dollar blues (for IP if you wish)

[David Farber <dave () farber net>]

Begin forwarded message:

From: Druce Vertes <druce () streeteye com>
Date: November 27, 2004 9:07:26 AM EST
To: dave () farber net
Subject: dollar blues (for IP if you wish)

Dollar Loses Luster Among the Chinese
People Flock to Convert U.S. Currency to Yuan Amid Fear of Revaluation

http://online.wsj.com/article/0,,SB110071807010576899-search,00.html? 
collect
ion=wsjie%2F30day&vql_string=yuan%3Cin%3E%28article%2Dbody%29

By PETER WONACOTT
Staff Reporter of THE WALL STREET JOURNAL
November 18, 2004; Page A16

SHANGHAI -- The long lunch-hour lines at this city's downtown Bank of  
China
are filled with people who not long ago stuffed their accounts with U.S.
currency. Now they are dumping dollars.

Yuan Man, ticket No. 252 in line, has set aside more than $50,000 to  
support
his son's dream to study in the U.S., but regrets not holding a stronger
euro, or even a firm yen. Ron Chen, an Australian pharmaceutical  
executive,
is paid monthly in dollars and converts each paycheck immediately into  
yuan
. A middle-aged woman and her elderly mother sit nearby awaiting the  
arrival
of an overseas wire transfer. They, too, plan to get rid of their  
dollars
the same day.

"The dollar doesn't mean anything anymore," says the woman.

From black marketers to anxious grandmothers, Chinese have become
disenchanted with the dollar. The selling has posed problems for  
Beijing as
it tries to keep the yuan pegged to the dollar, adding to pressure  
China is
getting from its trading partners to revalue its currency.

The selling also signals a startling shift that may have damaging
implications for the dollar down the line: Many Chinese view the yuan ,  
also
called the renminbi, as the safer currency to hold.

"The U.S. dollar is weakening! The renminbi is the hard currency now!"
shouts a 40-year old man after pulling $10,000 out of
U.S.-dollar-denominated stocks and plunking the sum into yuan deposits.
"It's the best choice," he says.

Bill Gross
Too Much! (The weak dollar – causes and consequences)
[Bill Gross is the bond world's Peter Lynch/Warren Buffett - runs the
world's biggest bond fund and has the best long-term record]

http://www.pimco.com/LeftNav/Late+Breaking+Commentary/IO/2004/ 
IO+December+20
04.htm

...there’s no doubt that the dollar is on the run and that higher U.S.
interest rates are the inevitable consequence. Dollar depreciation  
leads to
higher inflation and ultimately forces foreign creditors to question  
their
rationale and indeed their sanity for continuing purchases of U.S.
Treasuries.

The Economist: Is the dollar’s role as the world’s reserve currency  
drawing
to a close?
http://www.economist.com/agenda/displayStory.cfm?story_id=3421877

But Buttonwood suspects that the deeper significance of Mr Greenspan’s
admission is that the game that has been played since the collapse of  
the
Bretton Woods system in the early 1970s is drawing to a close. The  
dollar’s
status as the world’s reserve currency—its preferred store of value, if  
you
will—is gradually coming to an end. And, ironically, the fact that it  
has
become so popular in recent years will only hasten its demise.

One man who undoubtedly believes in a strong dollar is Japan’s prime
minister, Junichiro Koizumi. Unlike America, Japan has been putting its
money where its leader’s mouth is. On behalf of the finance ministry,  
the
Bank of Japan has bought more dollars than any other central bank has  
ever
done. At last count, it had the equivalent of $820 billion in
foreign-exchange reserves, most of it denominated in the American  
currency.

As goes Japan, so goes the rest of Asia. In an interview this week with  
the
Financial Times, Li Ruogu, the deputy governor of China’s central bank,  
the
People’s Bank of China, said that his country would not be rushed into
revaluing the yuan, and that America should put its own shop in order.  
Mr
Ruogu’s bank, too, has been a huge buyer of dollars in recent years.  
China
and the rest of developing Asia now have $1.4 trillion of reserves,  
mostly
dollars. This is more than the combined reserves of the rest of the  
world
(excluding Japan). Thanks mostly to Asian intervention, foreign-exchange
reserves at the world’s central banks have climbed from $2 trillion in  
2000
to $3.5 trillion in 2004.

...

Some pundits have dubbed this arrangement the new Bretton Woods. The  
Bretton
Woods arrangement (a post-second world war agreement that tied the  
dollar to
gold and other currencies to the dollar) collapsed in 1971. The present
arrangement seems similarly doomed to failure. The big question is  
whether
the world will suffer similarly ill effects when it collapses.


---
Druce Vertes                                   http://www.streeteye.com
StreetEYE, LLC                               mailto:druce () streeteye com
212-292-5110


-------------------------------------
You are subscribed as interesting-people () lists elistx com
To manage your subscription, go to
 http://v2.listbox.com/member/?listname=ip

Archives at: http://www.interesting-people.org/archives/interesting-people/