Tuesday, September 23, 2008

Too Many USD Holders / Peg Revisited

Blogger Charles Chong said...

i don't fully agree on your statement. Mind you that China is a big adopter of US treasury bills, trillions of them. With China holding so much of US treasury bill, they will do their best to protect the value of USD, not to mention that HKD is in fact pegged to USD. China, being one of the wealthiest nation in Asia currently, will not allow their wealth to be swept away over night.

Comments: charles, we cannot hide, i mean the USA cannot hide behind the skirt that many countries are holding Treasuries hence they won't let the USD collapse... yes, politically, China and some of the Middle East nations have that objective as well... even China complained strongly on the GSE to paulson recently, basically hinting that they might STOP buying GSE debts if they do not go and rescue Fannie & Freddie... I ask you this, are the central banks in China, Japan, UK and US strong enough to stop a slide in USD ...think, I don't think they can, they may temporarily halt the slide with sentiment change n intervention... u cannot stop it if enough ppl think the same line ... if they can, u think the USD would have lose 30% in a few days back in 1987 ... if they can, u think the British pound would have lost 20% in a few days in the 90s... and thats with a lot of help from all major central banks

Blogger solomon said...

I do have the feel that the recent USD strengths and weaknesses are engineered by Central Bankers. Not quite sure whether it is for the bailouts, but they are tale signs about it, like dali's said.

How about reaffirming and applying the Brenton Wood II (renminbi - dollar peg) into more international currencies?

Having saying that, it reaffirmed my believe that the next target will shift to currencies speculation. The speculators(wolves) will camouflage behind the Central Bankers (tigers), you could hardly differentiate the currencies movements by who then.

My opinion is ringgit should consider the fixed peg to USD now. I am sure most of the local businesses will welcome this. At least, it have remove some business uncertainties in forex movement.

we should not go back to the peg because a peg gives a false sense of security ... you have limited room to move with monetary policy and yr fiscal policy are restricted... look at HK, they have a silly negative interest rate now, while their economy is tied to China, their monetary policy mirrors that of USA by virtue of the peg
most importantly a peg kinda stops a country and its industries from moving up the value chain in industrial efficiency and product competitiveness
you also want the country to benefit from a stronger currency for better purchasing power when the country does well
the peg would favour all exports again... and mostly very basic exports on the lower food and production chain, why debase our industries again ... i think the cpo planters and electronics exporters have had a gleeful run when the peg was instituted... looking at it another way, the rest of the country suffered but the these exporters were laughing, we had to contend with diminishing purchasing power and much of our loss went to support the bottomline of these exporters... thats why i think cpo buggers should be the first in line for a windfall tax...

p/s photo: Song Min Ji


Charles Chong said...

"u think the USD would have lose 30% in a few days back in 1987 ... if they can, u think the British pound would have lost 20% in a few days in the 90s... and thats with a lot of help from all major central banks"

Well, I still don't buy your argument fully. We are in a very different situation today. Shares can collapse 22% on Black Monday in 1987, it will not happen again today. This is simply because today's speculators and "investors" are well-informed and quick to act. Uncertainties are greatly trimmed down with Internet technologies. Imagine, during the 90s, how do you buy shares and currencies? You call your brokers. You will not be able to visualise the movements real-time. Your technical analysis are based on daily prices. You are unable to know how long is the sell and buy queue as well. Panic selling is really PANIC selling, when you do not know what is happening and your positions keeps losing money, what do you do? This is what i believed, driving down the value of currencies in the past.

Today, we are living in a well-informed world, which is still full of uncertainties. Things are not predictable but more containable based on our past experiences and histories. I would say, Fed has definitely overprinted the greenbacks but we are trading in dollar bills for almost every commodities. Even Bursa has just open up trading for CPO in USD. Fed will not be that stupid to keep overprinting the dollars to the extend that everyone starting to ditch it.

Guess what , MYR is more vulnerable compared to USD. Given a choice, I would rather keep USD than keeping MYR. Let's see how USD goes for the next two months. Will it slide back to 3.15 again, based on your judgment that USD will collapse in short term? I guess you will have to dream about it ,:).

Pek Yew said...

I rather keep a barrel of crude oil than keeping USD ^^