Category: Financial System
Financial System
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EES: Russia and China to impact Forex market dynamics
In response to sanctions, Russia is seeking non-USD trade deals, most notably with China. How will non-USD transactions impact the Forex market? Already, US based intellectuals are calling for an end to the Dollar Hegemony:
Note that as long as the dollar is the reserve currency, America’s trade deficit can worsen even when we’re not directly in on the trade. Suppose South Korea runs a surplus with Brazil. By storing its surplus export revenues in Treasury bonds, South Korea nudges up the relative value of the dollar against our competitors’ currencies, and our trade deficit increases, even though the original transaction had nothing to do with the United States.This isn’t just a matter of one academic writing one article. Mr. Austin’s analysis builds off work by the economist Michael Pettis and, notably, by the former Federal Reserve chairman Ben S. Bernanke.
Russia and China are agreeing to settle more trade in Rubles and Yuan. From Reuters:
(Reuters) – Russia and China pledged on Tuesday to settle more bilateral trade in rouble and yuan and to enhance cooperation between banks, Russia’s First Deputy Prime Minister Igor Shuvalov said, as Moscow seeks to cushion the effects of Western economic sanctions. Shuvalov told reporters in Beijing that he had agreed an economic cooperation pact with China’s Vice Premier Zhang Gaoli that included boosting use of the rouble and yuan for trade transactions. The pact also lets Russian banks set up accounts with Chinese banks, and makes provisions for Russian companies to seek loans from Chinese firms. “We are not going to break old contracts, most of which were denominated in dollars,” Shuvalov said through an interpreter. “But, we’re going to encourage companies from the two countries to settle more in localcurrencies, to avoid using a currency from a third country.”
China has an explosive Forex market, and is negotiating swap arrangements with other central banks. Retail demand for Forex in China is also exploding. Although the US Forex market is not developed as in Europe, Asia, and the UK, the USD has been the global reserve currency since World War 2. How will new players such as Russia and China impact the Forex market, and values of other currencies? Certainly, they will not take the same view as the US.
The free-floating Forex system we have today was in fact created by the US (Nixon Shock) but since no standards were ever established, now it’s an unknown unknown how the BRICs will evolve the Forex market, but certainly it will be changed forever. And certainly we can expect extreme volatility in the years ahead, even on the majors.
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GIH: US or Non-US
The most commonly used introduction in any Forex business for the past 3 years: “US or Non-US” As much of the world moves to a non-USD Forex system, it is becoming ever more difficult for US citizens to trade Forex. Since the dud-fag regulations that have protected the US consumer from opening accounts offering 400:1 […]
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Interbank FX transfers MT4 accounts to FXCM
Dear valued client,
As you may already have heard, TradeStation has announced an agreement between its IBFX, Inc. and IBFX Australia Pty Ltd subsidiaries, and a subsidiary of FXCM Inc., in which all retail accounts in the “MetaTrader/MT4” division of both IBFX forex subsidiaries will be transferred to FXCM.
Having supported two forex business lines – MT4 and TradeStation – for some time, we have now decided to focus solely on our TradeStation Forex platform offering.
TradeStation’s success over the past 15 years is due in large part to the unique, differentiating features and functions offered by the TradeStation platform, and this move will enable us to focus our resources on continuing that success.
This change will not affect your TradeStation Forex account(s). Should you have any questions, please contact us.
Sincerely yours,
Gary Weiss,
President of IBFX, Inc.
De-Dollarization Continues: China-Argentina Agree Currency Swap, Will Trade In Yuan
It appears there is another nation on planet Earth that is becoming isolated. One by one, Russia and China appear to be finding allies willing to ‘de-dollarize’; and the latest to join this trend is serial-defaulter Argentina. As Reuters reports, China and Argentina’s central banks have agreed a multi-billion dollar currency swap operation “to bolster Argentina’s foreign reserves” or “pay for Chinese imports with Yuan,” as Argentina’s USD reserves dwindle. In addition, Argentina claims China supports the nation’s plans in the defaulted bondholder dispute.
