IMF review recommends delaying currency basket adoption of yuan

[Serpo]

WASHINGTON











http://s4.reutersmedia.net/resources/r/?m=02&d=20150804&t=2&i=1069465797&w=644&fh=&fw=&ll=&pl=&sq=&r=LYNXNPEB730YU
The International Monetary Fund (IMF) logo is seen at the IMF headquarters building during the 2013 Spring Meeting of the International Monetary Fund and World Bank in Washington, April 18, 2013.
Reuters/Yuri Gripas



The International Monetary Fund should put off any move to add the yuan to its Special Drawing Rights currency basket until September 2016, an IMF staff report said, a move that would effectively end the Chinese currency's chances of an early inclusion.
The report, published on Tuesday, comes after Beijing launched a major diplomatic push for the yuan's inclusion in the IMF basket as part of its long-term strategic goal of reducing dependence on the dollar.
The report said the implementation of any formal decision to add the yuan to a basket of currencies comprising dollars, euros, pounds and yen should be delayed so as not to disrupt financial market trading on the first day of 2016.
"The proposed extension, which will be decided by the Executive Board later this month, would not in any way prejudge the timing of conclusion or outcome of the review," said Siddharth Tiwari, director of the IMF's strategy, policy and review department.
It said that the yuan, also known as the renminbi, met the requirements as a significant currency in terms of international trade. The board would judge if the yuan meets criteria that it should be "freely usable."
"If the RMB (renminbi) were determined to be a freely usable currency, it would play a more central role in the Fund's financial operations going forward, and it would qualify for inclusion in the SDR basket," the report said.
European members of the Group of Seven major industrialized economies - Germany, Britain, France and Italy - favor adding the yuan to the basket this year. Japan, like the United States, is more cautious, officials have said.
The yuan has made huge strides since Beijing's last push for more formal international recognition of the currency, as global financial leaders were struggling to deal with the fallout of the sub-prime and banking crisis.
The IMF staff report recognized progress made by Beijing, noting that it was already the fifth most-used currency for international trade.
Chinese Premier Li Keqiang in March asked IMF Managing Director Christine Lagarde to push for inclusion, saying Beijing would speed up the convertibility of the yuan on the capital account and open domestic individual cross-border investment and foreign institutional investment in China's capital market.
Earlier this year, frustrated by the refusal of the U.S. Congress to pass reforms to increase the voting rights of emerging markets in the IMF, Beijing announced it would set up its own investment bank, the Asian Infrastructure Investment Bank.
Despite pressure from Washington, which along with Tokyo, has declined to join AIIB, most U.S. allies in Europe have signed up for the Chinese-led initiative, seen as a rival to the World Bank and Japan-based Asian Development Bank.
(In fifth paragraph, this story corrects to show that IMF board will make the decision on whether yuan should be "freely usable," not that that the yuan did not meet the criteria)http://www.reuters.com/article/2015/08/04/us-imf-currency-china-idUSKCN0Q929G20150804

[burningleg]

That's huge news. Will be interesting to see what China thinks of this and their response. Might as well say F' it and bring out their gold backed yuan or a new BRICS currency.


Thanks for sharing Serpo!

[madfranks]

That's huge news. Will be interesting to see what China thinks of this and their response. Might as well say F' it and bring out their gold backed yuan or a new BRICS currency.


Thanks for sharing Serpo!

They'll never announce a gold-backed yuan. Why would anyone use gold for international trade when they can spend unbacked fiat? Keep the gold, spend the paper.

[Serpo]

They'll never announce a gold-backed yuan. Why would anyone use gold for international trade when they can spend unbacked fiat? Keep the gold, spend the paper.

Well when loaded up with terrible dollars and their share market starting to crash they are going to want confidence otherwise the people may just throw them out.

Chinas goal is to have a gold backed yuan, remember it was the U.S that went of the gold standard ,and now what do we have , a mitigated disaster.

Do you think China is going to put up with this for much longer, I really doubt it.

It cant carry on indefinably and remember its the U.S that hasnt any gold not China............

