View Full Version : China buying dollars
It is often claimed that the Chinese government deliberately buys dollars.
How do they buy dollars, what do the sellers get in return, Yuans perhaps? So then, who is buying all those Yuans?
Seems to me that if China stops buying, the dollar will drop even further.
It is often claimed that the Chinese government is deliberately buys dollars.
How do they buy dollars, what do the sellers get in return, Yuans perhaps?
Are we sure many people do not make a basic mistake, China is not buying dollars, instead we are buying Chinese goods with dollars?
Do I miss something?
From EJ:
China's current account surplus is balanced by its capital account deficit whereas the USA's current account deficit is balanced by its capital account surplus. In both cases, the accounts must balance.
When China purchases a dollar denominated financial asset, such as a US Treasury Bond, it must sell yuan and buy dollars from the global FX markets to do so. Conversely, when China sells a Treasury Bond must sell dollars and buy yuan.
That is usually what is meant by China "buying" dollars.
As an aside, part of the "exorbitant privilege (http://econ161.berkeley.edu/movable_type/2003_archives/001993.html)" enjoyed by the USA is that transactions do not need to be with the US in order to create demand for dollars. Every time a country buys a commodity such as oil which is commonly priced in dollars by most oil producing countries, the trading countries need to conduct the transaction using dollar accounts. For example, when Japan buys oil from Saudi Arabia, it must do so out of a dollar account. A rising volume of such transactions produces a net increase in the global demand for dollars, a falling volume a corresponding decrease. Iran's decision to switch to euros for oil transactions presents a problem for the dollar because this results in a decline in the demand for dollars. As the dollar declines in value, an oil producer's decision to stay with the dollar for transactions becomes more expensive. Iran claims to have saved $10 billion in depreciation costs over the past year by conducting business in euros. As the dollar depreciates, each oil producers' decision to stay with the dollar in the absence of action by the US to limit the dollar's decline becomes more and more politically untenable. It is balanced off by the benefits to using the dollar, namely, military protection and political insurance.
Prince Saud Al-Faisal was reportedly overheard in a private meeting at the oil cartel's conference yesterday ruling out a proposal from US political adversaries Iran and Venezuela to discuss pricing crude. He is said to have stated that the dollar might collapse if Opec officially admits to even considering a policy change to price oil into alternative currencies such as the euro.
It's hardly news that Iran and Venezuela are gunning for the US dollar and that the Saudi family is not eager to follow suit. The only way I can foresee other OPEC members following suit is if a major global recession unfolds that kills oil demand, hammers Middle Eastern economies, and tips the political balance there toward more radical anti-US leadership.
When China purchases a dollar denominated financial asset, such as a US Treasury Bond, it must sell yuan and buy dollars from the global FX markets to do so. Conversely, when China sells a Treasury Bond must sell dollars and buy yuan.
That is usually what is meant by China "buying" dollars.
So if China is buying billions of dollars then who is buying billions of yuans?
What is the best way to buy yuan for my dollars? It would be useful if we had access to a yuan ETF, anybody knows if anything is in the making?
Another mortal blow to the US Dollar...
[A few years back, in the aftermath of 9/11, the hotels in Egypt, Syria and a few of the other rather shaky countries out this way, required by law that foreign guests pay their bills in US Dollars only. Have not been to Syria lately, but its not a requirement in Egypt any more.]
From the FT:
Indian tourist sites refuse entry to dollar
By Jo Johnson in New Delhi
Published: November 16 2007 18:51 | Last updated: November 16 2007 18:51
Supermodels are not the only ones worrying about the value of their dollar contracts. After years of urging foreign tourists to pay in dollars whenever possible, the Taj Mahal and other Indian heritage sites will now insist on a proper hard currency – the rupee.
The country’s culture ministry took the step after confronting a sharp fall in the rupee value of its dollar ticket sales.