Having met ‘on the sidelines’ in Basel, Switzerland in July, Argentine and Chinese central banks agreed to a currency swap equivalent to $11b that Cabinet Chief Jorge Capitanich said could be used to stabilize reserves.. (as Reuters reports)
Argentina, which defaulted on its debt in July, will receive the first tranche of a multi-billion dollar currency swap operation with China’s central bank before the end of this year, the South American country’s La Nacion newspaper reported on Sunday.The swap will allow Argentina to bolster its foreign reserves or pay for Chinese imports with the yuan currency at a time weak export revenues and an ailing currency have put the Latin American nation’s foreign reserves under intense pressure.La Nacion said Argentina would receive yuan worth $1 billion by the end of 2014, the first payment of a loan worth a total $11 billion signed by Argentina’s President Cristina Fernandez and her Chinese counterpart in July.
In adition, Bloomberg reports
Continue ReadingPeople’s Bank of China Governor Zhou Xiaochuan expressed his support for Argentina in its legal fight against holdout bondholders
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In Shocking Move, ECB Cuts By 10 Bps, Sends Deposit Rate Further Into Negative Territory
While everyone was expecting Mario Draghi to announce ABS purchases, few if any had expected the ECB to also cut rates. Which it just did whacking its corridor rates across the board by 10 bps, in the process sending the Deposit Facility rate even further into negative territory, now down at -0.2%.
From the ECB’s monetary policy decision:
At today’s meeting the Governing Council of the ECB took the following monetary policy decisions:
- The interest rate on the main refinancing operations of the Eurosystem will be decreased by 10 basis points to 0.05%, starting from the operation to be settled on 10 September 2014.
- The interest rate on the marginal lending facility will be decreased by 10 basis points to 0.30%, with effect from 10 September 2014.
- The interest rate on the deposit facility will be decreased by 10 basis points to -0.20%, with effect from 10 September 2014.
The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 2.30 p.m. CET today.
To be sure, the EURUSD is down nearly 100 pips on the news, and this is even before Draghi has announced his “Private QE” which announcement is due in 45 minutes.
So now that it will cost Europeans even more to deposit money at the bank, here is a snapshot of how delighted, giddy locals from the Old Continent are reacting to this latest ploy to fix “stuff” by the ECB.
http://www.zerohedge.com/news/2014-09-04/shocking-move-ecb-cuts-10-bps-sends-deposit-rate-further-negative-territory
Trade the Euro – Open a Forex Account
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The Ultimate Demise Of The Euro Union
The European Union (EU) was created by the Maastricht Treaty on November 1st 1993. It is a political and economic union between European countries which makes its own policies concerning the members’ economies, societies, laws and to some extent security. To some, the EU is an overblown bureaucracy which drains money…and compromises the power of sovereign states. For others, the EU is the best way to meet challenges smaller nations might struggle with – such as economic growth or negotiations with larger nations – and worth surrendering some sovereignty to achieve. Despite many years of integration, opposition remains strong.
ACCORDINGLY, there are signs the EU is teetering on implosion.
Indeed the Euro zone break up is inevitable for numerous reasons.
Unpayable government debts and the massive bailouts in Greece, Portugal, Spain and Ireland logically pave the road to an eventual EU break up.
While it’s convenient to have the one currency for 17 different nations, the nature of those national economies and their strength is quite different and problematic. Indeed and fact it favors wealthy countries like Germany and France at the expense of the PIIGS (i.e. Portugal, Italy, Ireland, Greece and Spain).
Another issue is that while the 17 nations share the same Central Bank, they do not have a central control on government budgets, nor central political control.
Paul Griffiths, Colonial First State chief investment officer does not want to put a time frame on the euro zone being shrunk, but says it will eventually be very different from what it is today.
Unacceptable inequities of the EU are reflected in the Stock Market action of Germany vis-à-vis economically inferior members of the EU, commonly referred to as the PIIGS (i.e. Portugal, Italy, Ireland, Greece and Spain). Unabashedly Germany is living high on the hog (so to speak)…which translates to Germany living high on backs the PIIGS. To appreciate the gross disparity, compare the relative stock performances of their national Stock Indices.
PIIGS Stock Performance vs German DAX Index Since 1999
Literally, the PIIGS have been led to financial slaughter…while Germany lives high on the hog (pardon the pun).