[Serpo]

The Rumblings of War
Dear CIGAs,
Shock of all shocks, the IMF announced the Chinese yuan will not be admitted into the SDR until at least Sept. 2016. http://www.bloomberg.com/news/articles/2015-08-04/imf-says-more-work-needed-before-yuan-reserve-currency-decision What exactly does this mean? I can tell you the gold community is so shell shocked and fearful at this point, it “must be bad for gold”, right? Going back a couple of weeks, China announced they had accumulated another 600 tons or so of gold to the near panic of precious metals investors. This announcement would be used as another shot at taking price down because the Chinese “don’t like gold as much as we thought”. This was the prevailing sentiment.
What I think happened was China played “good boy” with the West and lied about their gold holdings. They announced enough gold to allow them into “the club” but not so much as to “offend” or intimidate anyone in the West. Their announcement was clearly bogus as they are importing 600 tons every three months …and we are to believe it took them six years? China had requested both “publicly and officially” to be included in the SDR. They were publicly humiliated with this move by the IMF. The Chinese are a very proud people, public humiliation would be last on my list of aggressions toward them!
Make no mistake, they will retaliate. I believe just as the IMF did this while China is having market problems and during a period of weakness, China will return the favor to the U.S. …at a very inopportune time for us. When our markets are convulsing, probably this fall, you can expect one of two responses from the Chinese. They will either come public with a true and VERY LARGE number for their gold holdings, or they will threaten to and actually dump some Treasury securities/dollar holdings…or both! I believe their response will be timed to hit us just as in a boxing match, when we are tired, down or vulnerable …for maximum effect.
Whether you want to believe it or not, the U.S. is in a financial war with nearly the rest of the entire world. To not include a rising China into the SDR makes no sense and is an impossible feat in the long term unless China decides it is not their desire. I see no upside whatsoever to this action. Does it “buy time” and postpone the inevitable? Maybe not. The action of poking the hornets nest may actually accelerate the collapse!
There are other possibilities but looking at the two retaliatory options mentioned above, what could result? First, were China to come clean and “admit” they have 10,000 tons of gold (or MUCH MORE), the yuan would immediately strengthen and move into the dollar’s territory as a settlement currency. Markets would quickly do the math and understand if China has this much gold …where oh where did it come from? China could even do an audit publicly and count the bars out in the open surroundings of their Olympic stadium in a “we’ve shown you ours, now you show us yours” fashion!
The other possibility comes with an “option A or B” for the Fed. If the Chinese decided to sell some of their Treasury holdings, could the Fed sit idly by? Option A, the Fed could let the market absorb the dumped Treasuries and allow interest rates to rise and watch as bond prices crater. This is not much of an option, especially in a world where all prices are generated and created “officially”. On the other hand, option B would be FORCED MONETIZATION! The Fed could decide they had to buy any and all Treasuries offered by China. I believe this is exactly what the Fed will decide they MUST do.
Not coincidentally, the Chinese know this. They also understand by using this tactic, they will be forcing the Federal Reserve to create an “exit door” especially for …and because of them. This is the reverse of the old story, if you owe the bank $1 million they own you, if you owe $1 billion then you own the bank. You see, in this instance the Chinese have a direct lever on our credit markets. It would be bad enough if they could control our interest rates which they certainly can now influence. What makes this really bad is they can FORCE the Fed to either monetize or face the immediate collapse of credit markets and thus all markets. As I mentioned above, the Chinese will not do this until the time is right. The time will “be right” when our markets display weakness. They will smile while doing this and politely (publicly) restore honor and dignity.
Before finishing and as long as we are talking about financial “war”, let’s briefly look at Russia. The U.S. and NATO are now crossing some very red lines in the sand when it comes to both Ukraine and Syria. Trainings and war games are taking place in western Ukraine while the U.S. is and has authorized airstrikes (with Israeli assistance) against Syria. Mr. Putin has said in no uncertain terms he will not allow the slaughter of Russians in Ukraine. He has also stated numerous times he will not stand by idly should allies Syria or Iran be attacked http://www.zerohedge.com/news/2015-08-04/russia-ready-send-paratroopers-syria . These are all very real sparks in the dry tinder of current geopolitics.
The question you need to ask yourself is this, do you really believe the current fairy tale pricing of assets, ALL ASSETS will hold during a financial war with China? Or during a real war with Russia? This is not fear mongering, it is what’s on our dinner table!
Standing watch,
Bill Holterhttp://www.jsmineset.com/

[monty]

Formatted for easier reading. ;)


The Rumblings of War
Dear CIGAs,
Shock of all shocks, the IMF announced the Chinese yuan will not be admitted into the SDR until at least Sept. 2016. http://www.bloomberg.com/news/articles/2015-08-04/imf-says-more-work-needed-before-yuan-reserve-currency-decision What exactly does this mean? I can tell you the gold community is so shell shocked and fearful at this point, it “must be bad for gold”, right? Going back a couple of weeks, China announced they had accumulated another 600 tons or so of gold to the near panic of precious metals investors. This announcement would be used as another shot at taking price down because the Chinese “don’t like gold as much as we thought”. This was the prevailing sentiment.

