China calls for new global currency By Joe Mcdonald, AP Business Writer
China is calling for a global currency to replace the dominant dollar, showing a growing assertiveness on revamping the world economy ahead of next week’s London summit on the financial crisis.
The surprise proposal by Beijing’s central bank governor reflects unease about its vast holdings of U.S. government bonds and adds to Chinese pressure to overhaul a global financial system dominated by the dollar and Western governments. Both the United States and the European Union brushed off the idea.
The world economic crisis shows the "inherent vulnerabilities and systemic risks in the existing international monetary system," Gov. Zhou Xiaochuan said in an essay released Monday by the bank. He recommended creating a currency made up of a basket of global currencies and controlled by the International Monetary Fund and said it would help "to achieve the objective of safeguarding global economic and financial stability."
Zhou did not mention the dollar by name. But in an unusual step, the essay was published in both Chinese and English, making clear it was meant for a foreign audience.
China has long been uneasy about relying on the dollar for the bulk of its trade and to store foreign reserves. Premier Wen Jiabao publicly appealed to Washington this month to avoid any response to the crisis that might weaken the dollar and the value of Beijing’s estimated $1 trillion in Treasuries and other U.S. government debt.
China, EU sign $57bn currency swap agreement . October 10, 2013, 9:18 am
China’s central bank, the People’s Bank of China (PBC) on Thursday signed a three-year currency swap agreement worth 350 billion yuan ($57 billion) with the European Central Bank (ECB).
“The swap arrangement has been established in the context of rapidly growing bilateral trade and investment between the euro area and China, as well as the need to ensure the stability of financial markets,” said a statement from the ECB.
The currency agreement will be available to all eurozone countries through their national central banks.
It will be valid for three years and will allow the ECB to access up to 350 billion yuan and the PBC to access up to 45 billion euros.
The ECB said from the eurosystem’s perspective it will serve as a backstop liquidity facility.
Trade between Europe and China has doubled since 2003 and is worth more than $1.3 billion a day.
It appears as if that old adage that a rumor can't be confirmed as being true until its been officially denied several times applies to the London gold bar market, as it was reported last night by a London Metals Exchange reporter that premiums on "good delivery" bars are now above the spot price of gold, something which is rarely observed in London: Gold Bar Shortage In London
Asian and Middle Eastern Central Banks and investors are hoarding an enormous amount of the 400 ounce LBMA "good delivery" bars that make London the largest physical gold trading market in the world. As the price of gold was aggressively manipulated lower by the Federal Reserve and its agent bullion banks since mid-2011, eastern hemisphere sovereign, Central Bank and investment buying - especially the Chinese - intensified.
With negative "gold forward" rates having been negative for a predominant part of the last half of 2013, I was wondering when a shortage of London bars would be reported. A negative "gold forward" rate means that the entity (bullion bank) who is borrowing or leasing the bars today in order to deliver them into buyers will pay more today for the ability to take delivery of bars now than it would cost to buy them for delivery in the London "forward" market - i.e. anywhere from a month to a year from now.
A rare premium for deliverable bars means a shortage of bars for immediate delivery - directly to buyers not using an intermediary like a bullion bank - has developed (as opposed to the GOFO rate, which applies to the brokerage firm intermediaries making markets in bars and who lease gold needed for delivery from Central Banks to deliver into the buyers who are buying from them).
We know that gold being drained from Comex warehouses and the GLD Trust ETF is being used to make good on deliveries into Asia's voracious appetite for deliverable gold. Unless the Federal Reserve (Bank of England and ECB) can tap into new sources of above-ground gold stocks, we could well begin to see delivery defaults.
Over and above the reports of gold shortages from traders and market professionals, there have been other signs of a developing gold bar shortage for several months. Recall the stunt Goldman Sachs pulled about two months ago when it reported in the press that it had reached an agreement with Venezuela to lease Venezuela's physical gold - the gold Venezuela had repatriated in order to safekeep it under its own watch just two years ago. That news item dropped by Goldman turned out to false. Same for the report that Cyprus was going to sell its gold reserves to help pay for its bail-in. That report proved to be false as well.
I always believed that these reports reflected nothing more than desperation by the big bullion banks like Goldman and JP Morgan - as agents for Fed - to get their hands on gold that could be delivered to Asian buyers who demand delivery. Same for the fact it the U.S. refused to give Germany back its gold being held by the Fed as requested and instead agreed to a suspicious deal to ship back part of Germany's gold over seven years.
While I'm sure plenty of skeptics from Australia to New York to will issue well-crafted rebuttals to the view that there is now a shortage of physical gold in London and New York, the report last night that big buyers are paying a premium to get their hands on immediately on physical gold confirms the obvious. Money speaks a lot louder than words in the world of finance - follow the money...
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