it seems to me that this kind of development is more likely than a return to bretton woods.-jk


The Great Currency of China

Nov 19 17:27
by Izabella Kaminska


Steen Jakobsen, CIO of Denmark’s Saxobank poses some interesting Asia-related thoughts in his latest blog post as he travels through Asia.

Among them is the idea that the Chinese RMB can become a truly “hard” More…

Steen Jakobsen, CIO of Denmark’s Saxobank poses some interesting Asia-related thoughts in his latest blog post as he travels through the continent.

Among them is the idea that the Chinese RMB can become a truly “hard” international currency in its own right. Apparently this is now a serious thought doing the rounds in Asia and all the more interesting given Thursday’s admission by the Fed that the US is indeed in the midst of quantitative easing. Jim Rogers would indeed be pleased. Jakobsen says:

The concept being that the US ultimately will devalue themselves out of the trouble, this is what they have done in the past and this time it is no different - Europe meanwhile will put up more and more protectionist measures as highlighted by Mr. Dirigisme Sarkozy, who makes Karl Marx look like an amateur in the game of Socialisme. Asia accepts JPY will go stronger, but they prefer the RMB as storer of value through the next few years.

Jakobsen himself says he respects the concept but thinks it unlikely China will be able to go it alone. Instead, he also raises another idea - namely that China could link the currencies of peripheral Asian nations to the yuan.

China can use the present crisis to extend “guarantees” to Indonesia and other weak foreign reserves nations serving multiple purposes: access to their resources, building co-depence on China reserves, secure military export, and align China interest with that on the linking currency. Truely if done it will catapult China status and have geopolitical implications not presently priced in.

In support perhaps is Standard Chartered’s rather bleak outlook for peripheral Asian currencies ex-JPY under the current framework. The bank expects currency lows to go far beyond those set in 2001, based on ongoing foreign capital flight and the greater weakness of the US, Eurozone, UK and Japanese economies.

In our view, the implications for AXJ currencies remain clear. They will weaken further across the board, albeit for different reasons. Current account/trade deficit currencies such as the Korean won (KRW), Indian rupee (INR), Indonesian rupiah (IDR) and the Philippine peso (PHP) will weaken further as long as the credit crisis is ongoing and foreign investors continue to unwind long positions in local stock markets. Meanwhile, small open economy currencies such as the Malaysian ringgit (MYR), Singapore dollar (SGD), Thai baht (THB), Taiwan dollar (TWD) and even the Hong Kong dollar (HKD) will weaken further as growth will slow sharply and authorities are becoming more tolerant of modest currency weakness.

One last thought from Jakobsen: only Asia will come to Asia’s credit rescue. As it does it will become increasingly local in its investment outlook, a fact that will inevitably change the global investment picture. He explains:

…there is so much dislocation in short-term corporate bonds, that the upcoming refinancing will make for excellent plays which taken correctly could yield 15-35% p.a. There was NO APPETITE - and I mean zero, zilst, nada, ingenting, keine interest for Europe or the US - This is the first time I have seen Asia so ‘local’ in their investment outlook. Clearly a tell sign things are to change.

http://ftalphaville.ft.com/

and from steen's own blog:

Increasingly the focus of all Asians will be the north-south corridor of internal Asia rather than across corridors into the US & Europe - adjusting your investment outlook to this new world order is in my simple opinion the most important change one needs to make to understand - let alone make money in the next few years.

http://saxomacro.blogspot.com/