What I think happened was China played “good boy” with the West and lied about their gold holdings. They announced enough gold to allow them into “the club” but not so much as to “offend” or intimidate anyone in the West. Their announcement was clearly bogus as they are importing 600 tons every three months …and we are to believe it took them six years? China had requested both “publicly and officially” to be included in the SDR. They were publicly humiliated with this move by the IMF. The Chinese are a very proud people, public humiliation would be last on my list of aggressions toward them!

Make no mistake, they will retaliate. I believe just as the IMF did this while China is having market problems and during a period of weakness, China will return the favor to the U.S. …at a very inopportune time for us. When our markets are convulsing, probably this fall, you can expect one of two responses from the Chinese. They will either come public with a true and VERY LARGE number for their gold holdings, or they will threaten to and actually dump some Treasury securities/dollar holdings…or both! I believe their response will be timed to hit us just as in a boxing match, when we are tired, down or vulnerable …for maximum effect.

Whether you want to believe it or not, the U.S. is in a financial war with nearly the rest of the entire world. To not include a rising China into the SDR makes no sense and is an impossible feat in the long term unless China decides it is not their desire. I see no upside whatsoever to this action. Does it “buy time” and postpone the inevitable? Maybe not. The action of poking the hornets nest may actually accelerate the collapse!

There are other possibilities but looking at the two retaliatory options mentioned above, what could result? First, were China to come clean and “admit” they have 10,000 tons of gold (or MUCH MORE), the yuan would immediately strengthen and move into the dollar’s territory as a settlement currency. Markets would quickly do the math and understand if China has this much gold …where oh where did it come from? China could even do an audit publicly and count the bars out in the open surroundings of their Olympic stadium in a “we’ve shown you ours, now you show us yours” fashion!

The other possibility comes with an “option A or B” for the Fed. If the Chinese decided to sell some of their Treasury holdings, could the Fed sit idly by?

Option A, the Fed could let the market absorb the dumped Treasuries and allow interest rates to rise and watch as bond prices crater. This is not much of an option, especially in a world where all prices are generated and created “officially”. On the other hand, option B would be FORCED MONETIZATION! The Fed could decide they had to buy any and all Treasuries offered by China. I believe this is exactly what the Fed will decide they MUST do.

Not coincidentally, the Chinese know this. They also understand by using this tactic, they will be forcing the Federal Reserve to create an “exit door” especially for …and because of them. This is the reverse of the old story, if you owe the bank $1 million they own you, if you owe $1 billion then you own the bank. You see, in this instance the Chinese have a direct lever on our credit markets. It would be bad enough if they could control our interest rates which they certainly can now influence. What makes this really bad is they can FORCE the Fed to either monetize or face the immediate collapse of credit markets and thus all markets. As I mentioned above, the Chinese will not do this until the time is right. The time will “be right” when our markets display weakness. They will smile while doing this and politely (publicly) restore honor and dignity.

Before finishing and as long as we are talking about financial “war”, let’s briefly look at Russia. The U.S. and NATO are now crossing some very red lines in the sand when it comes to both Ukraine and Syria. Trainings and war games are taking place in western Ukraine while the U.S. is and has authorized airstrikes (with Israeli assistance) against Syria. Mr. Putin has said in no uncertain terms he will not allow the slaughter of Russians in Ukraine. He has also stated numerous times he will not stand by idly should allies Syria or Iran be attacked http://www.zerohedge.com/news/2015-08-04/russia-ready-send-paratroopers-syria . These are all very real sparks in the dry tinder of current geopolitics.

The question you need to ask yourself is this, do you really believe the current fairy tale pricing of assets, ALL ASSETS will hold during a financial war with China? Or during a real war with Russia? This is not fear mongering, it is what’s on our dinner table!

Standing watch,
Bill Holterhttp://www.jsmineset.com/

[Horn]

The fact that China is even petitioning for SDR should let you know their position.

I dont expect they'll turn down the servicing offer when its ultimately extended.