the United States, which are deposited in vaults at the Federal Reserve Bank. After a scandal of 2013, when the US Federal Reserve refused to return German gold reserves to its respective owner, the Netherlands have joined the list of countries that are trying to retrieve their gold from the US. Should it be successful the list of countries seeking the return of gold reserves will double which may result in a major crisis for Washington.
The above stated facts indicate that the world does not want to rely on US dollars anymore. In these circumstances, Washington relies on the policy of deepening regional destabilization, which, according to the White House strategy, must lead to a considerable weakening of any potential US rivals. But there’s little to no hope for the United States to survive its own wave of chaos it has unleashed across the world.
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Brexit - 'Hitch the UK wagon to China’s rising star' -
Note - UK Chancellor of the Exchequer George Osborne represents the dominant faction in the Bank of England, and was key in supporting Brexit. The Queen was reportedly also a supporter. As Tarpley has discussed, Brexit is part of a high stakes plan by an aggressive faction in the UK to create a comprehensive strategic partnership with China. He said this will likely involve a UK/Chinese attack on the hegemony of the US dollar. So just one more example of 'Perfide Albion', or British treachery toward its so-called allies -
>>> Beware the Fatal Flaws of Britain's China Strategy
The UK’s approach to Beijing, while hardly surprising, suffers from several fatal flaws.
The Diplomat
By John Hemmings
October 30, 2015
http://thediplomat.com/2015/10/the-trouble-with-britains-china-strategy/
Chinese President Xi Jinping received the reddest of red-carpet treatments in London last week, with Xi being treated to a 21-gun salute, a royal carriage ride down the Mall, an address to both Houses of Parliament, followed by a State Banquet at Buckingham Palace and a visit to the Prime Minister’s official residence Chequers.
The fact that British Prime Minister David Cameron used the full powers of the British state to welcome the Chinese leader has many wondering about the future of UK-China ties as the two proclaim a new “golden era” of bilateral relations, and agree to create a “global comprehensive strategic partnership.”
While many in London question the timing – this year Beijing mismanaged a stock market slump while simultaneously tightening control over dissidents – the Treasury attitude is simply to bulldoze the new China approach through other departments of government, including a skeptical Foreign Office. The visit and the assumptions it’s based on raise questions about Britain’s tactical understanding of China. After all, as Evan Medeiros, former senior staffer on Asia on President Obama’s National Security Staff, told the Financial Times, “if you give in to Chinese pressure, it will inevitably lead to more Chinese pressure.”
The seemingly ‘new’ mercantilist approach of Chancellor George Osborne is deeply embedded in historical traditions of British foreign policy-making, and has run parallel and sometimes counter to Britain’s values-oriented foreign policy. Long before Henry Kissinger said it, Lord Palmerston claimed that Britain had no “permanent friends or allies, only permanent interests.” Britain has always viewed trade as one of these permanent interests, since power is derived from economic standing. This is evident throughout the last century: the UK was the largest source of long-term foreign direct investment in the United States, played a pivotal role in Japanese industrialization, and was one of Germany’s main trade partners prior to both the first and second world wars. If the new China policy is a mistake, Britain has made it before.
The Soviet Union was the exception to the rule: blame Russian communist views of trade. Therefore, it is unremarkable that Osborne wishes to hitch the UK wagon to China’s rising star. Seen from Whitehall, this approach marries traditional notions of liberal trade internationalism with the promise of profit for City of London financiers. The Downing Street website puts this financial promise at the front of its webpage describing Xi’s visit, claiming it will “unlock” more than $48 billion of commercial deals across energy, finance, technology, and education. The question is whether all this promise will be delivered and at what cost to Britain’s security and freedom of maneuver.
Unlike Britain, China does not prize the bilateral relationship for short-term economic gains, but rather seeks to use British financial acumen to lift itself into ascendancy. The internationalization of the RMB, using London as a trading hub, and a scheme to link the London and Shanghai stock markets – both announced during Xi’s visit – are to build the foundation of a new Chinese order. Xi was not in London just to meet the Queen. He was there to make deals, buying the experience and know-how of the British financial world and he has the cash to close the deal. The $48 billion that he’s put on the table could be just a start: despite the slowing of its economy and huge public debt, China has more than $1.53 trillion in sovereign wealth funds. Furthermore, London would profit immensely from becoming the primary RMB trade hub, which is a very real possibility says Yang Du, head of Thomson Reuters China business desk. Currently, Britain is the eighth largest destination for Chinese investment: when Prime Minister Cameron and Chancellor Osborne said at the Buckingham Palace Banquet that they want Britain to be China’s “best partner in the West,” this is what they mean.
Caution is in order, however. The Osborne Doctrine suffers from several fatal flaws. First, it is hype built on hype. Several economists view Britain’s strategy toward China as over-relying on foreign investment to sustain growth. Rather than passing the costs of building British infrastructure – such as three planned nuclear power plants – on to China, why not borrow at 3 percent and maintain control over processes, control over quality, and most important, maintain the capacity of local industry? This off-shoring is rich in irony: Britain – home to the industrial revolution – is paying China – one of the most recent adherents of the industrial revolution – to finance and make British products in Britain. As if to drive home the point, Xi’s visit was preceded by the bankruptcy of a leading company in the British steel industry, a result of Chinese steel dumping this year.
The second flaw is that China does not seem serious about upholding either the rules-based order that Britain helped build after World War II or the liberal economic and political values implicit in that order. Prime Minister Cameron’s silence over human rights issues for the sake of finance was widely criticized in the British media with Chinese dissident artist Ai Weiwei claiming that it was in the name of profit. The Chinese ambassador had even warned that Xi would be “offended” if human rights were raised during the visit. The main problem with this approach is that it is simply out of step with the British public, which expects an ethical foreign policy from Whitehall. Power and finance are not enough.
This misplaced faith in Chinese investment promises and the willingness to downplay human rights issues have not gone down well in Washington, where London’s embrace of authoritarian China looks increasingly out-of-step with its regional concerns. This is the third flaw of Osborne’s strategy: Britain is out of touch with other liberal democracies like Germany and France and how they balance economic policies with principles. London’s willingness to join the AIIB without consulting or even alerting the G-7 was a major blow to the group, but it also damaged British prestige.
Britain is increasingly out of step with Washington, which sees its trade relationship with China rapidly eclipsed by issues such as cyber security and maritime security in the Asia Pacific. Osborne’s willingness to throw open certain sectors of the economy critical to national security to Chinese investment strikes many as naïve if not dangerous: a 2013 British Parliamentary committee issued a scathing report of the government’s willingness to award large contracts in the telecommunications sector to Huawei, a Chinese company with purported links to the People’s Liberation Army. Though Cameron did receive a joint statement from Xi over cyber security during the visit, it is no stronger than the one Xi gave in Washington, and probably has less meaning.
Finally, there is the flaw of unintended consequences: Beijing’s belief that Britain – a major player in the current liberal rules-based order – is bandwagoning for profit may encourage China to attempt to dismantle the system in favor of one that favors Beijing’s autocratic preferences. No one believes that Britain could play a pivotal role if a conflict broke out in the Asia Pacific, but it may help deter Chinese adventurism. This regional aspect highlights the shortsightedness of the Osborne Doctrine because it assumes that as long as China’s misbehavior occurs in the Asia-Pacific region, it does not impinge on British interests. This belies Britain’s dependence on trade routes that transit the contested South China Sea and East China Sea waters.
President Xi’s carriage ride down the Mall to Buckingham Palace was rich in symbolism; the image of Prime Minister Cameron kowtowing to the Chinese president evokes Britain’s first diplomatic mission to China in 1793, when Lord Macartney traveled to meet the Qianlong Emperor in Peking. His attempt to open trade between the two empires ended in failure as the two held incompatible worldviews and practiced incompatible diplomatic cultures. Seeing President Xi and his wife dressed in Western clothes, in front of a trade delegation to Britain would seem to indicate that two states understand each much better now. However, Cameron’s willingness to trade British principles for investment and significant concessions and market access show that London is no closer to understanding Beijing than it was 250 years ago.
John Hemmings, an adjunct fellow at Pacific Forum CSIS, is a doctoral candidate at the London School of Economics.
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>>> Takng The 'Petro' Out Of The Dollar
Submitted by Alasdair Macleod via GoldMoney.com,
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=122311533
Saudi Arabia has been in the news recently for several interconnected reasons. Underlying it all is a spendthrift country that is rapidly becoming insolvent.
While the House of Saud remains strongly resistant to change, a mixture of reality and power-play is likely to dominate domestic politics in the coming years, following the ascendency of King Salman to the Saudi throne. This has important implications for the dollar, given its historic role in the region.
Last year’s collapse in the oil price has forced financial reality upon the House of Saud. The young deputy crown prince, Mohammed bin Salman, possibly inspired by a McKinsey report, aims to diversify the state rapidly from oil dependency into a mixture of industries, healthcare and tourism. The McKinsey report looks like a wish-list, rather than reality, particularly when it comes to tourism. The religious police are unlikely to take kindly to bikinis on the Red Sea’s beeches, or to foreign women in mini-shorts wandering around Jeddah.
It is hard to imagine Saudi Arabia, culturally stuck in the middle ages, embracing the changes recommended by McKinsey, without fundamentally reforming the House of Saud, or even without a full-scale revolution. Nearly all properties and businesses are personally owned or controlled by members of the extended royal family, not the state, nor by lesser mortals. The principal exception is Aramco, estimated to be worth $2 trillion.
The state is subservient to the House of Saud. It is therefore hard to see how, as McKinsey recommends, the country can “shift from its current government-led economic model to a more market-based approach”. The country is barely government led: a puppet of the Saudis is more like it. But the state’s lack of funds is making it increasingly desperate.
It was for this reason the Kingdom recently placed a $10bn five-year syndicated loan, the first time it has entered capital markets since Saddam Hussein invaded Kuwait. It proposes to raise a further $100bn by selling a 5% stake in Aramco. The financial plan appears to be a combination of this short-term money-raising, contributions from oil revenue, and sales of US Treasuries (thought to total as much as $750bn). The government has, according to informed sources, been secretly selling gold, mainly to Asian central banks and sovereign wealth funds. Will it see the Kingdom through this sticky patch?
Maybe. Much more likely, buying time is a substitute for ducking fundamental reform. But one can see how stories coming out of Washington, implicating Saudi interests in the 9/11 twin-towers tragedy, could easily have pulled the trigger on all those Treasuries.
Whatever else was discussed, it seems likely that this topic will have been addressed at the two special FOMC meetings “under expedited measures” at the Fed earlier this month, and then at Janet Yellen’s meeting with the President at the White House. This week’s holding pattern on interest rates would lend support to this theory.
The White House’s involvement certainly points towards a matter involving foreign affairs, rather than just interest rates. If the Saudis had decided to dump their Treasuries on the market, it would risk collapsing US bond markets and the dollar. Through financial transmission, euro-denominated sovereign bonds and Japanese government bonds, all of which are wildly overpriced, would also enter into free-fall, setting off the global financial crisis that central banks have been trying to avoid.
Perhaps this is reading too much into Saudi Arabia’s financial difficulties, but the possibility of the sale of Treasuries certainly got wide media coverage. These reports generally omitted to mention the Saudi’s underlying financial difficulties, which could equally have contributed to their desire to sell.
While the Arab countries floated themselves on oceans of petro-dollars forty years ago, they have little need for them now. So we must now turn our attention to China, which is well positioned to act as white knight to Saudi Arabia. China’s SAFE sovereign wealth fund could easily swallow the Aramco stake, and there are good strategic reasons why it should. A quick deal would help stabilise a desperate financial and political situation on the edges of China’s rapidly growing Asian interests, and keep Saudi Arabia onside as an energy supplier. China has dollars to dispose, and a mutual arrangement would herald a new era of tangible cooperation. The US can only stand and stare as China teases Saudi Arabia away from America’s sphere of influence.
In truth, trade matters much more than just talk, which is why a highly-indebted America finds herself on the back foot all the time in every financial skirmish with China. Saudi Arabia has little option but to kow-tow to China, and her commercial interests are moving her into China’s camp anyway. It seems logical that the Saudi riyal will eventually be de-pegged from the US dollar and managed in line with a basket of her oil customers’ currencies, dominated by the yuan.
Future currency policies pursued by both China and Saudi Arabia and their interaction will affect the dollar. China wants to use her own currency for trade deals, but must not flood the markets with yuan, lest she loses control over her currency. The internationalisation of the yuan must therefore be a gradual process, supply only being expanded when permanent demand for yuan requires it. Meanwhile, western analysts expect the riyal to be devalued against the dollar, unless there is a significant and lasting increase in the price of oil, which is not generally expected. But a devaluation requires a deliberate act by the state, which is not in the personal interests of the individual members of the House of Saud, so is a last resort.
It is clear that both Saudi Arabia and China have enormous quantities of surplus dollars to dispose in the next few years. As already stated, China could easily use $100bn of her stockpile to buy the 5% Aramco stake, dollars which the Saudis would simply sell in the foreign exchange markets as they are spent domestically. China could make further dollar loans to Saudi Arabia, secured against future oil sales and repayable in yuan, perhaps at a predetermined exchange rate. The Saudis would get dollars to spend, and China could balance future supply and demand for yuan.
It would therefore appear that a large part of the petro-dollar mountain is going to be unwound over time. There is now no point in the Saudis also hanging onto their US Treasury bonds, so we can expect them to be liquidated, but not as a fire-sale. On this point, it has been suggested that the US Government could simply block sales by China and Saudi Arabia, but there would be no quicker way of undermining the dollar’s international credibility. More likely, the Americans would have to accept an orderly unwinding of foreign holdings.
The US has exploited the dollar’s reserve currency status to the full since WW2, leading to massive quantities of dollars in foreign ownership. The pressure for dollars to return to America, when the Vietnam war was wound down, was behind the first dollar crisis, leading to the failure of the London gold pool in the late sixties. After the Nixon Shock in 1971, the cycle of printing money and credit for export resumed.
In the seventies, higher oil prices were paid for by printing dollars and by expanding dollar bank credit, in turn kept offshore by lending these exported dollars to Latin American dictators. That culminated in the Latin American debt crisis. From the eighties onwards, the internationalisation of business was all done on the back of yet more exported dollars, and wars in Iraq and Afghanistan echoed the earlier wars of Korea and Vietnam.
Many of these factors have now either disappeared or diminished. For the last eighteen months, the dollar had a last-gasp rally, as commodity and oil prices collapsed. The contraction in global trade since mid-2014 had signalled a swing in preferences from commodities and energy towards the money they are priced in, which is dollars. The concomitant liquidation of malinvestments in the commodity-exporting countries has been contained for now by aggressive monetary policies from China, Japan and the Eurozone. The tide is now swinging the other way: preferences are swinging out of the dollar towards oversold commodities again, exposing the dollar to a second version of the gold pool crisis. This time, China, Saudi Arabia and the BRICS will be returning their dollars from whence they came.
In essence, this is the market argument in favour of gold. Over time, the price of commodities and their manufactured derivatives measured in grams of gold is relatively stable. It is the price measured in fiat currencies that is volatile, with an upward bias. The price of a barrel of oil in 1966, fifty years ago, was 2.75 grams of gold. Today it is 1.0 gram of gold, so the purchasing power of gold measured in barrels of oil has risen nearly three-fold. In dollars, the prices were $3.10 and $40 respectively, so the purchasing power of the dollar measured in barrels of oil has fallen by 92%. Expect these trends to resume.
This is also the difference between sound money and dollars, which has worked to the detriment of nearly all energy and commodity-producing countries. With a track-record like that, who needs dollars?
It is hard to see how the purchasing power of dollars will not fall over the rest of the year. The liquidation of malinvestments denominated in external dollars has passed. Instead, the liquidation of financial investments carry-traded out of euros and yen is strengthening those currencies. That too will pass, but it won’t rescue the dollar.
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>>> China Goes After Russian Oil Giant Rosneft, Deals Fly
Forbes
4-21-16
Kenneth Rapoza
http://www.forbes.com/sites/kenrapoza/2016/04/21/china-goes-after-russian-oil-giant-rosneft-deals-fly/?utm_campaign=yahootix&partner=yahootix#191b77be2093
Anyday now we will here that all that metal China is mining isn’t really designed for job creation and dumping steel into the world, it’s for building oil storage tanks. With a world awash in crude, China’s state owned oil giant CNPC is looking to become a major shareholder in Rosneft to have access to more of it. For those who don’t know, Rosneft is Russia’s biggest oil producer. The company had a joint venture with ExxonMobil a while back in the Kara Sea, but Washington put a stop to it because of sanctions in retaliation for Russian involvement in Ukrainian politics.
Meanwhile, the Chinese are hoping to bankroll the Russian company as it opens more of its shares to the market. Ironically, Rosneft will go from being a majority Russian state owned enterprise to a majority Russia and Chinese owned one.
Russia’s First Deputy Energy Minister Alexei Teksler said China’s National Petroleum Corporation (CNPC) was interested in Russia’s privatization plan.
China said the same. “Yes, we are considering this,” CNPC’s Wang Zhongcai reportedly said, adding that the company is conducting their due diligence on the deal.
Under the state privatization plan, Rosneft is expected to privatize 19.5% of its state shares this year. The Russian government currently owns 69.5% of Rosneft, with the rest of the shares free-floating in the market.