“Keeping in view international practices and also to avoid any anomaly on account of falling exchange rates of the US dollar vis-à-vis rupee and consequent fall in revenues, the government has decided to denominate the entry fee for the foreigners for all the monuments in Indian rupees only,” the ministry said.
This month, the dollar’s fall became a subject of tabloid notoriety when it was reported that supermodel Gisele Bündchen had refused to be paid in dollars. Her agent has since denied she had any currency requirements.
Forced now to pay in rupees, US tourists will see a Friday, non-Indians were required to pay $5 per person – converted to Rs250 if they lacked dollar bills – to enter World Heritage sites.
The ministry of culture said on Friday the $5 entry fee had been set at a time when the dollar was worth about Rs50, compared to its current value of just over Rs39. The tariff of Rs250 that foreigners will now pay for entry to sites such as the Taj Mahal and Humayun’s Tomb is equivalent to $6.41.
“If you convert $5 today you only get Rs200, so we were losing Rs50 a head,” said a culture ministry spokesperson.
Copyright (http://www.ft.com/servicestools/help/copyright) The Financial Times Limited 2007
So if China is buying billions of dollars then who is buying billions of yuans?
What is the best way to buy yuan for my dollars? It would be useful if we had access to a yuan ETF, anybody knows if anything is in the making?
tulpen, chinese exporters earn dollars. they sell these dollars to the pboc in exchange for newly printed yuan. the only access for small investors to yuan of which i am aware is via everbank.
tulpen, chinese exporters earn dollars. they sell these dollars to the pboc in exchange for newly printed yuan. the only access for small investors to yuan of which i am aware is via everbank.
Hold on, now we are talking about two different things right or not?
So let see we have exporters getting US dollars and exchange them for yuans at the bank of China. That makes total sense!
But what about those "billions of dollars" that the central bank buys? Who are they billions of yuan to? Or is that the same money we are talking about, they just buy it because exporters make the money?
If that is the case then this "China is buying billions of dollars" is plain and simple propaganda.
Hold on, now we are talking about two different things right or not?
So let see we have exporters getting US dollars and exchange them for yuans at the bank of China. That makes total sense!
But what about those "billions of dollars" that the central bank buys? Who are they billions of yuan to? Or is that the same money we are talking about, they just buy it because exporters make the money?
If that is the case then this "China is buying billions of dollars" is plain and simple propaganda.
the pboc buys the dollars from the exporters, then turns around and, historically, has used those dollars to buy u.s. debt. if, instead, they want to trade those dollars for euros, pounds or other currencies, or buy commodities, companies, capital goods, that will put further pressure on the dollar.
the pboc buys the dollars from the exporters, then turns around and, historically, has used those dollars to buy u.s. debt. if, instead, they want to trade those dollars for euros, pounds or other currencies, or buy commodities, companies, capital goods, that will put further pressure on the dollar.
Ok so they buy our debt, we can hardly blame the Chinese for buying our debt now can we? What else are they going to do with those dollars, keep them in cash? At least by borrowing them they get some return.
So if this is the whole story then it seems this whole "China buying billions of dollars" is nothing but propaganda and if China stops we have even more problems.
So then what is the story with congress wanting to tax Chinese goods? Looks to me they are smashing their own windows.
From EJ:
Prince Saud Al-Faisal was reportedly overheard in a private meeting at the oil cartel's conference yesterday ruling out a proposal from US political adversaries Iran and Venezuela to discuss pricing crude. He is said to have stated that the dollar might collapse if Opec officially admits to even considering a policy change to price oil into alternative currencies such as the euro.
It's hardly news that Iran and Venezuela are gunning for the US dollar and that the Saudi family is not eager to follow suit. The only way I can foresee other OPEC members following suit is if a major global recession unfolds that kills oil demand, hammers Middle Eastern economies, and tips the political balance there toward more radical anti-US leadership.
