Subject of reserve currency has been brought up again and, just as before, it came from China. This time around, China Construction Bank, which is second largest bank in the country, announced that it was exploring offering Yuan denominated trade finance credit. If accepted by international customers, this could pave way to make the Chinese currency more widely used. A small step in a series of initiatives that would undermine the role of Dollar as a de facto international currency.
This particular move is not expected to gain wide acceptance if for one very simple reason – Renminbi is not a free floating currency. Chinese currency is limited to move within bounds set by their Central Bank. So, these kind of arrangements will work fine as long as a customers use these credits in China. However, problems will arise should they be redeemed for use elsewhere. Holder of such credits might have to realize losses trying to spend these credits outside of China. Unless China Construction Bank guarantees them (the credits) in some form, they are not likely to be very popular. Of course, this would involve an outside medium (dollar, euro, gold?), defeating the purpose for which these credits are intended.
This year has seen a lot of proposals, ideas rather, of how to replace international role of USD. Special Drawing Rights have been widely discussed along with the old stand by, the Gold Standard. Among countries calling for revival of Gold Standard is Russia. It is ironic, because electing backing ones currency with gold, would require fiscal responsibility on behalf of governments, something that Russia has failed to show. They are just as bad as we are. For better or worse, we are stuck with the dollar as the reserve currency during most immediate future.
My trade in GBP-JPY… In the end I simply closed it when markets opened.
When in doubt, stay out. For whatever reason this trade was making me uncomfortable, so took almost 200 pips. Currently price is right back where my exit happened. I have new buy order at 160.62 with a target of 163.50. Depending on how the price behaves I might look for an entry sooner, but not today.
While waiting for the beast to start “talking” to me again, I’m moving somewhere else.
Swiss Franc is showing weakness again, and this particular pair, CAD-CHF looks good for a breakout trade. Hourly chart is used with a buy at 0.9780. Depending on when it happens, I will change it to 0.9785. This will be done because of widening spreads during less active time of the day. This set up presents very modest objective of 0.9850.
Next couple of days should clarify the picture of GBP-JPY, and all JPY crosses for that matter. Then I can plan next trades.
Mike K.
[...] Original post by fxmadness.com [...]
Don’t have much faith in Russian fiscal responsibility? Perhaps going on the gold standard would make them be more money wise?
They do a lot of talk on the subject. Instead of posturing and making silly statements, why not simply adopt the gold standard and show everybody how it’s done. They would drop it in 2-3 years.
Not very upbeat on Russia, are you?
Interesting about the Yuan. Why do you think the Chinese are unwilling to float it?
Stan, should Yuan be floated it is likely to appreciate rapidly, much too fast for comfort to Chinese officials.
Your cad/chf long position arrived at destination. Nice trade. Surprised you didn’t go for more pips. I’m trying 0.9900.
I’m happy with the 70 pips. It was intended to be a short term play and I keep it as such.
[...] a little stronger, which is good, as well as Canadian Dollar, also a welcome development. Trade in CAD-CHF from yesterday worked out very well. Premise was to buy it at 0.9780, with a target of 0.9850. [...]