Vladimir Putin has stated numerous times that he was continuing with privatization plans of beloved state assets, a process that has largely stalled since he took over the government nearly a decade ago. He warned in 2014 and again in 2015 that selling oil assets when prices were depressed wouldn’t be prudent. Oil prices remain in the low $40s per barrel, but Rosneft shares are doing well. The Micex traded shares are up 27% year-to-date, beating the forex which has the dollar down nearly 10%.
It is strange that Russia is considering moving ahead with the sale, though the country has been cozying up to the Chinese ever since Europe slapped it with sanctions in 2014 on account of its support of separatists in eastern Ukraine. Rosneft is be part of other billion dollar energy deals flying between the two countries, which include a Gazprom natural gas line into China. There’s also a proposed agricultural joint venture on the Mongolian border, and ongoing moves to connect the Moscow exchange with Shanghai to facilitate local currency hedging and forex settlement as a means to diversify commerce from the dollar. It is unclear where those projects stand at this time.
Russia’s government, meanwhile, is not all that bullish on oil.
The Russian Ministry of Economic Development’s base case scenario for crude is $40, while a worst case scenario has it priced at $25.
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>>> China's Silk Road revival steams ahead as cargo train arrives in Iran
Goods travel 6,462 miles in 14 days as part of efforts to resurrect ancient trade route connecting east with Europe
Saeed Kamali Dehghan
15 February 2016
http://www.theguardian.com/business/2016/feb/15/chinas-silk-road-revival-steams-ahead-as-cargo-train-arrives-in-iran
A long-distance cargo train has travelled from China to Iran as part of an attempted revival of the ancient Silk Road, a trans-Asian trade route connecting the east to Europe and the Mediterranean Sea.
The 32-container train, which arrived in Tehran on Monday, took 14 days to complete the 6,462 mile (10,399km) journey from China’s eastern Zhejiang province through Kazakhstan and Turkmenistan – one month less than the sea route from Shanghai to the Iranian port of Bandar Abbas.
Iranian officials have indicated that the ultimate aim is to extend the rail route to Europe, positioning Iran on a key stretch to the continent. The train, which departed from Zhejiang’s trading hub Yiwu, travelled an average of more than 700km a day.
“Countries along the Silk Road are striving to revive the ancient network of trade routes,” said Mohsen Pour Seyed Aghaei, president of the Islamic Republic of Iran Railways company, according to Iran’s semi-official Mehr news agency. “The arrival in Tehran of the train in less than a fortnight has been an unprecedented achievement.”
He said the train had outstripped “truck and road transport” and demonstrated the great advantage of the route.
China is Iran’s biggest trading partner. Commercial ties continued despite decade-long international sanctions over Tehran’s nuclear programme, which were lifted in January after last year’s landmark nuclear deal.
Last month, Chinese president Xi Jinping became the first global leader to visit Tehran since the sanctions were lifted. The two nations signed an agreement on boosting trade to $600bn (£420bn) over the next decade.
The revived Silk Road is envisioned as a rail and sea route, part of China’s “One Belt, One Road” economic development strategy. An Iranian container ship, the Perarin, arrived in Guangxi in southern China last month, delivering 978 containers from a number of countries along the maritime route.
“Iran is strategically located in the Middle East, sharing land borders with 15 nations and sea channels on its northern and southwestern coasts,” said Iran’s state-owned Press TV. “China sees Iran as a country that can play a crucial role in China’s New Silk Road initiative, given its access to extensive delivery routes connecting to the Middle East and Eurasia.”
In October 2014, a long-distance luxury train, operating in the style of the Orient Express, arrived in the Iranian city of Zanjan from Budapest – the first time a European private train had been permitted to enter Iranian territory. Prices for the two-week tour on the Golden Eagle Danube Express ranged from £8,695 to £13,995 per person.
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>>> Saudi Arabia To Drop Dollar Peg? Amid Slumping Oil Prices, Kingdom Could Reduce Budget Deficit
By Michael Kaplan
12/29/15
http://www.ibtimes.com/saudi-arabia-drop-dollar-peg-amid-slumping-oil-prices-kingdom-could-reduce-budget-2242687
Saudi Arabia could be considering abandoning its currency peg against the dollar, analysts have said, according to CNBC Tuesday. The speculation comes following an announcement of plans to reduce Saudi Arabia’s state budget amid a major budget deficit due to slumping oil prices.
The Saudi government in recent days has announced significant spending cuts, as well as plans to diversify the economy and generate revenue from sources other than oil. The kingdom ran a deficit of nearly $98 billion in 2015, according to the Council of Economic and Development Affairs, Reuters reported Monday.
"Something needs to happen [in Saudi Arabia], and it's not clear what is going to happen — whether the budget's going to be corrected or if there needs to be something on the monetary policy side, and here I'm specifically talking about the currency peg," Michael Cirami, a vice president of Eaton Vance Management, told CNBC.
The sharp drop in oil prices against a strengthening dollar has made Saudi Arabia’s peg to the dollar inconvenient, but as the oil market tends to be dominated by the dollar, it was in the past a suitable peg for the oil-reliant nation. Dropping the dollar peg could cause prices to shoot up, however, as Saudi imports a number of goods. On the other hand, it could make exports more attractive due to a weaker currency.
"It's not something for now or possibly 2016, but when you look out a bit further the pressures are going to be there," Cirami said.
A 2016 Saudi budget unveiled Monday plans for $224 billion in spending on $137 billion in revenue. The budget assumes the average price of crude will rise to $45 per barrel next year. It now sits at around $37 per barrel. Nearly three-fourths of Saudi Arabia’s revenue comes from oil, despite yearslong efforts to diversify the economy.
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>>> 7 Countries Considering Abandoning the US Dollar (and What It Means)
By Jessica Merritt
Nov 2007
http://www.currencytrading.net/features/7-countries-considering-abandoning-the-us-dollar-and-what-it-means/
It’s no secret that the dollar is on a downward spiral. Its value is dropping, and the Fed isn’t doing a whole lot to change that. As a result, a number of countries are considering a shift away from the dollar to preserve their assets. These are seven of the countries currently considering a move from the dollar, and how they’ll have an effect on its value and the US economy.
1.Saudi Arabia: The Telegraph reports that for the first time, Saudi Arabia has refused to cut interest rates along with the US Federal Reserve. This is seen as a signal that a break from the dollar currency peg is imminent. The kingdom is taking "appropriate measures" to protect itself from letting the dollar cause problems for their own economy. They’re concerned about the threat of inflation and don’t want to deal with "recessionary conditions" in the US. Hans Redeker of BNP Paribas believes this creates a "very dangerous situation for the dollar," as Saudi Arabia alone has management of $800 billion. Experts fear that a break from the dollar in Saudi Arabia could set off a "stampede" from the dollar in the Middle East, a region that manages $3,500 billion.
2.South Korea: In 2005, Korea announced its intention to shift its investments to currencies of countries other than the US. Although they’re simply making plans to diversify for the future, that doesn’t mean a large dollar drop isn’t in the works. There are whispers that the Bank of Korea is planning on selling $1 billion US bonds in the near future, after a $100 million sale this past August.
3.China: After already dropping the dollar peg in 2005, China has more trouble up its sleeve. Currently, China is threatening a "nuclear option" of huge dollar liquidation in response to possible trade sanctions intended to force a yuan revaluation. Although China "doesn’t want any undesirable phenomenon in the global financial order," their large sum of US dollars does serve as a "bargaining chip." As we’ve noted in the past, China has the power to take the wind out of the dollar.
4.Venezuela: Venezuela holds little loyalty to the dollar. In fact, they’ve shown overt disapproval, choosing to establish barter deals for oil. These barter deals, established under Hugo Chavez, allow Venezuela to trade oil with 12 Latin American countries and Cuba without using the dollar, shorting the US its usual subsidy. Chavez is not shy about this decision, and has publicly encouraged others to adopt similar arrangements. In 2000, Chavez recommended to OPEC that they "take advantage of high-tech electronic barter and bi-lateral exchanges of its oil with its developing country customers," or in other words, stop using the dollar, or even the euro, for oil transactions. In September, Chavez instructed Venezuela’s state oil company Petroleos de Venezuela SA to change its dollar investments to euros and other currencies in order to mitigate risk.
5.Sudan: Sudan is, once again, planning to convert its dollar holdings to the euro and other currencies. Additionally, they’ve recommended to commercial banks, government departments, and private businesses to do the same. In 1997, the Central Bank of Sudan made a similar recommendation in reaction to US sactions from former President Clinton, but the implementation failed. This time around, 31 Sudanese companies have become subject to sanctions, preventing them from doing trade or financial transactions with the US. Officially, the sanctions are reported to have little effect, but there are indications that the economy is suffering due to these restrictions. A decision to move Sudan away from the dollar is intended to allow the country to work around these sanctions as well as any implemented in the future. However, a Khartoum committee recently concluded that proposals for a reduced dependence on the dollar are "not feasible." Regardless, it is clear that Sudan’s intent is to attempt a break from the dollar in the future.
6.Iran: Iran is perhaps the most likely candidate for an imminent abandonment of the dollar. Recently, Iran requested that its shipments to Japan be traded for yen instead of dollars. Further, Iran has plans in the works to create an open commodity exchange called the Iran Oil Bourse. This exchange would make it possible to trade oil and gas in non-dollar currencies, the euro in particular. Athough the oil bourse has missed at least three of its announced opening dates, it serves to make clear Iran’s intentions for the dollar. As of October 2007, Iran receives non-dollar currencies for 85% of its oil exports, and has plans to move the remaining 15% to currencies like the United Arab Emirates dirham.
7.Russia: Iran is not alone in its desire to establish an alternative to trading oil and other commodities in dollars. In 2006, Russian President Vladmir Putin expressed interest in establishing a Russian stock exchange which would allow "oil, gas, and other goods to be paid for in Roubles." Russia’s intentions are no secret–in the past, they’ve made it clear that they’re wary of holding too many dollar reserves. In 2004, Russian central bank First Deputy Chairmain Alexei Ulyukayev remarked, "Most of our reserves are in dollars, and that’s a cause for concern." He went on to explain that, after considering the dollar’s rate against the euro, Russia is "discussing the possibility of changing the reserve structure." Then in 2005, Russia put an end to its dollar peg, opting instead to move towards a euro alignment. They’ve discussed pricing oil in euros, a move that could provide a large shift away from the dollar and towards the euro, as Russia is the world’s second-largest oil exporter.
What does this all mean?
Countries are growing weary of losing money on the falling dollar. Many of them want to protect their financial interests, and a number of them want to end the US oversight that comes with using the dollar. Although it’s not clear how many of these countries will actually follow through on an abandonment of the dollar, it is clear that its status as a world currency is in trouble.
Obviously, an abandonment of the dollar is bad news for the currency. Simply put, as demand lessens, its value drops. Additionally, the revenue generated from the use of the dollar will be sorely missed if it’s lost. The dollar’s status as a cheaply-produced US export is a vital part of our economy. Losing this status could rock the financial lives of both Americans and the worldwide economy.
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>>> Germany looking to join the BRICS
?
July 25, 2014
http://www.hangthebankers.com/germany-looking-to-join-the-brics/
Financial analyst Jim Willie sensationally claims that Germany is preparing to ditch the unipolar system backed by NATO and the U.S. in favour of joining the BRICS nations, and that this is why the NSA was caught spying on Angela Merkel and other German leaders.
In an interview with USA Watchdog’s Greg Hunter, Willie, a statistical analyst who holds a PhD in statistics, asserted that the real reason behind the recent NSA surveillance scandal targeting Germany was centered around the United States’ fear that Europe’s financial powerhouse is looking to escape from an inevitable dollar collapse.
“I think they are looking for details on assisting Russia on dumping the dollar. I think they are looking for details for a secret movement for Germany to get away from the dollar and join the BRICS (Brazil, Russia, India, China and South Africa.) This is exactly what I think they are going to do,” said Willie.
Earlier this month, the BRICS nations (Brazil, Russia, India, China and South Africa), announced the creation of a new $100 billion dollar anti-dollar alternative IMF bank to be based in Shanghai and chaired by Moscow.
Putin launched the new system by saying it was designed to, “help prevent the harassment of countries that do not agree with some foreign policy decisions made by the United States and their allies,” a clear signal that Russia and other BRICS countries are moving to create a new economic system which is adversarial to the IMF and the World Bank.
Merkel and Putin
Offering an insight into the attitude of the western elite towards Russia, comments made by the likes of former US ambassador to Iraq Christopher R. Hill suggest that Moscow is increasingly being viewed as a rogue state. Back in April, Hill said that Russia’s response to the Ukraine crisis meant that Moscow had betrayed the “new world order” it has been a part of for the last 25 years.
In another sign that BRICS nations are moving to create an entirely new multi-polar model adversarial to the west, the five countries are also constructing an alternative Internet backbone which will circumvent the United States in order to avoid NSA spying.
Willie also ties the Germany’s move into last week’s shoot down of Malaysia Airlines Flight 17, which has been exploited by the U.S. and Britain to push for more stringent sanctions on Russia despite the fact that they have had little effect so far and only appear to be harming the trade interests of countries in mainland Europe.
“Here’s the big, big consequence. The U.S. is basically telling Europe you have two choices here. Join us with the war against Russia. Join us with the sanctions against Russia. Join us in constant war and conflicts, isolation and destruction to your economy and denial of your energy supply and removal of contracts. Join us with this war and sanctions because we’d really like you to keep the dollar regime going. They are going to say were tired of the dollar. . . . We are pushing Germany. Don’t worry about France, don’t worry about England, worry about Germany. Germany has 3,000 companies doing active business right now. They are not going to join the sanctions—period.”
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>>> UK snubs US to join China-led Asian bank
March 13, 2015
http://thebricspost.com/uk-snubs-us-to-join-china-led-asian-bank/#.Vppe_pX2bht
Overlooking US censure, the UK has announced its decision to join China’s Asian Infrastructure Investment Bank, becoming the first “major western country” to apply for membership.
“I am delighted to announce today that the UK will be the first major Western country to become a prospective founder member of the Asian Infrastructure Investment Bank, which has already received significant support in the region,” said UK Finance Minister George Osborne on Thursday.
“Joining the AIIB at the founding stage will create an unrivalled opportunity for the UK and Asia to invest and grow together,” he added.
In a landmark achievement, 21 Asian nations including China and India in October last year signed on the creation of a new infrastructure investment bank which would rival the World Bank. The new Bank has a capital target of more than $100 billion.
The governments of Bangladesh, Brunei Darussalam, Cambodia, China, India, Kazakhstan, Kuwait, Lao PDR, Malaysia, Mongolia, Myanmar, Nepal, Oman, Pakistan, Philippines, Uzbekistan, Qatar, Singapore, Sri Lanka, Thailand, Uzbekistan, Vietnam signed on as founding members of the new Asia Infrastructure Investment Bank (AIIB) in Beijing.
“The UK will join discussions later this month with other founding members,” said a UK government statement on Thursday.
Washington reacted to UK’s announcement by saying it is circumspect about whether the AIIB would have sufficiently high standards on governance and environmental and social safeguards.
“We hope and expect that the U.K. will use its voice to push for adoption of high standards,” said Patrick Ventrell, spokesman for President Barack Obama’s National Security Council
The authorized capital of AIIB is $100 billion and the initial subscribed capital is expected to be around $50 billion. The paid-in ratio will be 20 per cent.
AIIB will be an inter-governmental regional development institution in Asia and Beijing will be the host city for AIIB’s headquarters.
The AIIB will extend China’s financial reach and compete not only with the World Bank, but also with the Asian Development Bank, which is heavily dominated by Japan.
China and other emerging economies, including BRICS, have long protested against their limited voice at other multilateral development banks, including the World Bank, International Monetary Fund and Asian Development Bank (ADB).
China is grouped in the ‘Category II’ voting bloc at the World Bank while at the Asian Development Bank, China with a 5.5 per cent share is far outdone by America’s 15.7 per cent and Japan’s 15.6 per cent share.
The ADB has estimated that in the next decade Asian countries will need $8 trillion in infrastructure investments to maintain the current economic growth rate.
China scholar Asit Biswas at the Lee Kuan Yew School of Public Policy, Singapore, says Washington’s criticism towards the China-led Bank is “childish”.
“Some critics argue that the AIIB will reduce the environmental, social and procurement standards in a race to the bottom. This is a childish criticism, especially because China has invited other governments to help with funding and governance,” he says.
“Reports indicate that the US is pressuring Australia and South Korea not to join the AIIB. But as Hedley Bull, eminent late Oxford professor, once said, “people have friends but countries have only interests”, he adds.
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>>> IMF admits China's yuan to elite currency club
By Sophia Yan
http://money.cnn.com/2015/11/30/investing/imf-yuan-reserve-currency/index.html
China's yuan has just won promotion to the premier league of global currencies.
The International Monetary Fund on Monday approved the yuan for inclusion in its elite basket of reserve currencies in what amounts to a major vote of confidence in Beijing's economic reforms.
IMF Managing Director Christine Lagarde said the decision represented "an important milestone" in China's integration into the global financial system.
"It is also a recognition of the progress that the Chinese authorities have made in the past years in reforming China's monetary and financial systems," she said in a statement.
Known as the Special Drawing Rights basket, the group of currencies is used to value assets held by central banks to help countries defend against exchange rate fluctuations. The IMF reviews the basket every five years, and it includes the dollar, euro, British pound and Japanese yen.