A lot of revaluation pressure building.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aV7efXoLELDo&refer=home
Gulf States Consider Revaluing Currencies, Person Familiar Says
By Matthew Brown and Anchalee Worrachate
Nov. 18 (Bloomberg) -- Gulf states, including Saudi Arabia and the United Arab Emirates, may revalue their currencies while maintaining their pegs to the U.S. dollar, a person familiar with Saudi monetary policy said.
The states may revalue by an unspecified amount in as soon as a month's time, the person, who declined to be identified because the matter is confidential, said yesterday. No decision has been made on whether to revalue, he said. The comments came as heads of state of the Organization of Petroleum Exporting Countries began a summit meeting in Riyadh.
Gulf states are facing record inflation, caused partly by the weakening dollar which has made imports from Europe more expensive. Consumer prices rose a record 4.9 percent in Saudi Arabia in August while inflation in the U.A.E. increased to a record 9.3 percent last year. Qatar has the highest inflation in the region, reaching 14.8 percent in the first quarter.
``It makes sense for them to do it,'' said Jens Nordvig, senior global markets economist at Goldman Sachs Group Inc. in New York, in a phone interview. ``Given the emerging inflation pressures, there are very good reasons for them to allow currency appreciation.''
The decline in the value of the dollar is a ``concern'' to OPEC members, Qatar's Energy Minister Abdullah Al-Attiyah said after a meeting of OPEC oil, finance and energy ministers in Riyadh Nov. 16.
Currency Basket
Saudi Arabia, Qatar, Bahrain and Oman have repeatedly said they have no plans to change exchange rate policies. U.A.E. Central Bank Governor Sultan Bin Nasser al-Suwaidi said on Nov. 15 the U.A.E. may drop the dirham's peg in favour of a basket of currencies. Gulf currencies are under pressure as investors bet governments cannot manage inflation and keep their pegs.
Heads of state from the six Gulf Cooperation Council states will hold their annual meeting in Qatar on Dec. 3-4 where they will discuss monetary policy and security. The person did not specify if a decision would be made at the meeting. Evidence has been gathered and will be presented to policy makers, he said, without giving details.
The leaders will, though, take a decision on whether to abandon a proposed Gulf single currency at the meeting, Hamad Saud al-Sayari, governor of the Saudi Arabian Monetary Agency, said after a meeting of finance ministers and central bank governors in Riyadh on Oct. 27.
``It's unlikely they are going to move to a flexible system,'' Nordvig said. ``If they're going to make an adjustment, they should make one that matters. Something in the 5 to 10 percent range seems like a range that would have some impact without being overly dramatic.''
Record Low
The dollar slid to a record low of $1.4752 against the euro on Nov. 9, taking it down 10 percent since the start of this year, and has fallen versus 15 of the 16 most actively traded currencies tracked by Bloomberg in the past 10 1/2 months.
The Saudi riyal rose to a 20-year high after the Fed cut rates on Sept. 18 and the Saudi Arabian Monetary Agency chose not to follow. The riyal and the dirham rose this week after al- Suwaidi questioned the U.A.E.'s currency peg.
The riyal was trading at 3.725 to the dollar at 10.09 p.m. in Riyadh, 0.7 percent higher than the peg price of 3.75. Contracts to buy U.A.E. dirhams in 12 months time rose the most in at least 10 years on Nov. 15 after al-Suwaidi's comments, and were trading at a 2.5 percent premium to the spot price yesterday.
Venezuelan Support
Venezuela backed an Iranian proposal to add the group's concern over the falling dollar to a summit declaration to be made today. Saudi Arabian Foreign Minister Prince Saud Al-Faisal said that no mention of the dollar should be made in the declaration because he didn't want the U.S. currency to ``collapse.''
Nigerian Finance Minister Shamsudeen Usman said on Nov. 16 his country's law has been changed to allow it to diversify its foreign reserves out of dollars. Angola may shift its international reserves away from the dollar, Finance Minister Jose Pedro de Morais said.
