October 08, 2009

China and the World Economy From Now to 2018

UK Telegraph: You can date the end of dollar hegemony from China's decision last month to sell its first batch of sovereign bonds in Chinese yuan to foreigners

Beijing does not need to raise money abroad since it has $2 trillion (£1.26 trillion) in reserves. The sole purpose is to prepare the way for the emergence of the yuan as a full-fledged global currency.

"It's the tolling of the bell," said Michael Power from Investec Asset Management. "We are only beginning to grasp the enormity and historical significance of what has happened."

It is this shift in China and other parts of rising Asia and Latin America that threatens dollar domination, not the pricing of oil contracts. The markets were rattled yesterday by reports – since denied – that China, France, Japan, Russia, and Gulf states were plotting to replace the Greenback as the currency for commodity sales, but it makes little difference whether crude is sold in dollars, euros, or Venetian Ducats.

What matters is where OPEC oil producers and rising export powers choose to invest their surpluses. If they cease to rotate this wealth into US Treasuries, mortgage bonds, and other US assets, the dollar must weaken over time.

Clearly this is more than a dollar problem. It is a mismatch between the old guard – US, Europe, Japan – and the new powers that require stronger currencies to reflect their dynamism and growing wealth. The longer this goes on, the more havoc it will cause to the global economy.

The new order may look like the 1920s, with four or five global currencies as regional anchors – the yuan, rupee, euro, real – and the dollar first among equals but not hegemon. The US will be better for it.


From the UK Independent: China's Push for Power is Irresistible

World's market [movements] show they simply do not believe the denials of the story [that there is move to phase out the dollar for pricing oil contracts by 2018] that have been issued by several countries. Saying so may not suit those countries which have strong political relationships with the US to worry about, but it would be remarkable if talks about repricing oil had not taken place. Indeed, China, the prime mover in these talks, has already openly floated the idea of ending the dollar's reserve currency status, and has never made a secret of its views on the matter.








The NY Times on the testing of the waters 6 billion ($879 million) yuan bond sale.

There is a shift in the IMF rules that will a still being negotiated increase in power to the rising economies of Brazil, Russia, India and China.

Business Week: has Portfolio Investments for a Weakening Dollar

Multicurrency bank deposits, U.S. multinational equities, and Asian bonds are a few ways to play what some regard as a necessary dollar correction


Nouriel Roubini has a survey of the economies of Asia through the end of 2010.

My analysts and I forecast Asia will grow a mere 2.6% in 2009 and 5.4% in 2010. Asia ex-Japan (AXJ) will grow 4.9% in 2009 and 6.6% in 2010. As the impact of policy measures fade in 2010, the pace of Asia's recovery will hinge on the recovery of global export demand and continued risk appetite. I project that Japan will contract sharply in 2009 and grow below 1.0% in 2010. Fiscal stimulus will push China's growth to over 8.0% during 2009 and 2010. India will grow less than 6.0% in 2009 and below potential in 2010. The Asian Tigers (Singapore, Taiwan and Hong Kong), Thailand, Malaysia and New Zealand will contract in 2009 while the contraction in South Korea will be mild and Australia will barely grow. The Philippines, Indonesia, Vietnam, Pakistan and Sri Lanka will slow sharply in 2009.


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