Inclusion is largely symbolic but it should give the yuan a boost on the world stage, and could give countries more confidence to hold the currency.
The yuan, also called the renminbi, will take its place alongside the other major world currencies on October 1. 2016. It was trading at about 6.40 to the U.S. dollar on Monday.
Premier status for the yuan is a triumph for China, which has campaigned for years to have its currency recognized internationally.
In 2010, it failed a previous review to join the IMF's basket because it didn't meet the organization's criteria for currencies to be freely tradeable and convertible.
Beijing has historically kept tight control of its currency -- a cheap yuan has helped boost exports and manufacturing -- drawing criticism from the U.S. government for keeping its value artificially low.
China's central bank still sets its daily exchange rate, allowing the yuan to fluctuate within a fixed range. But Beijing has begun to loosen its grip -- last year, the central bank doubled the permitted trading range for the yuan.
And in August, the People's Bank of China surprised markets by announcing that the midpoint would be based on the previous day's closing price.
That prompted a devaluation of the yuan, which is down nearly 3% against the dollar this year. Concerns that the yuan may continue to lose value has prompted plenty of people to take money out of China -- around $500 billion as of October.
While the IMF has long taken a skeptical view of the yuan, its approach has been shifting recently.
Earlier this month, IMF staff recommended that the yuan be included in the SDR basket, determining that it was now "freely usable."
While Monday's move is a stamp of approval, Beijing still needs to do more "to open up China's capital accounts and convince global reserve managers to invest meaningfully in Chinese reserve-related assets," wrote Koon How Heng, a foreign exchange analyst at Credit Suisse in a research note.
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>>> US adds muscle, seeks friends in South China Sea standoff
USA Today
Kirk Spitzer
http://www.msn.com/en-us/news/world/%e2%80%8bus-adds-muscle-seeks-friends-in-south-china-sea-standoff/ar-BBlZCjN
Aug 22, 2015
South Korea and North Korea agreed Saturday to hold their first high-level talks in nearly a year at a border village to defuse mounting tensions that have pushed the rivals to the brink of a possible military confrontation. (The South Korean Unification Ministry via AP)
Rival Koreas restart talks, pull back from brink - for now
ABOARD USS FORT WORTH IN THE JAVA SEA – Cmdr. Chris Brown looked at the line of warships behind him and didn’t like what he saw.
An Indonesian ship, KRI John Lie, had crept too close in an attempt to spot an “enemy” submarine lurking nearby. But when Brown relayed directions for the John Lie to ease back, the ship cut speed too quickly and forced others in line to veer off in all directions.
“Well, that’s why we practice these things,” Brown said, assessing the ragged formation.
The drill was part of a recent four-day exercise in which American and Indonesian forces stormed beaches, boarded ships, hunted submarines and practiced the wide range of skills they’d need if called upon to fight together in wartime.
While no one mentioned China by name, the increasing number and complexity of joint exercises with friendly countries in the region forms a key part of the U.S. response to China’s growing military strength and assertiveness.
"(The) exercises help to build skills among Southeast Asian navies, and importantly build relationships between the U.S. and Southeast Asian countries. They help participating Southeast Asian navies exercise and prepare for real-world scenarios,” said Bonnie Glaser, senior adviser for Asia at the Center for Strategic and International Studies.
So far this year, the U.S. has conducted joint exercises with naval forces in Singapore, Vietnam, the Philippines, Malaysia and Indonesia. All those countries have territory that borders the disputed South China Sea. Other joint exercises are planned later this year.
China has asserted ownership of nearly all of the South China Sea and is building at least seven artificial islands in the key waterway. Parts of the region are also claimed by five other countries, including three of this year’s training partners.
“These exercises allow the U.S. to show its flag and maintain access to the South China Sea, building capacity for regional partners. It sends a political signal to China, but more importantly, to the region as a whole,” said Tetsuo Kotani, senior fellow and maritime security specialist at the Japan Institute of International Affairs in Tokyo.
U.S. officials say they do not take sides in territorial disputes. But they worry that China could use the new islands — at least one of which includes a military-grade runway and deepwater harbor — to assert control over air and sea navigation and have called on China to halt construction.
Not only are U.S. forces training with more countries in the region than in past years, but the exercises — most of which fall under a program known as Cooperation Afloat and Readiness Training, or CARAT — are more ambitious.
A CARAT exercise with Indonesia last year, for example, included just two warships and was limited largely to basic sailing skills. This year’s exercise included seven warships, along with reconnaissance planes, helicopters, patrol boats and hundreds of U.S. Marines.
“CARAT is becoming increasingly complex each year, and the U.S. Navy is bringing the latest and most advanced assets,” said Navy Lt. Lauryn Dempsey, a spokesperson for the CARAT program.
The U.S. military's new emphasis on Asia has been criticized as more rhetoric than reality. Although the Navy has announced plans to shift 60% of its ships and planes to the Asia-Pacific region, relatively few additional troops or equipment have been dispatched to the region since China began flexing its muscles in 2010.
Nonetheless, the U.S. has been quietly modernizing and building up its forces in the region. The USS Fort Worth, for example, is among the first of a new class of fast, high-tech warship designed to operate in shallow waters like those in the South China Sea. It began a 16-month deployment to Singapore in December. The U.S. plans to have at least four of the new Littoral Combat Ships (LCS) operating from Singapore by 2018.
The U.S. 7th Fleet, based in Yokosuka, Japan, is swapping out many of its most powerful warships for brand-new or modernized versions, and adding new ships and planes, as well. Early next month, the aircraft carrier USS George Washington, commissioned in 1992, will be replaced by the USS Ronald Reagan, a newer model whose engines and other systems were recently upgraded.
The fleet also has swapped two amphibious assault ships, a cruiser, two destroyers and two minesweepers with new or modernized vessels of the same type. The new cruiser and destroyers are equipped with the latest ballistic missile defense systems, and two new missile defense destroyers will be added to the fleet by the end of 2017.
The Navy also has begun exchanging older P-3C patrol planes for state-of-the-art P-8s, which can cruise the length of the South China Sea from bases in Okinawa.
“Having more LCS’s out here, having more and more of the most capable weapons systems and platforms in 7th Fleet — that demonstrates that we are committed” in the region, said Navy Capt. H.B. Le, who commanded U.S. forces in the Indonesia exercise.
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>>> Is Saudi Arabia Leaving The U.S. Behind For Russia?
By Robert Berke
01 July 2015
http://oilprice.com/Energy/Crude-Oil/Is-Saudi-Arabia-Leaving-The-US-Behind-For-Russia.html
The news from the recent St. Petersburg Economic Forum, which took place from June 18 to 20, inspired a torrent of speculation on the future direction of energy prices.
But the real buzz at the conference was the unexpected but much publicized visit of the Saudi Deputy Crown Prince, as an emissary of the King. The Prince, who is also his country’s Defense Minister, carried the royal message of a direct invitation to President Putin to visit the King, which was immediately accepted and reciprocated, with the Prince accepting on behalf of his father.
It would be news enough that the unusually high level delegation from a long-time ally and protectorate of the U.S., like Saudi Arabia, was visiting a Russian sponsored economic conference, in a country sanctioned by the U.S.
Some saw this well publicized meeting as the first sign of an emerging partnership between the two greatest global oil producers. If the warmth of the meeting was any evidence, it seems likely that Russia, a non-OPEC producer, might come a lot closer to the fold.
That could mean that, at the very least, Russia would have a voice in the cartel’s policy decisions on production. And if so, it would be a voice on the side of stable but rising prices.
The great Indian journalist, M.K. Bhadrakumar (MKB), may have been the first to point out that there was plenty of reasons for the Saudis and Russians to come closer together. Among these are the U.S.’ diminishing dependence on Middle Eastern energy, due to the momentous development of shale resources. There’s also the over-riding goal of the U.S. to pivot toward the East, where a huge economic transformation is unfolding, while reducing the U.S. role in the Middle East. It’s clear that the Saudis are going to have to make new friends.
MKB also makes the point that although the Saudis are wildly opposed to any form of U.S. entente with Iran, the clear-eyed Kremlin understands that there are many temptations for its erstwhile ally, Iran, to move much closer to the west.
Pepe Escobar of Asia Times saw the Prince’s visit as harboring the first glimmer of light in ending the current global oil trade war, in which the Saudi’s might turn down the spigot and lower production, enabling prices to rise:
“Facts on the ground included Russia and Saudi Arabia’s oil ministers discussing a broad cooperation agreement; the signing of six nuclear technology agreements; and the Supreme Imponderable; Putin and the deputy crown prince discussing oil prices. Could this be the end of the Saudi-led oil price war?”
Bullish oil traders thought they found some hope in the words of Ali al-Naimi, the famous and longtime President and CEO of the Saudi National Oil Company, Aramco, and current oil minister. Naimi publicly stated: “I am optimistic about the future of the market in the coming months in terms of the continuing improvement and increasing global demand for oil as well as the low level of commercial inventories.” This, the minister said, should lead to higher oil prices by year's end.
Ali al-Naimi publicly praised the enhanced bilateral cooperation between Riyadh and Moscow, stating that, “[t]his, in turn, will lead to creating a petroleum alliance between the two countries for the benefit of the international oil market…"
This could be music to the ears of oil price bulls. But more skeptical minds were quick to clamp down excessive optimism. “Of course, we shouldn’t read into any new developments outside political frameworks, because I can hardly imagine that Saudi Arabia has decided to turn against its alliances—but it probably wants to get out of the narrow US corner and expand its options,” Abdulrahman Al-Rashed, the General Manager of Al Arabiya News Channel, wrote in a column after the summit.
At the meeting, the Saudis and Russians signed several memoranda of understanding including the development of nuclear power plants in the Kingdom, with the Saudis planning some 16+ plants
The two sides also plan on setting up working groups to study other possible energy joint ventures in Russia. Russia also agreed to the construction of railways and metro subways for the Saudis. Russia is also believed to have agreed to supply advanced military defense equipment to the Kingdom, despite the Saudis being long time arms customers of both the UK and U.S.
However there is quite a bit of doubt that the U.S. is ready to just step aside and be replaced by Russia as the Saudis’ main ally. Saudi Arabia and Russia are on opposite sides on a range of geopolitical issues, including Iran, Syria, and Yemen. These conflicts will likely put a limit on any potential entente.
Also, there is serious doubt as to whether it is so simple for the Saudis to raise oil prices. Flooding the markets with oil to crash prices only requires the Saudis to over-produce by some one and a half million barrels of oil per day, easily within their grasp, and something the Saudis can do on their own.
Bringing prices up is a different story, requiring global oil producers to comply in oil cutbacks.
At the same time, rising prices are a clear signal to global producers to increase production, worsening the current glut, so that any price increase may prove to be temporary.
And yet, the fact is prices have been rising since the first of the year, and many are convinced there is more to go. C. DeHaemmer, a well-known energy newsletter writer, is now predicting a price rise by WTI to a range of $73-$78, and a Brent range of $82-85, by years end. Not impossible, but long term, the issue becomes cloudier.
On a different matter, there was another surprise announcement at the forum, with India, a longtime U.S. ally, confirming that it will sign a free trade agreement with the Eurasian Economic Union (EEU), a Russian-led trade bloc including Belarus and Kazakhstan.
Russia and China have agreed on making the EEU a central part of the Chinese sponsored Silk Road, so by default, it would appear that India is moving towards joining the grand Chinese project.
As has become standard at the St. Petersburg Forum, a number of energy deals were signed, including a BP deal to buy a major stake in a Siberian oil field owned by Rosneft, a company suffering under international sanctions. BP, as a twenty percent stakeholder in Rosneft, says it is seeking to expand on its joint ventures with the Russian company
Another deal was signed with Gazprom to build a second pipeline under the Baltic, following the path of Nordstream to Germany, in partnership with Royal Dutch Shell, Germany's E.ON, and Austria's OMV. Apparently, Western Europe's oil giants find Russian sanctions to be no hindrance in dealing with Russian energy companies.
After his onstage TV interview with Putin, Charlie Rose, the well-known TV celebrity, was asked why he had decided to become a moderator at the Forum. He said, “I believe it’s important to talk to people.”
In the meantime, the U.S. reporter, with camera man in tow, found nothing of interest to report at the conference.
By Robert Berke for Oilprice.com
<<<
Wow, surprise move by China.
My first thought was that it's an 'FU' response by China to the recent IMF decision not to include the Yuan in the SDR/Special Drawing Rights basket (decision was due in Oct). The IMF have indicated that inclusion of the Yuan won't happen until Fall of 2016 at the earliest, thus dashing China's hopes to gain clout within the IMF. Also, the US has been trying to get China to raise the value of the Yuan for years, so now China responds with an abrupt devaluation instead, out of the blue, a week after the IMF's negative decision on the SDR.
The West also screwed China in June when the promise to include the Shanghai Exchange's 'A' shares in the widely followed MSCI index was reversed, sending the Shanghai stock index into its 30% plunge. Inclusion in the MSCI would have meant trillions in new investment coming into China, and anticipation of this inclusion was a big factor behind the Shanghai index's huge runup since last Fall.
So.. it appears the US/West's war against the BRICS is heating up. Russia has been attacked by sanctions and the huge orchestrated drop in oil prices, and now China is being attacked by the West. Brazil is also in disarray. So the war to derail the BRICS juggernaut is accelerating. Bare knuckle time approaches?
>>> China Devalues Its Currency as Worries Rise About Economic Slowdown
By NEIL GOUGH and KEITH BRADSHER
AUG. 10, 2015
http://www.nytimes.com/2015/08/11/business/international/china-lowers-value-of-its-currency-as-economic-slowdown-raises-concerns.html?_r=0
HONG KONG — As China contends with an economic slowdown and a stock market slump, the authorities on Tuesday sharply devalued the country’s currency, the renminbi, a move that could raise geopolitical tensions and weigh on growth elsewhere.
The central bank set the official value of the renminbi nearly 2 percent weaker against the dollar. The devaluation is the largest since China’s modern exchange-rate system was introduced at the start of 1994.
China’s abrupt devaluation is the clearest sign yet of mounting concern in Beijing that the country could fall short of its goal of roughly 7 percent economic growth this year. Growth is faltering despite heavy pressure on state-owned banks to lend money readily to companies willing to invest in new factories and equipment, and despite a stepped-up tempo of government spending on high-speed rail lines and other infrastructure projects.
A steep drop in the Shanghai and Shenzhen stock markets in late June and early July, only halted by aggressive government actions, appears to have dented consumer demand within China. The China Association of Automobile Manufacturers announced on Tuesday that nationwide car sales fell 7 percent last month compared with a year ago. Excluding months distorted by the timing of Chinese New Year, it was the steepest drop in sales since December 2008, at the depths of the global financial crisis.
What’s the Latest China’s central bank devalued the currency, the renminbi, by 2 percent against the dollar on Tuesday.
The move is the biggest one-day depreciation since the country's modern exchange rate system came into place in 1994.
It reflects the weakness in the Chinese economy.
A weaker currency would make goods more affordable for overseas buyers, but it risks tensions with trading partners like the United States.
China will give the market a bigger role in exchange rates as it tries to have the renminbi included as a global reserve currency like the dollar.
Weakening the currency raises the risk money will flow out of the country, but the central bank has trillions of dollars in reserves as a safety net.
China’s devaluation represents a difficult dilemma for the Obama administration. The United States Treasury has tried to use quiet diplomacy in recent years to encourage China to free up its currency policies, while blocking efforts in Congress to punish China for major intervention in currency markets over the past decade to slow the rise of the renminbi. Many in Congress have long accused China of unfairly building up its manufacturing sector at the expense of American jobs by undervaluing the renminbi, and the Chinese devaluation could fan those criticisms.
In a seeming nod to such concerns, the central bank said that it would begin to use the market closing, not the previous morning’s official setting, to calculate the renminbi’s official daily fixing against the dollar. But China’s economic weakness now means that further opening up of the currency to market forces could mean a weaker renminbi, not a stronger one. That, in turn, would make Chinese goods even more competitive in the United States and Europe.
China’s central bank “has finally thrown in the towel on supporting the renminbi,” said Eswar S. Prasad, a professor of economics at Cornell University. At the same time, he added, easing its grip on the currency’s value “has blunted criticism by combining the currency devaluation with a more market-determined exchange rate.” The United States and institutions such as the International Monetary Fund have called on China to be more hands-off in managing the renminbi.
The Chinese currency has been a global point of contention for nearly a decade. China officially ended the renminbi’s fixed peg to the dollar in 2005. Since then, it has risen in two long, slow climbs. The first was from July 2005 to August 2008, when it was interrupted by the global financial crisis. The renminbi then resumed its rise from June 2010 to early last year, when it dipped slightly, then stabilized.
The overall increase since 2005 has been more than 25 percent against the dollar. It has strengthened even more against other major currencies, like the euro and the yen.
But the Chinese currency is not freely tradable, and its movements are tightly controlled by the government.
Each morning in Shanghai, China’s central bank sets a midpoint for the renminbi’s value against the dollar and other major currencies. This can be as much as 2 percent higher or lower than the previous day’s value, although the change is almost always a tiny fraction of 1 percent.