OPEC's $6 billion development fund is hedging its exposure to the weakening dollar, Director-General Suleiman Jasir al- Herbish told reporters in Riyadh yesterday. ``The issue of the dollar in our investments, we are tackling it. We are hedging; we have other instruments.''
Saudi Arabia's King Abdullah said OPEC shouldn't make oil a source of conflict, contradicting Venezuelan President Hugo Chavez who wants the oil exporter group to become an active ``political agent.''
``Oil is an energy for building and prosperity, it shouldn't become a means of conflict,'' King Abdullah said at the start of the group's summit in Riyadh yesterday. ``Those who want OPEC to become an organization of monopoly and exploitation ignore the truth.''
Geopolitical Force
OPEC, provider of more than 40 percent of the world's oil, is holding its third heads of state summit since it was founded in 1960. Saudi Arabia's foreign minister clashed yesterday with a push by Iran and Venezuela to debate pricing oil in currencies other than the U.S. dollar.
``OPEC was born as a geopolitical force and not only as a technical or economic one in the '60s,'' Chavez said, speaking before King Abdullah. ``We should continue to strengthen OPEC, but beyond that, OPEC should set itself up as an active political agent.''
The contrasting view on OPEC's role in the world comes a day after a disagreement between Venezuela's Oil Minister Rafael Ramirez and Al-Faisal on whether to move away from the dollar was accidentally aired on live television.
Chavez said in his speech yesterday that he's confident OPEC will do what it can to keep oil prices at a ``fair'' level, adding that if Iran was invaded, prices could easily rise to $200 a barrel.
Market Stability
Crude oil for December delivery rose $1.67 to $95.10 a barrel Nov. 16 on the New York Mercantile Exchange.
The last OPEC heads of state summit was in 2000 in Venezuela and was hosted by Chavez, who was sworn in as president a year earlier. Iran and Venezuela both have tense political relations with the U.S.
Ibrahim Ibrahim, an executive at Qatar Petroleum, said that while Venezuela has helped OPEC become a stronger organization over the years, ``there is no need for OPEC to be a political force now. It just has to ensure that the oil market is stable.''
metalman
11-17-07, 10:36 PM
Ok so they buy our debt, we can hardly blame the Chinese for buying our debt now can we? What else are they going to do with those dollars, keep them in cash? At least by borrowing them they get some return.
So if this is the whole story then it seems this whole "China buying billions of dollars" is nothing but propaganda and if China stops we have even more problems.
So then what is the story with congress wanting to tax Chinese goods? Looks to me they are smashing their own windows.
a debtor hitting their creditor with punitive tariffs is something only us congress could dream up... again.
this site (http://www.falloutshelter653.org/modules.php?name=Forums&file=viewtopic&p=1136) with a fun name has a good discussion of the topic.
this site (http://www.falloutshelter653.org/modules.php?name=Forums&file=viewtopic&p=1136) with a fun name has a good discussion of the topic.
This article was written in 2003 - since then, we have fought deflation by
Declaring war on Iraq - this ratcheted up the printing presses
Giving pork barrel contracts in that war to political favorites at 10 times what you would otherwise pay
.
.
.the list goes on
metalman
11-18-07, 07:52 AM
This article was written in 2003 - since then, we have fought deflation by
Declaring war on Iraq - this ratcheted up the printing presses
Giving pork barrel contracts in that war to political favorites at 10 times what you would otherwise pay.
.
.the list goes on
maybe itulip can analyze this. which is the party of mil/FIRE/tobacco/pharma/oil?
http://www.opensecrets.org/orgs/list.asp?Order=A&View=I
maybe itulip can analyze this. which is the party of mil/FIRE/tobacco/pharma/oil?
http://www.opensecrets.org/orgs/list.asp?Order=A&View=I
Open Secrets does not show "Defence Contractors" and their contributions. But the others are below!