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Cracks in the Banking Wall of the Euro Union
In recent years the financial backbone of Europe has been its banking sector. To be sure, a few old name (once) prestigious banks have suffered irresistible dumping of their stock by shareholders. Most devastated are Portuguese Banco Espirito Santo, German Commerzbank, Deutsche Bank and the National Bank of Greece.
Portuguese Banco Espirito Santo stock has plummeted -98 % from its 2007 high of $6.18…and sells today for a mere 12 cents a share. However, several other EU banks have suffered the same fate of relentlessly tumbling stock prices. The chart below shows the heart wrenching losses of share value since mid-2007, which include Commerzbank (Germany), Deutsche Bank (Germany), Barclays Bank UK), ING (Netherlands) and Lloyds (UK).
Negative stock performance for leading European Banks since mid-2007:
And then there is the National Bank of Greece, whose stock has plummeted -99.4% during the past seven years (See chart):
The only salvation for investors in the EU is GOLD
When the ultimate and inevitable demise of the EU begins to materialize, many wealthy Europeans from all member countries will flee to the traditional safe haven of gold. And although the UK is not a member of the EU, its FTSE Stock Index will understandably feel the adverse effects of pervasive stock dumping …ergo the FTSE will also suffer a sharp correction. Moreover, even the affluent Germans will stampede to buy gold…as they realize that gold has soared in value by +345% vs only +89% for the German DAX Stock Index during the past 15 years.
Germans Must Remember the Currency Tragedy of the Weimar Republic from 1918-1924
Students of German history will certainly remember what happened during the Hyper-Inflation of the Weimar Republic from 1918-1924, when German paper Marks became virtually worthLESS (See above chart):
Moreover, the following will give the reader an idea of the viral currency inflation (monetary debasement) that plagued Germany from 1918-1924). Here is a photo of a German bank note for 100 Million Mark.
This near worthLESS bill represents 100 million. In fact in November 1923 One Billion would only buy 3 pounds of meat, or; 2 glasses of beer, or; one loaf of bread.
Although no one expects a repeat of the nightmarish 1918-1924 Hyper-Inflation, indubitably, the impending bust-up of the Euro Union will surely trash the paper Euro currency…as the heretofore members of the EU rush to re-establish their respective currencies. And as America’s greatest author Mark Twain once observed: “History doesn’t repeatitself, but it does rhyme.”
Related Study: “The Nightmare German Inflation”
And history is testament that the most devastating result of the Nightmarish Weimar Hyper-Inflation was an open door for Adolph Hitler to publish his infamous book in 1925: Mein Kampf…which ultimately led him to dictatorial power in Germany. And the rest is the nightmarishly dark history leading to World War II, which was the deadliest military conflict in history…when over 60 million people were killed.
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Related Analysis:
It is painfully obvious the EU is a political concoction designed to further a covert political agenda. Indeed and fact there is no legitimate or logical basis for its existence. Consequently, it will not…and cannot last.
Based upon the above analysis, the Ultimate Demise Of The Euro Union is inevitable. The only unknown is WHEN AND HOW. Will it be Germany throwing in the towel after years of supporting the PIIGS…or will it be the PIIGS desperately wising to be masters of their own economic fate and sovereignty by abandoning the Euro currency in order to re-establish their old currencies (albeit at substantially lower valuations with a view to stimulate and revitalize their export markets)?
Founder of GOLD-EAGLE in January 1997. Vronsky has over 40 years’ experience in the international investment world, having cut his financial teeth in Wall Street as a Financial Analyst with White Weld. He believes gold and silver will soon be recognized as legal tender in all 50 US states (Utah and Arizona having already passed laws to that effect). Vronsky speaks three languages with indifference: English, Spanish and Brazilian Portuguese. His education includes university degrees in Engineering, Liberal Arts and an MBA in International Business Administration – qualifying as Phi Beta Kappa for high scholastic achievement in all three.
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The Nail In The Petrodollar Coffin: Gazprom Begins Accepting Payment For Oil In Ruble, Yuan
Several months ago, when Russia announced the much anticipated “Holy Grail” energy deal with China, some were disappointed that despite this symbolic agreement meant to break the petrodollar’s stranglehold on the rest of the world, neither Russia nor China announced payment terms to be in anything but dollars. In doing so they admitted that while both nations are eager to move away from a US Dollar reserve currency, neither is yet able to provide an alternative.