But on Tuesday, the central bank fixed the value of the renminbi at 6.2298 per dollar, down 1.9 percent from Monday’s official fixing. In a statement on its website, the central bank said it was seeking “to perfect” the renminbi’s exchange rate against the dollar.
The bank, the People’s Bank of China, said it was reacting to trends in the market, where traders in recent months had been betting on a weaker renminbi. In trading in mainland China on Tuesday, the renminbi weakened further to close at 6.3231 per dollar, a drop of 1.8 percent from the close on Monday. By the end of the Asian business day, it had fallen even further in offshore trading to around 6.36 renminbi per dollar, a drop of about 2.7 percent, signaling overseas investors expected further weakening.
The move also jolted the currencies of countries that depend heavily on China as a market for exports. The Australian dollar fell 1.1 percent against the United States dollar on Tuesday, and the South Korean won declined 1.4 percent.
“While China’s policy makers have long suggested that foreign exchange reforms would happen, the abrupt nature of today’s announcement has injected considerable volatility into the renminbi and other Asian currencies,” analysts at HSBC wrote Tuesday in a research note.
The central bank also said it would seek to prevent what it described as “abnormal” capital flows. Weaker economic growth has prompted sizable outflows from China in recent months, which have most likely been exacerbated by the country’s stock market volatility. A falling renminbi generally increases the risk of more outflows.
While China grew at a 7 percent rate in the first half of the year, that was made possible mainly because of a boost from the financial services industry, which benefited from the country’s stock market boom. With the downturn in the nation’s markets over the past two months, growth is slowing more evidently.
This is despite an all-out effort by the government to prop up share prices. The measures included extraordinary support from state-run banks, which in July made new loans worth 1.5 trillion renminbi, or about $240 billion at the time, according to data released Tuesday. The last time Chinese banks approached that amount of lending was 2009, when Beijing was deploying 4 trillion renminbi in stimulus to stem the damage from the global financial crisis.
A depreciating renminbi also has implications for China’s pledges to open its economy and financial markets wider, including efforts in recent years to lift the currency’s global prominence.
The central bank has been lobbying the International Monetary Fund to include the renminbi among freely traded benchmarks like the dollar, euro and yen, so that other countries can include it as an official reserve currency.
While acknowledging these efforts, the fund issued a report last week saying that “significant work remains outstanding” before it could decide whether to include the renminbi as a global benchmark, adding that no changes were likely to be made before September of next year.
The fund also singled out China’s official daily fixing of the renminbi’s exchange rate, saying this “is not based on actual market trades.”
Tuesday’s devaluation “is likely intended to improve the ‘market-driven’ quality” of the exchange rate to appeal to the I.M.F., Wang Tao, the chief China economist at UBS, wrote Tuesday in a research note.
“However, we think it unlikely that the Chinese government will let only market momentum drive the renminbi exchange rate from now on,” Ms. Wang added, “as that can be quite destabilizing.”
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>>> Brazil’s real plummets as recession looms
August 5, 2015
http://thebricspost.com/brazils-real-plummets-as-recession-looms/#.Vcajj5XbLht
Brazilians have for years dealt with inflation, but recent data indicates it has increased beyond analyst predictions [Xinhua]
Brazilians have for years dealt with inflation, but recent data indicates it has increased beyond analyst predictions [Xinhua]
Brazil’s real continued to suffer against the dollar on Wednesday, falling even further than its 12-year record low a day earlier.
On Wednesday, fears that Brazil is in danger of losing its investment rating sent the real spiraling to 3.49 (10:40am EDT) against the greenback.
A day earlier, it fell to a 12-year-low of 3.4684.
Year-on-year, the real has devalued by more than 52 per cent.
But the Brazilian real is also suffering from domestic fiscal policies which saw the primary surplus target drop from 1.2 per cent of GDP to just 0.15 per cent.
Brazilian markets fear that this could signal that the country will now receive a lower investment rating.
The real’s plunge, coupled with rampant inflation, the Odebrecht/Petrobras corruption scandal, and slowing global commodities demand has pummeled the Brazilian economy.
Despite the Central Bank’s recent increase of interest rates to 14.25 per cent, inflation has surpassed analyst expectations and reached 8.9 per cent in June.
Government data to be released Friday is expected to show that inflation reached 9.25 per cent for July 2015.
In July 2014, inflation stood at 6.5.
The Central Bank says a 4.5 per cent inflation rate is ideal and signals a healthy economy.
Last week, two of the country’s biggest banks both predicted that Brazil would be in recession by the end of 2015 and 2016 with a contracted GDP as high as 2.2 per cent.
Public confidence in the economy has significantly fallen.
According to UK-based market researcher Ipsos-Mori’s global poll, only 12 per cent of Brazilians believe their economy is in “good health”. Ipsos Mori data indicates that in 2012, 57 per cent of Brazilians believed their economy was doing well.
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>>> Make Way for the RMB
If the IMF wants to keep Beijing in the tent, it's time to reward China's progress on making its currency more free market-friendly.
By Paola Subacchi
June 16, 2015
https://foreignpolicy.com/2015/06/16/make-way-for-the-rmb-china-reserve-currency-imf-sdr-dollar/
Will the renminbi (RMB) join the elite basket of currencies that determines the value of the International Monetary Fund’s Special Drawing Rights (SDR)? The decision whether or not to include China’s currency rests mainly with the members of the G-7 economies that have a strong hold on the IMF. If they know what’s good for them, they’ll say yes.
This is a technical decision with deep political implications. It will pave the way for the RMB to be a key international reserve currency, alongside the dollar, the euro, the pound, and the yen. As IMF chief Christine Lagarde said in March, this a not a matter of if but when: this year — or in 2020, when the IMF will again review the composition of the SDR’s basket.
At this point, there’s no reason to wait. Including the RMB this year or, at the latest, in 2016 would send the positive message that China is a welcomed and trustworthy member of the international monetary and financial community — a message that would benefit everyone.
When G-7 finance ministers met earlier this month in Dresden, they indicated that a technical assessment of the RMB was paramount for the final decision, regardless of how desirable the inclusion of the RMB in the SDR basket might be for political reasons. But if the assessment is mainly based on technical criteria such as “free usability” — IMF jargon for a currency that can be used and exchanged everywhere in the world — the RMB may well be excluded. Unlike the dollar, the Chinese currency is not yet fully convertible — you can’t simply exchange as much as you want for other currencies in China’s banking system — and thus not the easiest to use in international markets.
A more fruitful approach might be to assess “its potential for a broader role in the international monetary system,” to quote the IMF, and consider future developments as well as recent achievements. Since 2010, when the IMF undertook its last SDR review, China has promoted the internationalization of its currency through several policy measures, such as the establishment of RMB-clearing banks in Hong Kong, London, and Singapore.
As a result, more than 20 percent of China’s trade is now settled in RMB, up from zero five years ago. Furthermore, the RMB is now the world’s fifth-most used currency in international payments after the dollar, the euro, the yen, and the British pound. The number of central banks and official institutions that hold RMB in their reserves has also expanded, and investment banks estimate that 0.5 to 1 percent of official global reserves are now held in RMB. The issuance of non-Chinese RMB-denominated bonds has also increased to an estimated $120 billion between 2010 and 2014, even if it remains behind in the offshore issuance of the other key currencies.
More measures to promote the international use of the RMB are in the pipeline, as the governor of the People’s Bank of China, Zhou Xiaochuan, announced in April during a visit to Washington. And while greater exchange rate flexibility has already been achieved, more will come as Chinese authorities rebalance the economy to focus on domestic demand. As a result, the exchange rate will gradually move from a managed system to a market-determined one.
In May, the IMF announced that the RMB was no longer undervalued, confirming that China’s monetary authorities are intervening less to control the exchange rate. By contrast, at the time of the 2010 review the Chinese currency was deemed to be undervalued, and the U.S. Congress was particularly concerned about China’s currency manipulation.
If the IMF considers these broader indicators of progress, then the case for the RMB’s exclusion from the SDR basket is not so clear-cut. The only controversial area remaining is capital account convertibility. Here, Chinese authorities maintain that capital flows should be facilitated but also closely monitored, in order to curb undesired and excessive activity. This is capital account liberalization Chinese-style or, as Zhou termed it, “managed convertibility.” This may be a stumbling block if the IMF’s Executive Board decides that “managed convertibility” is still a way to constrain the “full usability” of the currency.
Still, even if the issue of convertibility appears poised to hold the RMB back, the final decision may well rest on politics. Beijing expects that this recognition of the RMB — and its inclusion in the SDR basket — will provide a seal of approval for the Chinese currency. What is at stake here is power and influence in international finance. This seal of approval for the RMB will be an important step in China’s economic and political trajectory, and a recognition of Beijing’s commitment to being an active member of the multilateral monetary and financial system. If, to quote Nobel laureate Robert Mundell, “great nations have great currencies,” then China’s rise remains incomplete without an international currency.
Fortunately for China and its backers, exceptions have been made in the past. For instance, at the time of its inclusion in the SDR basket in 1981, the Japanese yen was a “fully usable” but not a fully convertible currency. To do the same for the RMB would be good politics and smart economics. The best way to test China’s commitment to opening its financial sector, implementing financial reforms, and having a market-determined exchange rate is by supporting the Chinese effort to turn the RMB into a “grown-up” currency.
The issue, therefore, is not to obsessively demand evidence that China fully appreciates the obligations that come with the status of reserve currency. It is rather a matter of whether the rest of the world is prepared to give credit for — and encourage the continuation of — China’s efforts to be a good global citizen.
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>>> 4 Trillion Reasons China’s Currency Isn’t Ready for Prime Time
China isn’t ready to supply the rest of the world with RMB. So why does it matter if the currency gets the IMF's stamp of approval?
By Patrick Chovanec
June 16, 2015
http://foreignpolicy.com/2015/06/16/yuan-renminbi-world-reserve-currency-special-drawing-rights-imf/
A lot of hyperventilation has lately been devoted to the future international role of China’s currency, the renminbi (RMB). The latest flurry of excitement centers on China’s bid to have the RMB included in the basket of currencies represented in the Special Drawing Rights issued by the International Monetary Fund. According to accepted wisdom, the RMB’s inclusion in the SDR basket would be a landmark step, formal recognition of its coming-of-age as a global reserve currency. SDR status, many say, would give central banks the green light to add RMB to their reserves and encourage investors to pour money into Chinese stocks and bonds.
But SDR status is a red herring. What really matters is not whether the IMF uses the RMB, but who else does.
If anything, inclusion in the SDR basket would be a political gesture, not a financial or economic game-changer. That may seem a strange thing to say, given the obvious stock Chinese officials place in winning SDR status. Surely, they wouldn’t devote so much effort and make it such a high priority, if it wasn’t really important. But China wouldn’t be the first country to mistake the form of reserve currency status for the substance.
There are two keys to any nation’s currency functioning as a global reserve currency: It must be desirable (as both a means of exchange and store of value), and it must be accessible (people can accumulate bank balances in it abroad). Official recognition can acknowledge these realities, but does not fulfill them, as the United States found out in the wake of World War II.
In 1944, the Bretton Woods Conference designated the U.S. dollar as the world’s reserve currency, linked to gold (which the United States owned virtually all of). Washington also made sure that exchange rates to the dollar were fixed to ensure its continued dominance as an exporter. But after the war, the problem quickly became apparent: Europe had no dollars, and no way to earn them. Unless the United States was willing to supply dollars via trade, aid, or investment — in other words, by running a balance of payments deficit — a global economy depending on the dollar as its reserve currency would collapse.
The solution to this dollar shortage was the Marshall Plan, followed by a series of currency devaluations that put its trading partners on a more competitive footing with the United States. Eventually, Washington essentially exported dollars by running large and persistent trade deficits — a state of affairs that continues to this day and would be unsustainable if the United States did not remain a profitable place to invest.
SDR status may fall far short of Bretton Woods, but the principle still operates.
Any country that wants its currency to actually function as an international reserve must supply the rest of the world with claims in that currency, either by running trade deficits or by providing large amounts of aid or investment capital. Until now, at least, China’s development model has been based on precisely the opposite: running trade surpluses and attracting foreign investment. In the process, rather than exporting its own currency, it has imported an astonishing $4 trillion in other countries’ currencies, which it holds as central bank reserves. (In the past few years, China has seen some capital flow outward, drawing down on those huge foreign currency balances by a few billion dollars.)
So where do SDRs fit in? SDRs are a unit of account, assigned a value (based on a basket of widely used and traded currencies), and allocated to countries by the IMF. Think of them as vouchers, which can — in theory, at least — be exchanged for actual currencies. If the RMB were added to the SDR basket — along with the dollar, euro, pound, and yen — it could be argued that countries holding SDRs would be holding some sort of claim on RMB as part of their reserves. The official imprimatur of the IMF might also encourage central banks to hold RMB directly, on their own.
It’s possible — but where would the RMB come from? Any RMB sent abroad, in excess of China’s (currently modest) balance of payments deficit, would result in China accumulating that much more foreign exchange reserves of its own. In effect, it would be a kind of swap, which could be done (as long as both central banks are willing) with any two currencies. Even using RMB to settle China’s payments deficit would leave it stuck holding the excessive quantities of foreign currency reserves it has already stockpiled. Far from eclipsing the U.S. dollar as the lead global currency, sending RMB abroad — absent a significant shift in China’s balance of payments — would only perpetuate, and perhaps even exacerbate, China’s own reliance on (and exposure to) the dollar and other foreign reserve currencies.
Others, including the authors of a recent report by Barclays, argue that SDR status would establish the RMB as a “safe asset,” which would encourage investors to buy Chinese stocks and bonds, thereby paving the way for it to serve as a reserve currency. It is certainly true that more liquid, better-developed capital markets in China would make it a great deal more attractive to hold RMB.
But the question, again, is where does the money come from? If foreigners are buying Chinese bonds (or even non-Chinese bonds) with RMB they earned selling (net) exports to China, or if they are buying Chinese goods (or even non-Chinese goods) with RMB they borrowed from Chinese lenders, then the RMB has truly gone global, supplied by (initial) Chinese balance of payments outflows.
But if foreign investors are simply changing their own currency into RMB in order to buy RMB assets in China, that’s a capital inflow. From a flow of currency perspective, it’s no different from a tourist changing U.S. dollars into RMB at the Beijing airport, or the foreign direct investment that’s been flowing into China for years. Each of these transactions involves China importing foreign currency in exchange for goods and assets, not exporting RMB. To the extent that SDR status makes China a more attractive magnet for foreign investors, it actually raises the hurdle that much higher for China to supply the world with RMB reserves.
Many observers seem to believe that anything that raises the RMB’s profile puts it on track to becoming an international reserve currency. This is far from the truth.
Adding the RMB to the IMF’s SDR basket would certainly raise its profile, but would do nothing to help — and could even complicate — the ability of other countries to acquire meaningful reserve holdings of RMB. Just as was true for the U.S. dollar, the key to the RMB’s future role depends not on official designations from above, but on the balance of payments. For the RMB to function as a reserve currency, China would have to develop a profoundly different relationship with the rest of the world economy from the one it has now — a change it is far from clear the Chinese are willing to embrace.
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>>> Cheaper Oil And Sanctions Weigh On Russia’s Growth Outlook
IMF Survey
August 3, 2015
http://www.imf.org/external/pubs/ft/survey/so/2015/CAR080315B.htm
-- Oil price decline compounded by geopolitical tensions and sanctions, leading to fall in investment
-- Authorities’ policy response and large buffers are helping to absorb the shocks
-- After short-term fiscal stimulus, gradual fiscal consolidation needed
Russia’s economy is expected to contract by 3.4 percent in 2015, although growth should return in 2016. Medium-term growth prospects are modest due to slow progress in implementing structural reforms, according to the IMF’s latest economic health check.
The dual external shock of lower oil prices and geopolitical tensions are key factors exerting downward pressure on Russia’s GDP in the near term. The recovery in 2016 will be supported by the ruble’s more competitive exchange rate, increasing external demand and normalization of domestic financial conditions. However, investment and consumption are likely to remain sluggish and the effects of sanctions in terms of external access to financial markets and new investment technology will linger. IMF staff expect weak GDP growth of around 1.5 percent in the medium term.
“The external shocks, added to pre-existing structural weaknesses, are certainly weighing on Russia’s growth prospects. Maintaining a prudent fiscal policy and reviving slow-moving structural reforms could help unlock Russia’s growth potential,” said Ernesto Ramirez Rigo, IMF Mission Chief for Russia.
Geopolitical tensions
In March 2014, the United States, the European Union, Japan and other countries started imposing sanctions against Ukrainian and Russian individuals and entities in response to developments in Crimea and Eastern Ukraine. The U.S. and EU sanctions targeted financial services and the energy sector, among other areas. In August, Russia imposed counter sanctions on agricultural and food imports.
These developments essentially restricted Russian firms’ access to international markets, with a negative effect on investment. It is very difficult to disentangle the impact of sanctions from the fall in oil prices. However, IMF estimates suggest that sanctions and counter sanctions might have initially reduced real GDP by 1 to 1½ percent. Prolonged sanctions may compound already declining productivity growth. The cumulative output loss could amount to 9 percent of GDP over the medium term. However, the report’s authors underline that these model-driven results are subject to significant uncertainty.
Prudent fiscal policy
The IMF report supports Russia’s decision to apply a short-term fiscal stimulus in the 2015 budget. The stimulus should be followed by gradual fiscal consolidation over the medium term to adjust to lower oil prices, rebuild buffers and safeguard intergenerational equity.