Oil and Gas
http://farm3.static.flickr.com/2112/2043816780_a985fb7246.jpg (http://www.opensecrets.org/industries/indus.asp?Ind=E01)
Pharmaceutical
http://farm3.static.flickr.com/2237/2043816784_d8af2afc94.jpg (http://www.opensecrets.org/industries/indus.asp?Ind=H04)
Tobacco
http://farm3.static.flickr.com/2228/2043816792_5f2d8c1375.jpg (http://www.opensecrets.org/industries/indus.asp?Ind=A02)
Insurance
http://farm3.static.flickr.com/2027/2043816776_d8b286cf22.jpg (http://www.opensecrets.org/industries/indus.asp?Ind=F09)
Commercial Banks
http://farm3.static.flickr.com/2315/2043816772_da9a6252f3.jpg (http://www.opensecrets.org/industries/indus.asp?Ind=F03)
We are developing an analysis of political contributions into an meta-segment we call OPTMFIRE composed of Oil, Pharma, Tobacco, Military, and FIRE (Finance, Insurance, and Real Estate).
Using OpenSecrets.org data, we came up with the following.
The top 101 major political contributions totaled $1.45 billion between 1989 and 2006. Of the top 50 OPTMFIRE contributors that donated toward one party (i.e., > 55%), $141 was donated toward Democrats and $368 toward Republicans.
[CENTER]http://www.itulip.com/images/OPTMFIREpolitics.gif
No surprise that union organizations favored donations to the democratic party.
http://www.itulip.com/images/LaborersUnion.gif
The National Association of Realtors is an equal opportunity political donor.
http://www.itulip.com/images/natassocrealtors.gif
Readers may be surprised to see that Hedge Funds favor the Democratic party.
http://www.itulip.com/images/hedgefunds.gif
a debtor hitting their creditor with punitive tariffs is something only us congress could dream up... again.
there's a saying that when you owe the bank a million dollars, you've got a problem. but when you owe the bank 100 million dollars, the bank has got a problem. and when you owe the bank a Trillion dollars?
Lukester
11-18-07, 12:03 PM
JK -
When you owe the bank a trillion, you ow(n) the bank?
when you owe the bank 100 million dollars, the bank has got a problem. and when you owe the bank a Trillion dollars?
Readers may be surprised to see that Hedge Funds favor the Democratic party.
[CENTER]http://www.itulip.com/images/hedgefunds.gif
Not really. Hedge Fund Managers are the FIRE economy equivalent of Hollywood actors and actresses...growing in sheer numbers, able to command extraordinary compensation, and all the while diminishing the mean talent level in the profession. Why wouldn't they vote the same way?
metalman
11-18-07, 12:28 PM
there's a saying that when you owe the bank a million dollars, you've got a problem. but when you owe the bank 100 million dollars, the bank has got a problem. and when you owe the bank a Trillion dollars?
that's the numero uno argument of folks like bill bonner. only one flaw: the governments of asia, europe, and oil producers are not collectively "a bank." they are a bunch of governments. sometimes they get along, other times not but when push comes to shove each will always act in self interest. and unlike a bank they can print their own money so can never become insolvent... go belly up, and can't borrow more. if they could, then the usa was there a long time ago.
It's hardly news that Iran and Venezuela are gunning for the US dollar and that the Saudi family is not eager to follow suit. The only way I can foresee other OPEC members following suit is if a major global recession unfolds that kills oil demand, hammers Middle Eastern economies, and tips the political balance there toward more radical anti-US leadership.
This is something that I know a bit about. The House of Saud has made it's incestuous bed with the good old USA. If OPEC severely hurts US interests, and the US pulls support for The House of Saud, there will be revolution in Saudi Arabia, and the Saud family will be burned and torched and likely killed 9 ways till Sunday. They have no choice but to support the dollar; it's their own version of Mutually Assured Destruction. This means the US has a very very powerful ally within the OPEC cartel.