This changed in late June when first Gazprom’s CFO announced the gas giant was ready to settle China contracts in Yuan or Rubles, and at the same time the People’s Bank of China announced that its Assistant Governor Jin Qi and Russian central bank Deputy Chairman Dmitry Skobelkin held a meeting in which they discussed cooperating on project and trade financing using local currencies. The meeting discussed cooperation in bank card, insurance and financial supervision sectors.
And yet, while both sides declared their operational readiness and eagerness to bypass the dollar entirely, such plans remained purely in the arena of monetary foreplay and the long awaited first shot across the Petrodollar bow was absent.
Until now.
According to Russia’s RIA Novosti, citing business daily Kommersant, Gazprom Neft has agreed to export 80,000 tons of oil from Novoportovskoye field in the Arctic; it will accept payment in rubles, and will also deliver oil via the Eastern Siberia-Pacific Ocean pipeline (ESPO), accepting payment in Chinese yuan for the transfers. Meaning Russia will export energy to either Europe or China, and receive payment in either Rubles or Yuan, in effect making the two currencies equivalent as far as the Eurasian axis is conerned, but most importantly, transact completely away from the US dollar thus, finally putin'(sic) in action the move for a Petrodollar-free world.
More on this long awaited first nail in the petrodollar coffin from RIA:
The Russian government and several of the country’s largest exporters have widely discussed the possibility of accepting payments in rubles for oil exports. Last week, Russia began to ship oil from the Novoportovskoye field to Europe by sea. Two oil tankers are expected to arrive in Europe in September.According to Kommersant, the payment for these shipments will be received in rubles.Gazprom Neft will not only accept payments in rubles; subsequent transfers via the ESPO may be paid for in yuan, the newspaper reported.According to the newspaper, the change in currency was made because of the Western sanctions against Russia.As a protective measure, Russia decided to avoid making its payments in US dollars, which can be tracked and controlled by the United States government, Kommersant reported.
“Protective measure” meaning that it was the US which managed to Plaxico itself by pushing Russia to transact away from the US Dollar, in the process showing the world it can be done, and slamming the first nail in the petrodollar’s coffin.
This is not surprising to anyone who has been following our forecast of the next steps in the transition from the Petrodollar to the Gas-O-Yuan. Recall from April:
The New New Normal flow of funds:
- Gazprom delivering gas to China.
- China Gazprom paying in Yuan (convertible into Rubles)
- Gazprom funding itself increasingly in Yuan.
- Russia buying Chinese goods and services in Yuan (convertible into Rubles)
And all of this with the US banker cartel completely disintermediated courtesy of the glaring absence of the USD in any of the above listed steps, or as some may call it: from the Petrodollar to the Gas-o-yuan (something 40 central banks have already figured out… just not the Fed).
Still confused? Then read “90% Of Gazprom Clients Have “De-Dollarized”, Will Transact In Euro & Renminbi” for just how Gazprom set the stage for the day it finally would push the button to skip the dollar entirely. Which it just did.
In conclusion we will merely say what we have said previously, and it touches on what will be the most remarkable aspect of Obama’s legacy, because while the hypocrite “progressive” president who even his own people have accused of being a “brown-faced Clinton” after selling out to Wall Street and totally wrecking US foreign policy abroad, is already the worst president in a century of US history according to public polls, the fitting epitaph will come when the president’s policies put an end to dollar hegemony and end the reserve currency status of the dollar once and for all, thereby starting the rapid, and uncontrolled, collapse of the US empire. To wit:
In retrospect it will be very fitting that the crowning legacy of Obama’s disastrous reign, both domestically and certainly internationally, will be to force the world’s key ascendent superpowers (we certainly don’t envision broke, insolvent Europe among them) to drop the Petrodollar and end the reserve status of the US currency.
As of this moment, both Russia and China have shown not on that it can be done, but it isdone. Expect everyone to jump onboard the new superpower axis bandwagon soon enough.