Reforming the pension system could deliver significant fiscal savings over time, the report says. Targeting social transfers better, reducing energy subsidies and reducing tax exemptions could also contribute to making the necessary adjustments. Spending plans should safeguard public investment, education and health care.
Resource-rich countries face complex challenges in managing the long-term value of their natural wealth and the short-term volatility in the revenue it brings. A key tool for Russia is an oil-price based fiscal rule it introduced in December 2012. The report suggests that strengthening the rule to, for instance, account for oil price volatility, could allow fiscal policy to respond more quickly to oil price changes and generate more savings.
Adequate monetary policy response
Responding to the external shocks, the Central Bank of Russia appropriately allowed the ruble to float, setting its medium-term target for inflation at 4 percent. After the warranted initial tightening late in 2014, monetary conditions gradually normalized, and inflation expectations become more anchored, allowing the Central Bank to gradually ease monetary conditions during the first half of 2015.
Going forward, monetary policy normalization should continue at a prudent pace, commensurate with declines in inflation and inflation expectations, while carefully assessing the likelihood of upside risks to inflation. The report says the stage will be set for inflation to fall to about 12 percent by the end of 2015 and close to 8 percent at the end of 2016.
Reform is needed
While countries around the world have suffered a drop in growth relative to their pre-crisis performance, Russia’s reversal of fortunes stands out as being particularly pronounced (see Chart). Slow-moving structural reforms, sluggish investment and adverse population dynamics are all part of the picture. In particular, the state continues to leave a large footprint in the economy, and lack of competition and concentration in a number of sectors (among other factors), have contributed to low productivity growth.
There is an array of reforms that could help boost investment and trade. Strengthening governance and the protection of property rights, as well as cutting regulatory red tape would make a difference, as would better customs administration and reduced trade barriers. These measures could increase competition in domestic markets. Public investment could also be made more transparent and efficient.
Z:\ENGLISH\IMF Survey Online\2015 charts\08\Russia\Russia-rev2.jpg
Risks
Possible additional external shocks could have adverse effects beyond the report’s baseline scenario. If geopolitical tensions escalate, there could be additional balance-of-payment pressures and a significant deterioration in confidence. The ruble could depreciate as capital outflows surge and inflation would increase further.
Greater uncertainty would hurt investment and increase precautionary savings, pushing down domestic demand. Lower and/or more volatile oil prices could further dampen the economic outlook. In addition, the benefits of a more competitive exchange rate are likely to be limited should the authorities pursue inward-looking policies.
Spillovers
Policy actions by the Russian authorities stabilized the economy and helped mitigate spillover effects to other countries. Despite this, a number of countries have close links to Russia through trade, remittances or foreign direct investment and face sizeable negative consequences. The Commonwealth of Independent States, Ukraine, and Baltic countries are most affected.
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>>> IMF Work Progresses on 2015 SDR Basket Review
IMF Survey
August 4, 2015
http://www.imf.org/external/pubs/ft/survey/so/2015/POL080415A.htm
SDR review takes place every five years
Staff paper lays out initial considerations; formal Board meeting late 2015
Focus on Chinese renminbi for meeting inclusion criteria
The IMF Executive Board will formally review the composition and valuation of the Special Drawing Rights (SDR) basket toward the end of the year.
As part of this process, the IMF’s Executive Directors recently held an informal meeting to have a first discussion on the review of the valuation of the SDR, an international reserve asset created by the IMF in 1969 to supplement its member countries’ official reserves.
The SDR’s value is currently based on a basket composed of the U.S. dollar, the euro, the pound sterling and the Japanese yen. The IMF reviews the SDR basket valuation method every five years to ensure that it reflects the relative importance of major currencies in the world’s trading and financial systems, with the aim of enhancing the attractiveness of the SDR as a reserve asset.
In an interview, Siddharth Tiwari, Director of the IMF’s Strategy, Policy, and Review Department, discusses the details of the SDR review process.
IMF Survey: The IMF’s Executive Directors just held an informal meeting on the review of the SDR basket. What was the purpose of the meeting?
Tiwari: Every five years, the IMF reviews the status of currencies within the SDR and opens up a window for inclusion of additional currencies. 2015 is a review year. As a first step, the Executive Directors discussed informally a staff paper that laid out initial considerations for the review. The paper provided a status report on the progress made so far and clarified a number of technical issues, such as the applicable legal framework for the review, the scope of the review, operational implications and next steps.
The Executive Board will formally discuss the review toward the end of the year.
IMF Survey: What are the criteria for including a currency in the SDR basket?
Tiwari: The criteria, last updated in 2000, establish that the SDR basket comprises the four currencies that are issued by members or currency unions whose exports of goods and services had the largest value over a five-year period, and have been determined by the Fund to be "freely usable."
The export criterion aims to ensure that currencies that qualify for the basket are those issued by members/currency unions that play a central role in the global economy. The requirement for currencies in the SDR basket to be also freely usable was incorporated in 2000 to reflect the importance of financial transactions in valuing the SDR basket.
The Articles of Agreement define a “freely usable” currency as that which is widely used to make payments for international transactions and is widely traded in the principal exchange markets.
The concept of a freely usable currency concerns the actual international use and trading of currencies, and it is distinct from whether a currency is either freely floating or fully convertible. In other words, a currency can be widely used and widely traded even if it is subject to some capital account restrictions. On the other hand, a currency that is fully convertible may not be necessarily widely used and widely traded (due to the size and relative importance of that economy in international transactions).
IMF Survey: What will be the main focus of the review?
Tiwari: The Chinese renminbi (RMB) is the only currency not currently in the SDR basket that meets the export criterion. Therefore, a key focus of the current review will be whether the RMB also meets the freely usable criterion in order to be included in the SDR basket.
The staff paper that was discussed by the Executive Directors provides some building blocks to help inform a future decision by the Board. In addition to these issues, the review will also cover the methodology used to determine the currency weights in the SDR basket and a review of the instruments in the SDR interest rate basket.
IMF Survey: Why is staff proposing an extension of the current SDR basket?
Tiwari: To put this in context, the current SDR basket expires at the end of this year. We are proposing extending the current SDR basket by nine months until September 30, 2016. This is in response to feedback from SDR users on the desirability of avoiding changes in the basket at the end of the calendar year and facilitating continued smooth functioning of SDR-related operations. An extension of nine months would also allow users to adjust to a potential changed basket composition should the Executive Board decide to include the RMB.
The proposed extension, which will be decided by the Executive Board later this month, would not in any way prejudge the timing of conclusion or outcome of the review.
IMF Survey: What voting majority is required to include a currency into the basket?
Tiwari: As a general rule, changes to the method of valuation of the SDR basket require a 70 percent majority, while certain types of changes respecting the “principle” of the SDR’s valuation require an 85 percent majority of the total voting power. Historically, decisions that have changed the valuation method have been taken with a 70 percent majority.
IMF Survey: What are the next steps in this review process?
Tiwari: The review is well underway. Further work still needs to be undertaken in a number of areas to help inform the Executive Board’s decision. Staff continues its technical work, including on addressing data gaps and operational issues, while liaising closely with the Chinese authorities and other members ahead of the formal Board meeting expected later in 2015.
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>>> IMF Signals Delay on Adding China to Currency Basket
By THE ASSOCIATED PRESS
AUG. 4, 2015
http://www.nytimes.com/aponline/2015/08/04/business/ap-us-imf-china.html?_r=1
WASHINGTON — The staff of the International Monetary Fund is recommending that China wait until at least October 2016 to join an exclusive club of the world's top currencies.
China wants its currency, the yuan, included in a basket of currencies used in IMF operations along with the U.S. dollar, euro, British pound and Japanese yen. It was hoping the yuan could be added this Jan. 1. The IMF board will consider later this month the staff's recommendation for a delay until Oct. 1 of next year.
China believes it deserves to be included because it boasts the world's second-biggest economy. But the yuan is not as widely used or freely traded as the other four currencies.
The IMF staff said in a report released Tuesday that it was also worried that adding a new currency Jan. 1 might rattle financial markets on the first day of trading next year.
There have been estimates by some private economists that the Chinese economy will get a major boost if its currency is added because the IMF seal of approval will encourage more foreign participation in China's financial markets.
Since mid-June, the Chinese stock market has been plunging in value despite efforts by the government to end the free-fall.
The currency club China wants to join is known as the IMF's Special Drawing Rights basket. This is a virtual currency the IMF can use for emergency loans and IMF member countries can use to bolster their own reserves in times of crisis.
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>>> Dollar has peaked, here comes China: Economist
Matt Clinch
CNBC.com
http://www.cnbc.com/2015/08/03/dollar-has-peaked-here-comes-china-economist.html?
Who is eyeing the renminbi? Steen Jakobsen, chief economist at Saxo Bank, says everyone east of Europe is likely to have interest in the Chinese renminbi.
The dollar's appreciation has "peaked," the U.S. economy is "doing nothing" and China will soon be vying with the country on the global stage, an economist has told CNBC.
"We're having a perfect storm for the dollar," Steen Jakobsen, the chief economist at Danish investment bank Saxo Bank, told CNBC Monday.
A rate hike by the U.S. Federal Reserve might be just around the corner, but Jakobsen described it as nothing more than a "margin call," implying that it was a warning shot to investors that a seven-year bull run for equities might be coming to an end.
"On any model I look at, (the U.S. economy) is still way too weak in a normal cycle to actually take and live with the higher interest rate," he said.
The greenback has rallied 20 percent against a basket of leading currencies since the beginning of 2014. This has come as the Fed looks to normalize its monetary policy after several years of bond-buying on a massive scale and ultra-low interest rates.
The higher yield a Fed hike would bring has seen investors already pull money back to the U.S. Many economists believe this cycle is far from over and actually predict that the dollar's appreciation has further to run. For example, Deutsche Bank's George Saravelos said in a note Thursday that there was at least a 10 percent appreciation of the trade-weighted dollar left in the current cycle.
But Jakobsen has other ideas, and predicts that its fall will coincide with the rise of China's renminbi.
Christine Lagarde, the managing director of the International Monetary Fund, has spoken favorably of China's currency this year and there are plans afoot for it to be included in the IMF's SDR (special drawing rights) basket, which it uses as a supplementary foreign exchange reserve.
The Chinese currency will therefore overtake the U.K. pound as the world's number three currency (in foreign exchange volumes) in less than three years, according to Jakobsen. He sees a resurgence for the world's second largest economy in the coming years.
"The one difference with China and the rest of the world is that they have a plan, you may disagree with the plan, but they actually do have a plan," he said.
The internationalization of the renminbi will mean sovereign wealth funds will start to "play and act very aggressively," Jakobsen added.
He predicts that China's foreign exchange reserves of more than $3 trillion will start to be invested. With a sizeable chunk of China's reserves being held in dollar-denominated assets, he added that this investment would be to the detriment of the dollar and U.S. bond markets.
Matt Clinch
Associate Producer, CNBC.com
<<<
Interesting thoughts again.
I'm right there as well.... I have seen that presentation by La Garde...I think JIm Willie mentioned the 7 thing she was referring to is probably about the IMF adding the Yuan, gold and the ruble...to the basket to make for 7 currencies in the mix.
otherwise there might not be more to it than that. Yes, they do follow Occult /Illuminati symbols...How about that video "I pet goat 2"....pretty creepy video huh. Theres alot of interesting commentary on Youtube about that video.
Petro dollar is already dead now, per Willie, its just the formality of the end game remaining.
To think that the Western Cabal,the Powers in control of the Elite banking system....to think that they had this plan to purposely destroy the system, so as to rise up from the ashes and restart the new world order....that They have planned, but its turning out to be a new world order , just not configured quite in the same order as they would like...maybe the new order will be lead by Russia/China/Brics, and the rest of the world and the rest of the world choosing the BRICS and the east asia alliance, etc....and the little caboose at the end will be the usa and its allies.
Hard to know what life in america could be like in a few years.
There has to be something positive that can develop in the usa.
but it sure isnt easily visible when you look around.
The usa could lead the world in agriculture,to help feed the world....but instead we have Monanto frankenfood,GMO poison,terminator seeds, glyphosate everywhere,and now laws have been passed that food labeling Doesnt have to disclose GMO ingredients.
Will this make foreign nations eager to import usa food? I doubt it. anyway... strange times we live in.
I dont think the BRICS alliance wants to rush too far ahead too fast ,in any way that antagonizes the usa....they want to try to have some more comfortable transition. slower,more gradual, less disruptive. maybe all this reset thing will take another 2 years.
I used to think that it was the western banking cabal,the Cartel, that was doing all the suppression of gold and silver, but about a year ago or so, it seemed like maybe it could be China who is suppressing down gold....so they can buy it all cheaper, and when the right time comes, and they have all the gold they can get...then they will say ok, times up. and the game will reset when China is ready to make the call. and China is in the driver seat now.
123tom, >> warnings about September <<
Yes, Sept/Oct does seem like a favorite time for disasters to appear, in financial markets and otherwise. Many of the so-called global 'elites' who have been running things are really into the occult. Did you see that video of IMF chief Christine Lagarde going on about the 'numerology of 7'? I was thinking, what the heck, but that's what you get from folks who gather every year at the Bohemian Grove.
Concerning gold, yes it looks like a great opportunity to accumulate. Whatever the operative plan is to derail the BRICS, I figure it will happen within the next few years. After that the BRICS juggernaut will be completely unstoppable. The US dollar has already lost its standing as the trade currency among the BRICS and their trading partners, and when the Saudis decide to start selling oil to China using the Yuan (as Russia has this year), it's over for the petro-dollar system and US world hegemony.
Apparently the Western globalists believed they could orchestrate a global financial crisis via derivatives, with the world thus falling into chaos and forced into a global IMF bailout, with the IMF's SDR/Special Drawing Rights coming to the rescue (see Jim Rickards). The BRICS would thus be brought to heel, and Western hegemony could continue on via US/European combined voting control at the IMF. But whether that's still the plan or not, who knows. At this point, all the options for stopping the BRICS look like highly risky desperation plays.
Goooood Morning Vietnam......
what do you think of this idea.... maybe some day. ... after the next crash ?
http://www.silverdoctors.com/wish-youd-jumped-on-the-china-boom-20-years-ago-heres-your-second-chance-in-vietnam/
Interesting comments gfp.... we do live in interesting times thats for sure. Empires changing.
I suspect trouble around every corner. at this point. Spot gold...I do follow it closely , the metals and miners.
I was one of those who were only about 6 years early.in the "safe haven" investment.
There is a big pivot target for gold around 975 but I dont know if it will get there. 1000 tested seems possible, but for sure the 1050 target zone. whats the bottom so far now is it 1072?
I dont mind buying here.
China gold panda are 80 dollars over spot now. Maples are about 40 over spot.
Do you pay much attention to all the spooky hype warnings about september 23 and impending market crisis this fall? I think the timing does deserve careful watching.
123tom, Thanks for the link, looks like a great site. I'm pulling for the BRICS, but wonder how the Western luminaries plan to deal with it/wreck it? There hasn't been a challenge to the existing order of this magnitude since the rise of Germany threatened the British Empire in the early 20th century.
I see you follow gold. Chart-wise, looks like a test of 1000 is likely in the cards in the months ahead, barring a big global meltdown or other crisis. Below that, support looks like the 700-1000 area.
>>> Building BRICS: A steady, cautious march ahead
Special to The BRICS Post
July 10, 2015
http://thebricspost.com/building-brics-a-steady-cautious-march-ahead/#.VbZJaf3bLhs
The 2015 Ufa BRICS summit is unique in a sense that it proved to be a test of maturity of this association.
For the first time in the summits’ short history, there is a marked division in its members’ relations with the world’s current dominant force – a global West headed by the United States.
Russia’s relations with the West are on the verge of a full scale conflict, while increasing Chinese-authorized foreign policy, including its regional dimension in Asia is fueling US frustrations – which has considerably increased after the ascension of Xi Jinping to the seat of power in Beijing.
At the same time, the Indian government led by Narendra Modi, is pursuing a multi-vector policy, which includes rapprochement with Washington while trying to extract the most from other partners, including BRICS.
Brazil’s President, prior to the Russian trip, visited the US ending a period of chilly relations since 2013, when the Snowden revelations of US spying came to the fore.
With Brazil’s economic slowdown, and the internal political feud, Brasilia is now less than ever inclined to do something unpleasant to the USA, that includes too vocal a support of Russia.
South Africa, the S in the BRICS, is predominantly concerned with economic issues and still views BRICS as an instrument for promoting bilateral relations and the country’s global profile.
Therefore, we can hardly postulate that 2015 was about furthering the evolution of a common bloc of anti-Western nature.
Russia, of course, was strongly tempted to use the Ufa summit as proof of absence of its diplomatic isolation and solicit support in its standoff with the West- something that other BRICS member countries are reluctant to put on the forefront.
Russia therefore had to be extremely cautious not to put its BRICS partners in an awkward position, limiting their support to the Ukrainian standoff to pledges to solve the crisis in a peaceful manner by implementing the Minsk agreements.
Moscow is also genuinely thankful for the BRICS denunciation of sanctions- which, practically, can do little to change the Western policy of imposing sanctions at will.
So it is not likely the most favorable time to push the non-Western identity of the BRICS group.