DD,
I haven't studied in detail, but how does OPEC's behavior in the oil crisis of the mid-70's compare with your assertion that Saudi Arabia is inextricably linked with the US?
It seems that the US is useful primarily to keep other major military powers at bay - not so much useful for internal dissent suppression outside of providing targets for mujs to shoot at in Iraq.
With China now available as a counterbalance to Russia, the necessity of having the US as 'big brother' playground backup may be significantly less.
clue, it's not the US playing big brother so much as it is a specific alliance between the house of saud and US Big Oil. Who was the first OPEC country to increase oil production after the top of oil prices? That would be saudi arabia. And as much as there may have been short-term pain, I wouldn't put it past executives of Big Oil to know that an oil shock would help their profits in the long-term. And the biggest threat to the House of Saud is certainly NOT Russia - it's their own populace. There is a reason 19 of the 20 bombers on 9/11 were Saudis :P. They couldn't have a revolution or a coup in Saudi Arabia so they attacked their allies - the US.
The US provides materiel and support in Saudi Arabia much like they have done in the philippines and indionesia (and many central american countries), to suppress the local populaces there, not to protect them from outside enemies. Heck if we wanted to protect an oil-producing country from Russia we would have given much more help to Afghanistan in the 80's.
I have a buddy who worked there for a few years, he told me the absolute insanity of it all. I've talked to other people from there and read up enough to feel confident in my assessment. The only thing is I've never been there but... I mean I've never worked in banking but I've read enough to know that there is a lot of disgusting piggish stuff going on in banking all over the world, and I've never been to China but I know they treat their citizens really crappy.
So yeah, I don't see the oil shock as more of a momentary blip that likely helped more than hurt US interests in the long term and it was the saudis that broke off first, showing again their support and alliance with big US corporations.
renyxzar
02-29-08, 02:18 PM
IMO, what China is doing is a deliberate strategic dumping of dollars for maximum negative economic effect.
babbittd
02-29-08, 03:16 PM
We are developing an analysis of political contributions into an meta-segment we call OPTMFIRE composed of Oil, Pharma, Tobacco, Military, and FIRE (Finance, Insurance, and Real Estate).
Using OpenSecrets.org data, we came up with the following.
The top 101 major political contributions totaled $1.45 billion between 1989 and 2006. Of the top 50 OPTMFIRE contributors that donated toward one party (i.e., > 55%), $141 was donated toward Democrats and $368 toward Republicans.
http://www.itulip.com/images/OPTMFIREpolitics.gif
No surprise that union organizations favored donations to the democratic party.
http://www.itulip.com/images/LaborersUnion.gif
And how do the Democrats make up the remaining difference?
In the 2004 election cycle alone (http://www.opensecrets.org/527s/527indivs.asp?cycle=2004), George Soros, Peter Lewis, Steve Bing and Herb Sandler contributed $73 million to Democratic PACs and 527 committees.
Jim Nickerson
02-29-08, 04:26 PM
And how do the Democrats make up the remaining difference?
In the 2004 election cycle alone (http://www.opensecrets.org/527s/527indivs.asp?cycle=2004), George Soros, Peter Lewis, Steve Bing and Herb Sandler contributed $73 million to Democratic PACs and 527 committees.
If money didn't influence outcomes of elections, why did these guys pour it in? Unfortunately for their desires, the Reds must've gotten more from somewhere. What most influences outcomes of the Presidential election: money, religion, independant analysis by the electorate?
Small donors are playing an enormous role on the Dem side this time around. The numbers are truly staggering. It will be interesting to see how this plays out after the conventions.
Jim Nickerson
02-29-08, 04:49 PM
Small donors are playing an enormous role on the Dem side this time around. The numbers are truly staggering. It will be interesting to see how this plays out after the conventions.
Let's see: small money vs. big money, how will that play out? I bet on the on the analytical skills of the electorate and soon to be available ocean front lots in AZ (not impossible if CA disappears into ocean).
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