Ignore the hype about the death of the dollar and currency whales. The PetroYuan is a US success story.
Bloomberg reports As Trade War Heats Up, Biggest Currency Whales Make Their Move.
“A lot of countries around the world are turning to Europe for increased partnership in trade,’’ said Jens Nordvig, who was Wall Street’s top-ranked currency strategist for five years running before setting up Exante Data a little over a year ago. “It’s not crazy to think that’s also going to be happening in the area of capital markets and reserve allocations. The bottom line is, this trade stance the U.S. has now is not helpful in terms of making the dollar attractive” for central banks that hold billions in reserves.
Nordvig estimates a half-trillion dollars could flow into the euro in the next two years, equal to a 25 percent boost in the currency’s share of reserves.
Developing countries and oil-exporting nations in the Middle East, which rely heavily on international trade, are the most likely to lift their euro allocations, he said. Six emerging economies -- China, Saudi Arabia, Taiwan, India, South Korea and Brazil -- hold almost half the world’s reserves, data compiled by Bloomberg show. China alone has amassed over $3 trillion in foreign exchange -- primarily as a result of its cheap exports to the U.S.
Trade Whale "Buying Opportunity" Silliness
It does not matter whether countries like the dollar or like euros. Reserves are a mostly a function of trade math.
As the US deficit increases, and it will, foreign countries will accumulate more US assets.
It's a mathematical necessity that has nothing to do with likability.
From time to time, countries like China may sell treasuries or other US dollar denominated assets to stop capital flight.
Death of the Dollar?
Death of US dollar? China launches petro-yuan to challenge greenback’s dominance says RT.
PetroYuan futures started trading today. I am amused by the hype.
Energy Independence
The PetroYuan is not about the likability of dollars, nor does it represent a desire by China to dethrone the dollar.
Recall that the US is on the verge of energy independence. As a result, the US will buy less oil from the Mideast .
China runs a huge trade surplus with the US, but also a big deficit with the Mideast energy producers. Those producers will now accumulate Yuan.
PetroYuan Represents US Success
Three weeks ago, I reported US will Overtake Russia to Become Top Oil Producer by 2023.
As a direct result, the Saudi trade surplus with the US will crash. Those oil exporters are finally ready to hold yuan.
The huge irony in all the petroyuan hype is that it is a direct result of forthcoming US energy independence. That's a US achievement, far bigger than the symbolic gain by China.
No Dollar Dethrone: Three Reasons
The idea that the yuan will soon replace the dollar as the world's reserve currency is ridiculous for currency reasons, political reasons, and economic reasons.
For further discussion, please see Gold-Backed Petro-Yuan Silliness: Reserve Currency Curse?
This material is based upon information that Sitka Pacific Capital Management considers reliable and endeavors to keep current, Sitka Pacific Capital Management does not assure that this material is accurate, current or complete, and it should not be relied upon as such.
Recommended Content
Editors’ Picks
AUD/USD corrects toward 0.6850, awaits US PCE Price Index
AUD/USD is falling back toward 0.6850 in Friday's Asian trading, reversing from near 19-month peak. A tepid US Dollar bounce drags the pair lower but the downside appears called by the latest Chinese stimulus measures, which boost risk sentiment ahead of US PCE data.
USD/JPY pares gains toward 145.00 after Tokyo CPI inflation data
USD/JPY is paring back gains to head toward 145.00 in the Asian session on Friday, as Tokyo CPI inflation data keep hopes of BoJ rate hikes alive. However, intensifying risk flows on China's policy optimism support the pair's renewed upside. The focus shifts to the US PCE inflation data.
Gold price consolidates below record high as traders await US PCE Price Index
Gold price climbed to a fresh all-time peak on Thursday amid dovish Fed expectations. The USD languished near the YTD low and shrugged off Thursday’s upbeat US data. The upbeat market mood caps the XAU/USD ahead of the key US PCE Price Index.
Avalanche rallies following launch of incentive program for developers
Avalanche announced the launch of Retro9000 on Thursday as part of its larger Avalanche9000 upgrade. Retro9000 is a program designed to support developers with up to $40 million in grants for building on the Avalanche testnet.
RBA widely expected to keep key interest rate unchanged amid persisting price pressures
The Reserve Bank of Australia is likely to continue bucking the trend adopted by major central banks of the dovish policy pivot, opting to maintain the policy for the seventh consecutive meeting on Tuesday.
Five best Forex brokers in 2024
VERIFIED Choosing the best Forex broker in 2024 requires careful consideration of certain essential factors. With the wide array of options available, it is crucial to find a broker that aligns with your trading style, experience level, and financial goals.