However, lest we lose sight of this important fact — the leaders of the most populous countries agree on approaches to numerous regional conflicts and security. BRICS cooperation is, therefore, a manifestation of a shift in geopolitical reality.
The “double” summit of BRICS and SCO underlines the fact that a new power arrangement is being born in the globe’s “heartland”.
This is something that will aim to make a US -dominated unipolar world order less and less feasible.
However- and this is increasingly stressed by BRICS – it is not directed against the West- without cooperation with which their own development is impossible.
BRICS do not want the ‘destruction’ of the current global governance system, but rather, a fair place in it.
Frustratingly, however, the search of compromise with the West, for example within the G20 or IMF framework, has up till now been far from successful.
BRICS countries therefore have created parallel structures- like the New Development bank and Currency reserve arrangements, which are the first instances of getting out of the West’s egoistic dominance in world affairs.
More is to follow in different areas- ranging from independent rating agencies to information security system.
BRICS strategy is therefore two-pronged and is addressed both at the North and South.
At the same time, BRICS is consolidating its common approach to a number of global issues while its economic agenda becomes more comprehensive with each passing month.
A score of new agreements (including the formal “BRICS Economic Strategy” roadmap ) and intra-BRICS countries contracts and agreements are the result of the meetings in Ufa.
In successfully leveraging the summit, BRICS further consolidates its positions and power in reforming the global financial architecture.
New formats and areas of inter-BRICS cooperation have also been established during the Ufa summit.
However it should be pointed out that these formats are mostly for discussing issues rather than implementing solutions.
This might be a necessary step on the way for actual cooperation, but the issue of accountability in BRICS remain.
The widely published opinions in Western media that BRICS is declining and has no future are hence far from reality.
However the speed of moving to a more solid institutional and cooperative mechanism is slower than some of the members (namely Russia) would desire.
The cooperative spirit and equality as governing principles of BRICS, though, are a solid basis for a cautious but steady move forward.
A word of caution: the BRICS countries should be aware that the growth of BRICS power could lead to rising resistance from established centers of power.
This would, inevitably, include different methods aimed at undermining BRICS unity.
<<<
>>> The First SDR Review
July 24, 2015 ?
By JC Collins
http://philosophyofmetrics.com/the-first-sdr-review/
The press release from the International Monetary Fund on June 23, 2015, covered some interesting and relevant topics which we have been discussing here. The trend in regards to monetary reform and the multilateral transition is now beginning to align with the macroeconomic policies which are unfolding internationally.
Whether its debt relief in Greece, revaluating exchange rates, loosening of capital controls in China, and the composition review of the Special Drawing Right, the signs and markers are undeniable.
Gerry Rice, Director of Communication for the IMF, during the press briefing, made it clear that along with ESM (European Stability Mechanism) management of the Greece debt and banking crisis (which was first covered here back in Feb), there would be further debt restructuring. How this debt restructuring would look, and what others countries would be involved, was not made clear.
However, based on the understanding which we have built up here on POM, we can extrapolate some obvious points.
One, the IMF will be involved in a more substantial debt relief (restructuring) process then what has been previously enacted amongst European nations.
Two, Greece is being used as the enter point for a more expansive debt restructuring program.
Three, we are only at the beginning of this process.
From the briefing:
QUESTIONER: That being said, the European Summit document makes it clear that an ESM request is conditional on IMF participation. How do you reconcile that with the fact that in pretty stark terms you’ve laid out that the proposals as currently constituted are just not sustainable from a debt perspective?
RICE:Again, what we’ve said is that our participation would be contingent on this balanced approach and that would require on the one hand, reforms, commitment, implementation, and on the other hand, financing and we have said pretty clearly, as you say, we feel the debt relief is required. So, again, the modalities and the process of potential IMF involvement would depend on those things.
In previous posts I have explained how certain currencies will appreciate and how some will depreciate. The logic used was based on the balance of payments deficiencies.
Domestic currencies of countries which have a trade surplus will experience appreciation in order to make exported goods more expensive, which will help decrease the trade surplus by slowing those exports.
Domestic currencies of a countries with trade deficits will experience depreciation in order to make exported goods cheaper, which will help decrease the deficit by increasing exports.
With that logic in mind, we see the following exchange during the IMF press briefing:
QUESTIONER: The Fund a year ago said that the German exchange rate on an adjusted basis was probably 5-15 percent undervalued with the euro. What is the latest Fund view on imbalances within the euro zone and particularly on the German surplus?
RICE:I’m going to ask you to be patient on that one because it’s precisely those kinds of issues that we’re going to be dealing with next Tuesday in the context of this external sector report, and those issues will be updated there and I’m going to point to that in terms of where you might get a more accurate up to date assessment just in a few days’ time.
This references exactly what was explained above in regards to the balance of payments deficiencies. The German currency is undervalued, which correlates with Germany having a large trade surplus. This process of adjusting exchange rates and adjusting balance of payments between nations will not just take place in the Euro zone, but also internationally.
Especially between the largest trade surplus country and the largest trade deficit country, being China and the United States.
The next question which is put forth to Mr. Rice involves the SDR review which is taking place.
QUESTIONER: What can you tell us about the SDR analysis and the release of the report and particularly how that relates to the Chinese Yuan?
RICE:The SDR process, that’s shorthand for the Chinese request from the government of China, that the Chinese currency the renminbi would be included in our SDR basket of currencies. So what I can tell you, Barry, the SDR review is going along well. It’s focused on, as we’ve discussed here before, a well defined set of criteria. What else can I say? The financial market reforms in China are advancing and the renminbi internationalization is continuing. Further progress including continued development of the capital markets to increase the share of equity in bond financing will help improve the efficiency of financial intermediation.
I can tell you there will be an informal board discussion of this toward the end of this month, July, and I’ve laid out the broad timeline here before, I think you probably know what it is, that we’re expecting the formal board discussion of this issue toward the end of this year probably in November, but toward the end of the year. So, as I said, it’s progressing well. We are interacting with the Chinese authorities on this issue on an ongoing basis. There is a lot of work still to be done in terms of gathering data and before we would be in a position to make that assessment. But the timeline is pretty clear and I think the direction of travel is pretty clear.
The timeline is pretty clear and I think the direction of travel is pretty clear. This simple statement confirms the intent and motive to include the RMB in the SDR by years end. The mention of the board meeting on the SDR review “toward the end of this month, July”, leaves 7 days for that review and discussion to take place.
We will eagerly await the press release from that board meeting and first SDR review. As Mr. Rise stated, the “direction of travel is pretty clear”.
With the expansion of RMB liquidity (the first BRICS Bank loan is denominated in RMB), and a reduction in USD liquidity (loans not denominated in USD), the required corrections to the balance of payments and progress. As explained in previous posts, the real solution to balance of payments challenges will be found in the implementation of a super-sovereign unit of account, such as the SDR.
The stage is being set for this transition to take place over the next 1 to 5 years. Here on POM I will continue to provide analytical conclusions based on the fundamentals of this emerging macroeconomic reality. With each passing month the accuracy of the thesis and analysis presented here will be confirmed. – JC
<<<
I like the idea of this topic as a forum...
BRICS
Maybe we can generate some interest.
Have you seen the BRICS POST news website ?
Interesting site.
http://thebricspost.com/
>>> There are now two reserve currencies as petro-yuan joins petro-dollar
Examiner.com
June 9, 2015
http://www.examiner.com/article/there-are-now-two-reserve-currencies-as-petro-yuan-joins-petro-dollar
Ever since Henry Kissinger forged the global petro-dollar agreement with Saudi Arabia and OPEC in 1973, the U.S. currency has remained the singular global reserve for over 40 years. However, on June 9 that sole monetary reign has come to an end as Russian gas giant Gazprom is now officially selling all oil in Chinese Yuan, making the petro-Yuan a joint global reserve, and ending America's sole control over the world's reserve currency.
Less than two years ago, Russia and China forged an agreement where they would construct a platform to allow sales of oil and natural gas to be done in both Roubles and Yuan. However, in its early stages this was limited to transactions between both countries and a small number of trade partners. But with today's confirmation of a fully functional petro-yuan system being implemented by Russia, the world no longer needs to accrue dollar reserves to purchase energy, and the beginning of the end of the petro-dollar is now underway.
“
Russia’s third-largest oil producer, is now settling all of its crude sales to China in renminbi, in the most clear sign yet that western sanctions have driven an increase in the use of the Chinese currency by Russian companies.
Russian executives have talked up the possibility of a shift from the US dollar to renminbi as the Kremlin launched a “pivot to Asia” foreign policy partly in response to the western sanctions against Moscow over its intervention in Ukraine, but until now there has been little clarity over how much trade is being settled in the Chinese currency.
Gazprom Neft, the oil arm of state gas giant Gazprom, said on Friday that since the start of 2015 it had been selling in renminbi all of its oil for export down the East Siberia Pacific Ocean pipeline to China. - Zerohedge
In addition to oil sales, a new report has also verified that Russia is on course to settle nearly all of their trade in the Renminbi, creating a scenario where other countries can soon de-dollarize and no longer require American currency to purchase energy, or engage in bi-lateral trade.
As OPEC continues to use production quotas as a means to attack Russia and other energy producers, the Eurasian power is fighting back by using the petro-yuan as a lever to take away customers from Saudi Arabia, and to block potential ramifications from continued U.S. sanctions. And with China already prepared for an eventual floating of the RMB as it constructs its Belt and Road (Silk Road) initiative, the final battle over control of the next global reserve currency is now front and center, and the singular reign of the petro-dollar is now at an end.
<<<
>>> Is OPEC close to using Petro-Yuan as Russia commences talks with Saudi Arabia? <<<
Yikes, this is big news folks, the beginning of the end for the petro-dollar system, which has maintained global demand for US dollars since the collapse of Bretton Woods in the early 1970s. Without the petro-dollar relationship with Saudi Arabia, the dollar is finished as the world's reserve currency -
>>> Is OPEC close to using Petro-Yuan as Russia commences talks with Saudi Arabia?
Examiner.com
June 18, 2015
http://www.examiner.com/article/is-opec-close-to-using-petro-yuan-as-russia-commences-talks-with-saudi-arabia
Within the past 10 days, Russia and China have concluded two historic energy agreements in which both oil and natural gas will now be sold using the Yuan currency. And with Russia beginning oil talks with Saudi Arabia on June 18 during the economic forum currently being held in St. Petersburg, the next step towards lessening the use of the dollar in global energy purchases could very well be underway.
Nine days ago, Russia and China reached a historic milestone as the Petro-Yuan entered into the global economy through a new program instituted by Gazprom Neft, where the third largest oil company in Russia began selling its production solely in RMB, and provided the rest of the global community the chance to purchase oil in a currency other than the U.S. dollar. Yet the significance of this agreement is only half the story as China released new data three days later that showed their reliance upon Saudi oil was waning at the same time their imports from Russia were increasing.
And it appears now that this trend could be what is bringing Saudi Arabia to Russia, since production cuts to raise prices are off the table, and not part of the primary discussions.
“
The oil ministers of Russia and Saudi Arabia plan to discuss a broad cooperation agreement on Thursday at an economic forum in St Petersburg, two sources told Reuters.
Saudi Arabia is the top producer in the Organization of the Petroleum Exporting Countries and the world's top oil exporter, while Russia, which is not an OPEC member, is the second biggest oil supplier to the global markets.
One source said the agreement to be discussed between Russian Energy Minister Alexander Novak and Saudi Oil Minister Ali al-Naimi would not be about joint oil production or export strategy.
Russia has stepped up contacts with OPEC after oil prices plunged last year, but it has dismissed any suggestion it might cut output to prop up prices. OPEC has also refused to curb its output in order to defend market share. - Moscow Times
China is the world's largest economy, and one of the most important energy consumers for both Russia and Saudi Arabia. And despite the Kingdom's attempts to drive out oil producers in country's such as Iran, Sudan, Russia, and even U.S. shale interests through their increasing of supply, the geo-political moves currently being played are centered more on the petro-dollar than on price or competition.
It may take until the end of this week's economic forum in St. Petersburg to determine the full extent of Russia's talks with Saudi Arabia, but at stake appears to be the future of dollar hegemony over oil. And as pipelines continue to be built that bypass the Middle Eastern Kingdom, and bring both oil and natural gas to Europe through alternative routes such as Turkey and the North Sea, cooperation rather than competition is a vital key to creating energy policies that will benefit both producers in the future.
<<<
>>> China announces they will be setting new gold price by end of year
June 25, 2015
Examiner.com
http://www.examiner.com/article/china-announces-they-will-be-setting-new-gold-price-by-end-of-year
On June 25, a representative from the Shanghai Gold Exchange announced that they are planning on establishing a new physical gold price mechanism by the end of the year that will compete with London and the U.S. Comex. Expected to be denominated in Yuan, this new gold price platform comes less than 10 days after China became the first Asian country invited to be a part of the London gold fix, and unlike the U.S. Comex, will deal in direct physical gold sales rather than in paper futures and derivative contracts.
When the Shanghai Gold Exchange (SGE) opened in 2014, it set out to usurp the West's control over gold and their pricing of gold through the paper markets. And in less than a year, the SGE has created the world's largest gold fund, and is now ready to take over pricing and price discovery for the monetary metal. In fact, sources claim that right now premiums on large sales of gold bullion are ranging as high as $600 over the current paper spot price.
“
A yuan-denominated gold fix will be launched by year-end via the Shanghai Gold Exchange to give the world's biggest producer and leading consumer of bullion more influence over pricing.
The first public confirmation made by an exchange official comes after Reuters cited sources in February on the proposal for the fix to be set through trading on the SGE, the world's biggest physical bullion exchange.
"We will be introducing a yuan-denominated fix at the right moment. We hope to introduce (it) by the end of the year," SGE Vice-President Shen Gang said at the LBMA Bullion Market Forum in Shanghai on Thursday.
"We have policy support for development (of the gold market)," she added. - China Daily
The most interesting thing that will occur from this gold pricing policy is how London and the Comex will deal with the metal should China suddenly set the price far above the current paper spot. If the West still has alot of physical gold in their reserves, they can make a large amount of money arbitraging their buy price with China's sell price. However, it appears for the most part that the amount of gold remaining in London and Comex vaults is limited, and they will be unable to stop the Far Eastern market from determining the physical price should they decide to raise it to much higher levels.
The gold markets in the West have been drained for some time, and are now simply derivatives markets that are protected by London's ability to price gold much lower than supply and demand dictates. And since the Comex has not actually delivered any metals for more than two years despite them being a futures delivery market, the potential that China's move to take over physical gold pricing within the next six months could very easily cause a derivatives meltdown, and drive the price of gold even higher than the SGE might set it at.
<<<
>>> France and Germany join UK in Asia bank membership
BBC News
17 March 2015
http://www.bbc.com/news/business-31921011
Chinese President Xi Jinping (C) poses at a meeting of representatives at the signing ceremony for the Asian Infrastructure Investment Bank at the Great Hall of the People on October 24, 2014 in Beijing, China.
The Asian Infrastructure Investment Bank agreement was signed in October by 21 countries, including China
France and Germany are to join the UK in becoming members of a Chinese-led Asian development bank.
The finance ministries of both countries confirmed on Tuesday that they would be applying for membership of the Asian Infrastructure Investment Bank (AIIB).
Last week, the US issued a rare rebuke to the UK over its decision to become a member of the AIIB.
The US considers the AIIB a rival to the Western-dominated World Bank.
The UK was the first Western economy to apply for membership of the bank.
But German finance minister Wolfgang Schaeuble confirmed on Tuesday that his country would also be applying for membership.
France's finance ministry confirmed it would be joining the bank. It is believed Italy also intends to join.
The US has questioned the governance standards at the new institution, which is seen as spreading Chinese "soft power".
The AIIB, which was created in October by 21 countries, led by China, will fund Asian energy, transport and infrastructure projects.
When asked about the US rebuke last week, a spokesman for Prime Minister David Cameron said: "There will be times when we take a different approach."
The UK insisted it would insist on the bank's adherence to strict banking and oversight procedures.
"We think that it's in the UK's national interest," Mr Cameron's spokesperson added.
'Not normal'
Last week, Pippa Malmgren, a former economic adviser to US President George W Bush, told the BBC that the public chastisement from the US indicates the move might have come as a surprise.
"It's not normal for the United States to be publicly scolding the British," she said, adding that the US's focus on domestic affairs at the moment could have led to the oversight.
However, Mr Cameron's spokesperson said UK Chancellor George Osborne did discuss the measure with his US counterpart before announcing the move.
Some 21 nations came together last year to sign a memorandum for the bank's establishment, including Singapore, India and Thailand.
But in November last year, Australia's Prime Minister Tony Abbott offered lukewarm support to the AIIB and said its actions must be transparent.
US President Barack Obama, who met Mr Abbott on the sidelines of a Beijing summit last year, agreed the bank had to be transparent, accountable and truly multilateral.
"Those are the same rules by which the World Bank or IMF [International Monetary Fund] or Asian Development Bank or any other international institution needs to abide by," Mr Obama said at the time.
<<<
Perfide Albion -->>> UK support for China-backed Asia bank prompts US concern
BBC News
13 March 2015
http://www.bbc.com/news/world-australia-31864877
Chinese President Xi Jinping (C) poses at a meeting of representatives at the signing ceremony for the Asian Infrastructure Investment Bank at the Great Hall of the People on October 24, 2014 in Beijing, China.
