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Are the chickens headed home???????.
First, Iran shifts away from the dollar to the euro
Now this
http://www.marketwatch.com/news/sto...6-412A-A561-59C4C7CE4B28}&siteid=google&dist=
China signals gradual dollar exit
Analysts see broad impact even as market yawns
By Chris Oliver & Rachel Koning, MarketWatch
Last Update: 12:56 PM ET Jan. 6, 2006
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HONG KONG (MarketWatch) - China's latest signal this week that it will diversify foreign exchange reserves away from U.S. dollars and government bonds could ripple through U.S. and global markets, analysts said Friday.
China announced several steps this week in follow-up moves to its decision last summer to drop a decade-long yuan-dollar peg. Policy changes continue to come at a pace frustrating to U.S. manufacturers and some global financial officials but more change may be in store.
"They are allowing more flexibility in their foreign exchange and leaning towards currency appreciation," said ABN Amro's chief Asian strategist in Hong Kong, Eddie Wong.
As of November last year, China had $769 billion in foreign exchange reserves. Up to $247.6 billion are invested in U.S. Treasurys. Unofficially, China is believed to invest roughly 70% of its reserves in U.S. dollar assets.
The latest move "is going to have a profound effect on most financial markets and the U.S. economy," said Peter Grandich, who pens the Grandich Letter, tracking gold and currencies.
He thinks part of China's diversifcation will go into gold.
"It seems to us that the Chinese had made a bargain with the United States," said Richard X. Bove, analyst at Punk, Ziegel & Co.
"Let us keep the yuan pegged to the dollar and we will buy your debt. Force us to float our currency and we will put our funds elsewhere."
Yet the news had a limited impact in financial markets initially.
China was cited among the issues weiging in the dollar Friday, but interest-rate differentials remain in focus. The greenback fell sharply after mostly strong U.S. employment data still weren't considered enough to keep the Federal Reserve raising rates deep into 2006. See Currencies.
The dollar hit its lowest in more than two months against the Japanese yen, largely considered the proxy currency for Asia.
China's yuan slipped to 8.0668 per dollar, a decline of 0.001 yuan on the day Friday.
On Thursday, China's foreign exchange administrator posted a statement on its Web site citing a desire to "improve the operation and management of foreign exchange reserves," although it did not specify details.
The statement added: "The objective is to improve the currency structure and asset structure of our foreign exchange reserves, and to continue to expand the investment area of reserves. We want to ensure that the use of foreign exchange reserves supports a national strategy, an open economy and the macro-economic adjustment."
Earlier this week, China implemented a new over-the-counter trading system for domestic currency investors and banks and a more market-oriented parity benchmark rate that may lead to faster yuan appreciation.
During the past two months, new reserve accumulation lifted total foreign exchange reserves to between $800 billion to $1 trillion, according to ABN Amro's Wong.
Chinese banks have another $125 billion in foreign currency assets held in greenbacks, which represents a growing risk should the value of the U.S. dollar decline suddenly, Wong said.
China, last summer, dropped a strict, decade-old dollar-yuan peg, which kept the yuan artificially low so that Chinese goods are competively priced on export markets. The yuan trades instead within a narrow daily band against a basket of major currencies.
U.S. Treasury Secretary John Snow said on cable chanel CNBC Friday that China should take additional steps to let its currency move under market forces.
These moves will benefit China and the global economy, Snow said.
"One of the things China is worried about is one-way bets that the yuan can only rise," he said. "So if [currency market] speculators are beginning to think that might not be the case, it may create an environment where China may have more latitude ... to let the currency move," he said.
"Early this year, I expect Beijing to move into the second stage of its [yuan] reform by permitting more genuine currency flexibility. As a result, yuan could meaningfully appreciate against the dollar," said Morgan Stanley analyst Stephen Jen
First, Iran shifts away from the dollar to the euro
Now this
http://www.marketwatch.com/news/sto...6-412A-A561-59C4C7CE4B28}&siteid=google&dist=
China signals gradual dollar exit
Analysts see broad impact even as market yawns
By Chris Oliver & Rachel Koning, MarketWatch
Last Update: 12:56 PM ET Jan. 6, 2006
Disable MW live quotes | E-mail it | Print | Alert | Reprint | ?
HONG KONG (MarketWatch) - China's latest signal this week that it will diversify foreign exchange reserves away from U.S. dollars and government bonds could ripple through U.S. and global markets, analysts said Friday.
China announced several steps this week in follow-up moves to its decision last summer to drop a decade-long yuan-dollar peg. Policy changes continue to come at a pace frustrating to U.S. manufacturers and some global financial officials but more change may be in store.
"They are allowing more flexibility in their foreign exchange and leaning towards currency appreciation," said ABN Amro's chief Asian strategist in Hong Kong, Eddie Wong.
As of November last year, China had $769 billion in foreign exchange reserves. Up to $247.6 billion are invested in U.S. Treasurys. Unofficially, China is believed to invest roughly 70% of its reserves in U.S. dollar assets.
The latest move "is going to have a profound effect on most financial markets and the U.S. economy," said Peter Grandich, who pens the Grandich Letter, tracking gold and currencies.
He thinks part of China's diversifcation will go into gold.
"It seems to us that the Chinese had made a bargain with the United States," said Richard X. Bove, analyst at Punk, Ziegel & Co.
"Let us keep the yuan pegged to the dollar and we will buy your debt. Force us to float our currency and we will put our funds elsewhere."
Yet the news had a limited impact in financial markets initially.
China was cited among the issues weiging in the dollar Friday, but interest-rate differentials remain in focus. The greenback fell sharply after mostly strong U.S. employment data still weren't considered enough to keep the Federal Reserve raising rates deep into 2006. See Currencies.
The dollar hit its lowest in more than two months against the Japanese yen, largely considered the proxy currency for Asia.
China's yuan slipped to 8.0668 per dollar, a decline of 0.001 yuan on the day Friday.
On Thursday, China's foreign exchange administrator posted a statement on its Web site citing a desire to "improve the operation and management of foreign exchange reserves," although it did not specify details.
The statement added: "The objective is to improve the currency structure and asset structure of our foreign exchange reserves, and to continue to expand the investment area of reserves. We want to ensure that the use of foreign exchange reserves supports a national strategy, an open economy and the macro-economic adjustment."
Earlier this week, China implemented a new over-the-counter trading system for domestic currency investors and banks and a more market-oriented parity benchmark rate that may lead to faster yuan appreciation.
During the past two months, new reserve accumulation lifted total foreign exchange reserves to between $800 billion to $1 trillion, according to ABN Amro's Wong.
Chinese banks have another $125 billion in foreign currency assets held in greenbacks, which represents a growing risk should the value of the U.S. dollar decline suddenly, Wong said.
China, last summer, dropped a strict, decade-old dollar-yuan peg, which kept the yuan artificially low so that Chinese goods are competively priced on export markets. The yuan trades instead within a narrow daily band against a basket of major currencies.
U.S. Treasury Secretary John Snow said on cable chanel CNBC Friday that China should take additional steps to let its currency move under market forces.
These moves will benefit China and the global economy, Snow said.
"One of the things China is worried about is one-way bets that the yuan can only rise," he said. "So if [currency market] speculators are beginning to think that might not be the case, it may create an environment where China may have more latitude ... to let the currency move," he said.
"Early this year, I expect Beijing to move into the second stage of its [yuan] reform by permitting more genuine currency flexibility. As a result, yuan could meaningfully appreciate against the dollar," said Morgan Stanley analyst Stephen Jen