The Asian Infrastructure Investment Bank agreement was signed in October by 21 countries, including China
The US has expressed concern over the UK's bid to become a founding member of a Chinese-backed development bank.
The UK is the first big Western economy to apply for membership of the Asian Infrastructure Investment Bank (AIIB).
The US has raised questions over the bank's commitment to international standards on governance.
"There will be times when we take a different approach," a spokesperson for Prime Minister David Cameron said about the rare rebuke from the US.
The AIIB, which was created in October by 21 countries, led by China, will fund Asian energy, transport and infrastructure projects.
The UK insisted it would demand the bank adhere to strict banking and oversight procedures.
"We think that it's in the UK's national interest," said Mr Cameron's spokesperson.
'Not normal'
Pippa Malmgren, a former economic advisor to US President George W Bush, told the BBC that the public chastisement from the US indicates the move might have come as a surprise.
"It's not normal for the United States to be publicly scolding the British," she said, adding that the US's focus on domestic affairs at the moment could have led to the oversight.
However, Mr Cameron's spokesperon said UK Chancellor George Osborne did discuss the measure with his US counterpart before announcing the move.
In a statement announcing the UK's intention to join the bank, Mr Osborne said that joining the AIIB at the founding stage would create "an unrivalled opportunity for the UK and Asia to invest and grow together".
The hope is that investment in the bank will give British companies an opportunity to invest in the world's fastest growing markets.
But the US sees the Chinese effort as a ploy to dilute US control of the banking system, and has persuaded regional allies such as Australia, South Korea and Japan to stay out of the bank.
In response to the move, US National Security Council spokesman Patrick Ventrell said: "We believe any new multilateral institution should incorporate the high standards of the World Bank and the regional development banks."
"Based on many discussions, we have concerns about whether the AIIB will meet these high standards, particularly related to governance, and environmental and social safeguards," he added.
Analysis: Linda Yueh, BBC chief business correspondent
It's a tricky task to align oneself with both China and the US. The Americans are apparently unhappy with the UK, while China has welcomed the British application.
It may be a pragmatic move, but it's hard not to offend one side or another.
I suspect this will be the first of many decisions to be taken by countries such as the UK to position themselves between the new economic superpower and the existing one.
The trick will be to come away with economic advantage at minimal political cost. We'll find out if this one will pay off for the UK.
Why does the UK want to join a China-led bank?
'No consultation'
Some 21 nations came together last year to sign a memorandum for the bank's establishment, including Singapore, India and Thailand.
But in November last year, Australia's Prime Minister Tony Abbott offered lukewarm support to the AIIB and said its actions must be transparent.
US President Barack Obama, who met Mr Abbott on the sidelines of a Beijing summit last year, agreed the bank had to be transparent, accountable and truly multilateral.
"Those are the same rules by which the World Bank or IMF (International Monetary Fund) or Asian Development Bank or any other international institution needs to abide by," Mr Obama said at the time.
The Financial Times (FT) newspaper reported on Thursday that US officials had complained about the British move.
The report cited an unnamed senior US administration official as saying the British decision was taken after "virtually no consultation with the US".
"We are wary about a trend toward constant accommodation of China," the newspaper quoted the US official as saying.
However, in response to the UK announcement, World Bank president Jim Yong Kim told a news conference he supported the goals of the AIIB.
"From the perspective simply of the need for more infrastructure spending, there's no doubt that from our perspective, we welcome the entry of the Asian Infrastructure Investment Bank," he said.
Offence
The founding member countries of the AIIB have agreed the basic parameters that would determine the capital structure of the new bank would be relative gross domestic product.
Banking experts have estimated that, if taken at face value, this would give China a 67% shareholding in the new bank.
That's significantly different than the Asia Development Bank, which has a similar structure to the World Bank and has been in existence 1966. There, the majority stakes are controlled by Japan and the US.
Speaking in Beijing last year, Mr Abbott said Australia would only sign up to "a genuinely multilateral body"
When asked if Britain would seek assurances before it signed on as a member that no one country would be able to unilaterally control the AIIB, economist David Kuo told the BBC that the UK "wouldn't have a great deal of say in the matter".
"He who pays the piper calls the tune," he said. "The UK could try and negotiate a power to veto projects but it is unlikely to get it," Mr Kuo, who is from investment advisers The Motley Fool, said.
The UK was caught between the US on the West and China in the East, he added.
"It hopes that it can exert force from within, rather than put pressure from the outside - but [the UK] is only one voice in a crowd of many."
With regard to the competition the AIIB would give the ADB or World Bank, Mr Kuo said there were plenty of infrastructure projects in Asia that needed funding.
"The existing sources of money can't do everything. So every little helps."
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Silk Road Economic Belt, Maritime Silk Road -
>>> One Belt, One Road
https://en.wikipedia.org/wiki/One_Belt,_One_Road
From Wikipedia, the free encyclopedia
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One Belt, One Road (Chinese: ????; pinyin: Yídài yílù, also known as the Belt and Road Initiative; abbreviated OBOR) is a development strategy and framework, proposed by People's Republic of China that focuses on connectivity and cooperation among countries primarily in Eurasia, which consists of two main components, the land-based "Silk Road Economic Belt" (SREB) and oceangoing "Maritime Silk Road" (MSR). The strategy underlines China's push to take a bigger role in global affairs, and its need to export China's production capacity in areas of overproduction such as steel manufacturing.[1]
It was unveiled by Chinese leader Xi Jinping in September and October 2013 in announcements revealing the SREB and MSR, respectively.
Contents [hide]
1 Infrastructure networks 1.1 Silk Road Economic Belt
1.2 Maritime Silk Road 1.2.1 East Africa
1.3 Closely related networks
2 Financial institutions 2.1 AIIB
2.2 Silk Road Fund
3 Oversight
4 References
Infrastructure networks[edit]
The coverage area of the initiative is primarily Asia and Europe. However, Oceania is also included as well as East Africa.
Silk Road Economic Belt[edit]
The Silk Road Economic Belt (???????) initiative was announced by President Xi Jinping on a visit to Kazakhstan. Essentially, the 'belt' includes countries situated on the original Silk Road through Central Asia, West Asia, the Middle East, and Europe. The initiative calls for the integration of the region into a cohesive economic area through building infrastructure, increasing cultural exchanges, and broadening trade. Apart from this zone, which is largely analogous to the historical Silk Road, another area that is said to be included in the extension of this 'belt' is South Asia and Southeast Asia. Many of the countries that are part of this 'belt' are also members of the China-led Asian Infrastructure Investment Bank (AIIB).
Maritime Silk Road[edit]
The Maritime Silk Road, also known as the "21st Century Maritime Silk Route Economic Belt" (21????????) is a complementary initiative aimed at investing and fostering collaboration in Southeast Asia, Oceania, and North Africa, through several contiguous bodies of water – the South China Sea, the South Pacific Ocean, and the wider Indian Ocean area.[2][3][4]
The Maritime Silk Road initiative was first proposed by Xi Jinping during a speech to the Indonesian Parliament in October 2013.[5] Like its sister initiative the Silk Road Economic Belt, most countries in this area have joined the China-led Asian Infrastructure Investment Bank.
East Africa[edit]
This region of Africa (In particular Kenya) will form part of the MSR after improvement of local ports and construction of a modern standard-gauge rail link between Nairobi and Mombasa.[6]
Closely related networks[edit]
The China-Pakistan Economic Corridor(CPEC) and the Bangladesh-China-India-Myanmar(BCIM) Economic Corridor are officially classified as "closely related to the Belt and Road Initiative".[7] In coverage by the media, this distinction is disregarded and the networks are counted as components of the initiative.
Financial institutions[edit]
This section does not cite any references or sources. Please help improve this section by adding citations to reliable sources. Unsourced material may be challenged and removed. (June 2015)
AIIB[edit]
The Asian Infrastructure Investment Bank founded by China in 2014 with the participation of 56 other countries is a development bank dedicated to lending for projects that are part of the initiative.
Silk Road Fund[edit]
In November 2014, Xi Jinping announced plans to create a 40 billion USD development fund, which will be distinguished from the banks created for the initiative. As a fund its role will be to invest in businesses rather than lend money for projects.
Oversight[edit]
This section does not cite any references or sources. Please help improve this section by adding citations to reliable sources. Unsourced material may be challenged and removed. (June 2015)
The Leading Group for Advancing the Development of One Belt One Road was formed sometime in late 2014, and its leadership line-up publicized on February 1, 2015. This steering committee reports directly into the State Council of the People's Republic of China and is composed of several political heavyweights, evidence of the importance of the program to the government. Vice-Premier Zhang Gaoli, who is also a member of the 7-man Politburo Standing Committee, was named leader of the group, with Wang Huning, Wang Yang, Yang Jing, and Yang Jiechi being named deputy leaders.
In March 2014, Chinese Premier Li Keqiang called for accelerating the "One Belt One Road" initiative along with the Bangladesh-China-India-Myanmar Economic Corridor and the China-Pakistan Economic Corridor in his government work report presented to the annual meeting of the country's legislature.
<<<
>>> BRICS Bank Launches, Boosting China’s Influence
Saibal Dasgupta
July 21, 2015
http://www.voanews.com/content/brics-bank-launches-boosting-china-influence/2871693.html
BEIJING—
A new $100 billion international development bank backed by developing countries launched in Shanghai Tuesday, in what official Chinese media called a challenge to Western-backed international lenders.
The New Development Bank came after three years of negotiations among members of BRICS — Brazil, Russia, India, China and South Africa. The launch comes soon after the formation of another multilateral bank, the Asian Infrastructure Investment Bank, which was organized by Beijing.
"Obviously, the new institutions are going to break the monopoly of the World Bank. Now, there will be more options for borrowers, who will look for the best terms among different institutions," Bala Ramasamy, professor of economics at the China Europe International Business School in Shanghai said.
China is expected to dominate both institutions. It has the biggest share at 31 percent in the AIIB. In the NDB, it is contributing equally with the four other countries in the $50 billion initial capital, which will be doubled later on. But China has taken a 41 percent share in a $100 billion contingency fund, which was announced by NDB on Tuesday.
China as global banker
"It seems China is going to play an increasingly bigger role through the new institutions," Ramaswamy said. "Developed countries like the United States and the United Kingdom will be forced to increase their roles, and review their relationship with the developing world."
Some analysts say that the new banks are relatively small compared to the World Bank, and challenging it at a serious level will be difficult. Critics of the new banking institutions also have questioned whether the projects they finance will have provisions protecting human rights and enforcing environmental safeguards.
The NDB may not be able to compete with the World Bank in terms of low interest rates because of its higher cost of borrowings. Any future bonds by the NDB will be judged on the basis of the credit ratings of its member countries.
"The NDB and the AIIB may want to break the monopoly of World Bank and the International Monetary Fund. That is their ambition. But do they have the confidence to do so at this stage? I have to say ‘no,’" said Liu Xiaoxue, a researcher at the Beijing-based National Institute of International Strategy.
Competitors or collaborators?
M.V. Kamath, the first president of NDB, an Indian banker, addressed the bank’s relations with the World Bank, the International Monetary Fund and other major lenders at the inauguration ceremony on Tuesday.
"Our objective is not to challenge the existing system as it is but to improve and complement the system in our own way," he said.
He also indicated NDB will coordinate policies with the AIIB by establishing a "hotline" to improve communications.
The new institutions might also need help from the World Bank and established institutions like the Asian Development Bank for project assessment expertise and joint financing. The AIIB and the World Bank are already discussing joint financing of specific projects, and this might be extended to the NDB.
“Some parts we learn from the World Bank, some parts we try to do things differently,” Zhu Xian, vice president of NDB, told China Central Television on Tuesday. “We will complement with each other with the World Bank and other international development banks. But in some projects, there will be competition.”
Funding Chinese projects
Chinese finance minister Lou Jiwei made it clear the NDB and the AIIB will work together.
"It [NDB]will also complement the China-initiated Asian Infrastructure Investment Bank, and both will share operational experience and strengthen cooperation when the projects start.”
China's goal is to get the new bank to finance its "One Belt, One Road" program that involves constructing a chain of infrastructure projects across the world. Beijing sees it as a means to revive its own economy by obtaining contracts for Chinese construction companies and machinery suppliers.
"The bank will provide new driving force to accelerate the global economic recovery by supporting infrastructure projects and expanding global demand," Lou said.
Critics say the World Bank takes an overly rule-bound approach to project assessment, and often rejects proposals that its experts consider to be environmentally unsustainable. The new banks are expected to take a different approach.
"I would say the NDB will conduct proper environment impact assessment. But it is going to try and reduce the negative environment impact of projects from developing countries instead of entirely rejecting them," Ramaswamy said.
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>>> The Eurasian Big Bang: How China & Russia Are Running Rings Around Washington
Submitted by Tyler Durden
07/24/2015
by Pepe Escobar
http://www.zerohedge.com/news/2015-07-24/eurasian-big-bang-how-china-russia-are-running-rings-around-washington
Let’s start with the geopolitical Big Bang you know nothing about, the one that occurred just two weeks ago. Here are its results: from now on, any possible future attack on Iran threatened by the Pentagon (in conjunction with NATO) would essentially be an assault on the planning of an interlocking set of organizations -- the BRICS nations (Brazil, Russia, India, China, and South Africa), the SCO (Shanghai Cooperation Organization), the EEU (Eurasian Economic Union), the AIIB (the new Chinese-founded Asian Infrastructure Investment Bank), and the NDB (the BRICS' New Development Bank) -- whose acronyms you’re unlikely to recognize either. Still, they represent an emerging new order in Eurasia.
Tehran, Beijing, Moscow, Islamabad, and New Delhi have been actively establishing interlocking security guarantees. They have been simultaneously calling the Atlanticist bluff when it comes to the endless drumbeat of attention given to the flimsy meme of Iran’s "nuclear weapons program." And a few days before the Vienna nuclear negotiations finally culminated in an agreement, all of this came together at a twin BRICS/SCO summit in Ufa, Russia -- a place you’ve undoubtedly never heard of and a meeting that got next to no attention in the U.S. And yet sooner or later, these developments will ensure that the War Party in Washington and assorted neocons (as well as neoliberalcons) already breathing hard over the Iran deal will sweat bullets as their narratives about how the world works crumble.
The Eurasian Silk Road
With the Vienna deal, whose interminable build-up I had the dubious pleasure of following closely, Iranian Foreign Minister Javad Zarif and his diplomatic team have pulled the near-impossible out of an extremely crumpled magician’s hat: an agreement that might actually end sanctions against their country from an asymmetric, largely manufactured conflict.
Think of that meeting in Ufa, the capital of Russia’s Bashkortostan, as a preamble to the long-delayed agreement in Vienna. It caught the new dynamics of the Eurasian continent and signaled the future geopolitical Big Bangness of it all. At Ufa, from July 8th to 10th, the 7th BRICS summit and the 15th Shanghai Cooperation Organization summit overlapped just as a possible Vienna deal was devouring one deadline after another.
Consider it a diplomatic masterstroke of Vladmir Putin’s Russia to have merged those two summits with an informal meeting of the Eurasian Economic Union (EEU). Call it a soft power declaration of war against Washington’s imperial logic, one that would highlight the breadth and depth of an evolving Sino-Russian strategic partnership. Putting all those heads of state attending each of the meetings under one roof, Moscow offered a vision of an emerging, coordinated geopolitical structure anchored in Eurasian integration. Thus, the importance of Iran: no matter what happens post-Vienna, Iran will be a vital hub/node/crossroads in Eurasia for this new structure.
If you read the declaration that came out of the BRICS summit, one detail should strike you: the austerity-ridden European Union (EU) is barely mentioned. And that’s not an oversight. From the point of view of the leaders of key BRICS nations, they are offering a new approach to Eurasia, the very opposite of the language of sanctions.
Here are just a few examples of the dizzying activity that took place at Ufa, all of it ignored by the American mainstream media. In their meetings, President Putin, China's President Xi Jinping, and Indian Prime Minister Narendra Modi worked in a practical way to advance what is essentially a Chinese vision of a future Eurasia knit together by a series of interlocking “new Silk Roads.” Modi approved more Chinese investment in his country, while Xi and Modi together pledged to work to solve the joint border issues that have dogged their countries and, in at least one case, led to war.
The NDB, the BRICS’ response to the World Bank, was officially launched with $50 billion in start-up capital. Focused on funding major infrastructure projects in the BRICS nations, it is capable of accumulating as much as $400 billion in capital, according to its president, Kundapur Vaman Kamath. Later, it plans to focus on funding such ventures in other developing nations across the Global South -- all in their own currencies, which means bypassing the U.S. dollar. Given its membership, the NDB’s money will clearly be closely linked to the new Silk Roads. As Brazilian Development Bank President Luciano Coutinho stressed, in the near future it may also assist European non-EU member states like Serbia and Macedonia. Think of this as the NDB’s attempt to break a Brussels monopoly on Greater Europe. Kamath even advanced the possibility of someday aiding in the reconstruction of Syria.
You won’t be surprised to learn that both the new Asian Infrastructure Investment Bank and the NDB are headquartered in China and will work to complement each other’s efforts. At the same time, Russia’s foreign investment arm, the Direct Investment Fund (RDIF), signed a memorandum of understanding with funds from other BRICS countries and so launched an informal investment consortium in which China’s Silk Road Fund and India’s Infrastructure Development Finance Company will be key partners.
Full Spectrum Transportation Dominance
On the ground level, this should be thought of as part of the New Great Game in Eurasia. Its flip side is the Trans-Pacific Partnership in the Pacific and the Atlantic version of the same, the Transatlantic Trade and Investment Partnership, both of which Washington is trying to advance to maintain U.S. global economic dominance. The question these conflicting plans raise is how to integrate trade and commerce across that vast region. From the Chinese and Russian perspectives, Eurasia is to be integrated via a complex network of superhighways, high-speed rail lines, ports, airports, pipelines, and fiber optic cables. By land, sea, and air, the resulting New Silk Roads are meant to create an economic version of the Pentagon’s doctrine of “Full Spectrum Dominance” -- a vision that already has Chinese corporate executives crisscrossing Eurasia sealing infrastructure deals.
For Beijing -- back to a 7% growth rate in the second quarter of 2015 despite a recent near-panic on the country’s stock markets -- it makes perfect economic sense: as labor costs rise, production will be relocated from the country’s Eastern seaboard to its cheaper Western reaches, while the natural outlets for the production of just about everything will be those parallel and interlocking “belts” of the new Silk Roads.
Meanwhile, Russia is pushing to modernize and diversify its energy-exploitation-dependent economy. Among other things, its leaders hope that the mix of those developing Silk Roads and the tying together of the Eurasian Economic Union -- Russia, Armenia, Belarus, Kazakhstan, and Kyrgyzstan -- will translate into myriad transportation and construction projects for which the country’s industrial and engineering know-how will prove crucial.
As the EEU has begun establishing free trade zones with India, Iran, Vietnam, Egypt, and Latin America’s Mercosur bloc (Argentina, Brazil, Paraguay, Uruguay, and Venezuela), the initial stages of this integration process already reach beyond Eurasia. Meanwhile, the SCO, which began as little more than a security forum, is expanding and moving into the field of economic cooperation. Its countries, especially four Central Asian “stans” (Kazakhstan, Kyrgyzstan, Uzbekistan, and Tajikistan) will rely ever more on the Chinese-driven Asia Infrastructure Investment Bank (AIIB) and the NDB. At Ufa, India and Pakistan finalized an upgrading process in which they have moved from observers to members of the SCO. This makes it an alternative G8.
In the meantime, when it comes to embattled Afghanistan, the BRICS nations and the SCO have now called upon “the armed opposition to disarm, accept the Constitution of Afghanistan, and cut ties with Al-Qaeda, ISIS, and other terrorist organizations.” Translation: within the framework of Afghan national unity, the organization would accept the Taliban as part of a future government. Their hopes, with the integration of the region in mind, would be for a future stable Afghanistan able to absorb more Chinese, Russian, Indian, and Iranian investment, and the construction -- finally! -- of a long-planned, $10 billion, 1,420-kilometer-long Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline that would benefit those energy-hungry new SCO members, Pakistan and India. (They would each receive 42% of the gas, the remaining 16% going to Afghanistan.)
Central Asia is, at the moment, geographic ground zero for the convergence of the economic urges of China, Russia, and India. It was no happenstance that, on his way to Ufa, Prime Minister Modi stopped off in Central Asia. Like the Chinese leadership in Beijing, Moscow looks forward (as a recent document puts it) to the “interpenetration and integration of the EEU and the Silk Road Economic Belt” into a “Greater Eurasia” and a “steady, developing, safe common neighborhood” for both Russia and China.
And don’t forget Iran. In early 2016, once economic sanctions are fully lifted, it is expected to join the SCO, turning it into a G9. As its foreign minister, Javad Zarif, made clear recently to Russia's Channel 1 television, Tehran considers the two countries strategic partners. "Russia,” he said, “has been the most important participant in Iran's nuclear program and it will continue under the current agreement to be Iran's major nuclear partner." The same will, he added, be true when it comes to “oil and gas cooperation,” given the shared interest of those two energy-rich nations in “maintaining stability in global market prices."
Got Corridor, Will Travel
Across Eurasia, BRICS nations are moving on integration projects. A developing Bangladesh-China-India-Myanmar economic corridor is a typical example. It is now being reconfigured as a multilane highway between India and China. Meanwhile, Iran and Russia are developing a transportation corridor from the Persian Gulf and the Gulf of Oman to the Caspian Sea and the Volga River. Azerbaijan will be connected to the Caspian part of this corridor, while India is planning to use Iran’s southern ports to improve its access to Russia and Central Asia. Now, add in a maritime corridor that will stretch from the Indian city of Mumbai to the Iranian port of Bandar Abbas and then on to the southern Russian city of Astrakhan. And this just scratches the surface of the planning underway.
Years ago, Vladimir Putin suggested that there could be a “Greater Europe” stretching from Lisbon, Portugal, on the Atlantic to the Russian city of Vladivostok on the Pacific. The EU, under Washington’s thumb, ignored him. Then the Chinese started dreaming about and planning new Silk Roads that would, in reverse Marco Polo fashion, extend from Shanghai to Venice (and then on to Berlin).
Thanks to a set of cross-pollinating political institutions, investment funds, development banks, financial systems, and infrastructure projects that, to date, remain largely under Washington’s radar, a free-trade Eurasian heartland is being born. It will someday link China and Russia to Europe, Southwest Asia, and even Africa. It promises to be an astounding development. Keep your eyes, if you can, on the accumulating facts on the ground, even if they are rarely covered in the American media. They represent the New Great -- emphasis on that word -- Game in Eurasia.
Location, Location, Location
Tehran is now deeply invested in strengthening its connections to this new Eurasia and the man to watch on this score is Ali Akbar Velayati. He is the head of Iran's Center for Strategic Research and senior foreign policy adviser to Supreme Leader Ayatollah Khamenei. Velayati stresses that security in Asia, the Middle East, North Africa, Central Asia, and the Caucasus hinges on the further enhancement of a Beijing-Moscow-Tehran triple entente.
As he knows, geo-strategically Iran is all about location, location, location. That country offers the best access to open seas in the region apart from Russia and is the only obvious east-west/north-south crossroads for trade from the Central Asian “stans.” Little wonder then that Iran will soon be an SCO member, even as its “partnership” with Russia is certain to evolve. Its energy resources are already crucial to and considered a matter of national security for China and, in the thinking of that country’s leadership, Iran also fulfills a key role as a hub in those Silk Roads they are planning.
That growing web of literal roads, rail lines, and energy pipelines, as TomDispatch has previously reported, represents Beijing’s response to the Obama administration’s announced “pivot to Asia” and the U.S. Navy’s urge to meddle in the South China Sea. Beijing is choosing to project power via a vast set of infrastructure projects, especially high-speed rail lines that will reach from its eastern seaboard deep into Eurasia. In this fashion, the Chinese-built railway from Urumqi in Xinjiang Province to Almaty in Kazakhstan will undoubtedly someday be extended to Iran and traverse that country on its way to the Persian Gulf.
A New World for Pentagon Planners
At the St. Petersburg International Economic Forum last month, Vladimir Putin told PBS's Charlie Rose that Moscow and Beijing had always wanted a genuine partnership with the United States, but were spurned by Washington. Hats off, then, to the “leadership” of the Obama administration. Somehow, it has managed to bring together two former geopolitical rivals, while solidifying their pan-Eurasian grand strategy.
Even the recent deal with Iran in Vienna is unlikely -- especially given the war hawks in Congress -- to truly end Washington’s 36-year-long Great Wall of Mistrust with Iran. Instead, the odds are that Iran, freed from sanctions, will indeed be absorbed into the Sino-Russian project to integrate Eurasia, which leads us to the spectacle of Washington’s warriors, unable to act effectively, yet screaming like banshees.
NATO's supreme commander Dr. Strangelove, sorry, American General Philip Breedlove, insists that the West must create a rapid-reaction force -- online -- to counteract Russia's "false narratives.” Secretary of Defense Ashton Carter claims to be seriously considering unilaterally redeploying nuclear-capable missiles in Europe. The nominee to head the Joint Chiefs of Staff, Marine Commandant Joseph Dunford, recently directly labeled Russia America’s true “existential threat”; Air Force General Paul Selva, nominated to be the new vice chairman of the Joint Chiefs, seconded that assessment, using the same phrase and putting Russia, China and Iran, in that order, as more threatening than the Islamic State (ISIS). In the meantime, Republican presidential candidates and a bevy of congressional war hawks simply shout and fume when it comes to both the Iranian deal and the Russians.
In response to the Ukrainian situation and the “threat” of a resurgent Russia (behind which stands a resurgent China), a Washington-centric militarization of Europe is proceeding apace. NATO is now reportedly obsessed with what’s being called “strategy rethink” -- as in drawing up detailed futuristic war scenarios on European soil. As economist Michael Hudson has pointed out, even financial politics are becoming militarized and linked to NATO’s new Cold War 2.0.
In its latest National Military Strategy, the Pentagon suggests that the risk of an American war with another nation (as opposed to terror outfits), while low, is “growing” and identifies four nations as “threats”: North Korea, a case apart, and predictably the three nations that form the new Eurasian core: Russia, China, and Iran. They are depicted in the document as “revisionist states,” openly defying what the Pentagon identifies as “international security and stability”; that is, the distinctly un-level playing field created by globalized, exclusionary, turbo-charged casino capitalism and Washington's brand of militarism.
The Pentagon, of course, does not do diplomacy. Seemingly unaware of the Vienna negotiations, it continued to accuse Iran of pursuing nuclear weapons. And that “military option” against Iran is never off the table.
So consider it the Mother of All Blockbusters to watch how the Pentagon and the war hawks in Congress will react to the post-Vienna and -- though it was barely noticed in Washington -- the post-Ufa environment, especially under a new White House tenant in 2017.
It will be a spectacle. Count on it. Will the next version of Washington try to make it up to “lost” Russia or send in the troops? Will it contain China or the “caliphate” of ISIS? Will it work with Iran to fight ISIS or spurn it? Will it truly pivot to Asia for good and ditch the Middle East or vice-versa? Or might it try to contain Russia, China, and Iran simultaneously or find some way to play them against each other?
In the end, whatever Washington may do, it will certainly reflect a fear of the increasing strategic depth Russia and China are developing economically, a reality now becoming visible across Eurasia. At Ufa, Putin told Xi on the record: "Combining efforts, no doubt we [Russia and China] will overcome all the problems before us."
Read “efforts” as new Silk Roads, that Eurasian Economic Union, the growing BRICS block, the expanding Shanghai Cooperation Organization, those China-based banks, and all the rest of what adds up to the beginning of a new integration of significant parts of the Eurasian land mass. As for Washington, fly like an eagle? Try instead: scream like a banshee.
<<<
>>> How do you Stop the BRICS?… Try to “TPP-Toe” Around It…
11-12-14…”Obama’s Setback in Beijing”
Posted on 2014/11/12 by kauilapele
You know, I really haven’t paid much attention to the TPP (Trans-Pacific Partnership) (actually, TPPA; oh, well… just read the article to clarify the acronyms). But I enjoyed reading this Stuart Jeanne Bramhall VT article which indicates that the TPP (TPPA), which excluded ALL BRICS countries, in particular, CHINA (all-caps because it’s a really BIG player in the Pacific region). It appears to me that this was an effort (attempt) by the “cabal”, “corporate interests”, etc., to mess things up, and derail the new trade and monetary arrangements being made among the BRICS and other non-Western-aligned countries.
Looks like the bottom line message about all this is… “Tough noogies, Mr. Obama and USA CORPORATION interests… we’re playing our own game, not yours.”
The only thing I see missing in the Free Trade Area of the Asia-Pacific (FTAAP) treaty, is that this should include another nation: The Kingdom of Hawai’i.
“The US has required the twelve countries participating in TPPA negotiations to sign a secrecy clause. Only corporations (i.e. the 600 corporations that helped write it) are allowed to see the text of the treaty. Not even Congress is permitted access. If Wikileaks hadn’t leaked large sections of the draft agreement, we wouldn’t even know it existed.
“If finalized, the TPPA would also allow oil and gas companies to overturn fracking bans, Monsanto to overturn GMO labeling laws, investment banks to overturn banking regulations and the telecommunications industry to overturn Net Neutrality laws.
“The POTUS also had hopes of ramming through an agreement on the TPPA treaty in Beijing, at a side meeting in the US embassy. It appears he did try and failed, as Pepe Escobar describes in a recent RT article Lame Duck Out of the Silk Trade Caravan.
“In an interview with Chinese media, Obama denies he was trying to isolate China by pressuring Asian Pacific countries to sign a secret trade deal that excludes them. Yet it’s pretty obvious to all concerned that’s exactly what he’s trying to do.
“It’s also pretty clear that Chinese president Xi Jinping outmaneuvered him. In addition to getting all 21 APEC nations to sign onto an FTAAP feasibility study, China signed other trade deals geared towards reducing US dominance in the region”
————————————————————-
Obama’s Setback in Beijing
The Transpacific Partnership Agreement (TPPA) is a secret free trade treaty Obama is negotiating with eleven other Asian Pacific countries (US, New Zealand, Australia, Malaysia, Japan, Chile, Peru, Canada, Mexico, Vietnam, Singapore and Brunei). The President had hoped to seal the deal at the recent Asian Pacific Economic Cooperation (APEC) summit in Beijing. Instead all 21 Pacific Rim countries have agreed to develop a roadmap for a Free Trade Area of the Asia-Pacific (FTAAP) treaty. The FTAAP would include China and Russia, whereas the TPPA excludes them.
China Deliberately Excluded
The TPPA is viewed as a centerpiece of Obama’s “strategic rebalancing” towards Asia. Also known as the “Asian pivot,” Obama’s intention is to counter China’s growing economic strength by isolating them economically and militarily.
The US has required the twelve countries participating in TPPA negotiations to sign a secrecy clause. Only corporations (i.e. the 600 corporations that helped write it) are allowed to see the text of the treaty. Not even Congress is permitted access. If Wikileaks hadn’t leaked large sections of the draft agreement, we wouldn’t even know it existed.
Is TPPA Really a Trade Treaty?
Scheduled to coincide with the APEC summit, November 8 was an International Day of Action against the TPPA, with major protests in New Zealand, Australia, Malaysia and the US. From the sections which have been leaked, it seems the TPPA isn’t a trade treaty at all. It’s really an investor protection treaty, granting corporations the right to sue countries for laws that potentially hurt their ability to make a profit. These lawsuits, involving hundreds of millions of dollars, would be heard by secret tribunals run by corporate lawyers. There would be no right of appeal.
In other words, the intent of the TPPA is to allow corporations to overturn the environmental, labor and healthy and safety laws and regulations of member countries. There’s even a special “transparency” clause inserted by the pharmaceutical industry that would allow them to challenge formularies (in the US this would include Medicaid and the VA) that promote cheaper generic medications.
If finalized, the TPPA would also allow oil and gas companies to overturn fracking bans, Monsanto to overturn GMO labeling laws, investment banks to overturn banking regulations and the telecommunications industry to overturn Net Neutrality laws.
Why the Secrecy?
It’s pretty obvious why Obama is trying to negotiate the TPPA in secret. Prior investor protection treaties (e.g. the Free Trade of the Americas Agreement) have gone down in flames thanks to massive public lashback, both in the US and in treaty partner countries.
Congress isn’t too happy, either, about being denied access to the draft TPPA treaty. In November 2013 Congress voted down Obama’s request for “fast track” authority on the TPPA. Fast track, otherwise known as Trade Promotion Authority, would require Congress to accept the final TPPA deal or reject it. No debate would be allowed on specific provisions.
There are rumors Obama plans to reintroduce TPPA fast track authority before Christmas, hoping for a better outcome with a new, pro-business Republican congress.
The POTUS also had hopes of ramming through an agreement on the TPPA treaty in Beijing, at a side meeting in the US embassy. It appears he did try and failed, as Pepe Escobar describes in a recent RT article Lame Duck Out of the Silk Trade Caravan.
The Effect on Australia and New Zealand
A trade deal that excludes China, their major trading partner, makes absolutely no sense for Australia and New Zealand. Kiwi and Aussie environmental and labor activists are also deeply concerned about signing an international agreement that allows multinational corporations to sue their governments in a secret corporate tribunal. They’ve worked damned hard to win laws and regulations guaranteeing minimal environmental, labor and health safety standards. If the TPPA goes through, these could all be wiped out with the stroke of a pen.
China Aims to Suppress US Influence in Asia
In an interview with Chinese media, Obama denies he was trying to isolate China by pressuring Asian Pacific countries to sign a secret trade deal that excludes them. Yet it’s pretty obvious to all concerned that’s exactly what he’s trying to do.
It’s also pretty clear that Chinese president Xi Jinping outmaneuvered him. In addition to getting all 21 APEC nations to sign onto an FTAAP feasibility study, China signed other trade deals geared towards reducing US dominance in the region.
On Monday the Chinese and Malaysian central banks signed a deal to establish a yuan clearing bank (to facilitate energy and other trade deals in local currencies rather than US dollars).
Russia and China signed a similar deal to conduct oil trades in rubles and yuan, rather than US dollars. According to Russian president Vladimir Putin, the new agreement will significantly reduce US influence over world energy markets.
Back in October,
Back in October, China launched the Asian Infrastructure Investment Bank a rival to the US-dominated World Bank and Asian Development Bank.
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