Et tu, Argentina?
Argentina apparently bought $2.1b in the foreign exchange market over the past three weeks. Brazil – if you are keeping tabs – bought around 3.65b. The southern cone seems to have joined Bretton Woods 2 …
I spent most of 2001 working on Argentina in one way or another, and I never thought I would see the day when Argentina added $2b to its reserves in a month, let alone is on track to add well over $2b. Just to put this kind of inflow in perspective, in 2001, Argentina lost $20b of reserves (net of IMF lending) through the course of the year. That works out to an average monthly reserve loss of well under $2b.
Some of Argentina’s reserve growth comes from its trade surplus – this is the time of the wheat harvest in the southern hemisphere, and wheat is kind of high right now. The country that Paul O’Neil famously said couldn’t export ran a $12.5b trade surplus in 2006 But some presumably comes from capital inflows. Investors may be worried that Ecuador is about to "pull an Argentina," but they don’t have similar worries about Argentina. At least not now.
Incidentally, it is a bit unfair to attribute Argentina’s default to Kirchner. He wasn’t the President back in 2001. He is, by contrast, the one responsible for Argentina’s decision to stay in default for an extended period of time and to demand a deep haircut from Argentina’s creditors. He put the government of Argentina on a course where it had little need to borrow from global markets to finance ongoing fiscal deficits.
One of the things that has most surprised me over the past few years is just how willing countries that don’t exactly see eye to eye with the United States have been to finance the US by building up their dollar reserves.
That applies to countries liek Argentina that have a somewhat different view of economic policy than the US and countries like Venezuela that have a very different view of economic policy than the US. Venezuela apparently still has 80% of its reserves in dollars, even they aren’t held onshore in the US for political reasons. That applies to countries like China and Russia, which seem a bit more keen on "bureaucratic" capitalism and state control than US, aren’t so keen on little things like democracy and presumably have a slightly different conception than the US of the world’s future geopolitical order. And it applies to the various sheikdoms in the Middle East, which presumably have a very different vision of the “new Middle East” than the Bush Administration.
Dang, even more peggers. It kind of fits the Bretton Woods II script I must admit. Oh well, caveat emptor. Here’s Andrew Lloyd Webber on Argentina’s reserve buying turn in the first stanza below; the second stanza deals with BW2 (I think):
I had to let it happen, I had to change
Couldn’t stay all my life down at heel
Looking out of the window, staying out of the sun
So I chose freedom
Running around, trying everything new
But nothing impressed me at all
I never expected it to
I’d be investing in US bonds too, if I had access to $331 billion worth of Japanese Yen virtually cost-free, wouldn’t you?
http://www.sirchartsalot.com/article.php?id=49
just a thought – is there anything to stop the u s creating a second fiat currency – call it the ‘domestic dollar’ and letting it fall against the reserve dollars to which the chinese are pegged ?
it is after all america which is 100% pegged to the global reserve currency . . .
after bush’s endgame – what ? a new game ? bring it on . . .
Gillies:
I have thought about the same thing.
According to everything I have read, the AMERO will be the new currency used for the new North American Union. It will be used domestically for Canada, United States and Mexico.
I don’t believe the AMERO will be used to replace the Dollar. The Dollar could then be just used as the world reserve currency – possibly partially backed by gold and/or oil – to keep it as the world reserve currency.
Then the AMERO could be devalued against the Dollar, perhaps forcibly like what happened to the Argentine peso in 2002. Just think, if the U.S. devalues 3 to 1, 2/3rds of the U.S. debt would be gone! Presto! Of course, citizens would have a hard time adjusting, but would eventually get used to it. And, creditors could get stiffed as well, but, oh well, that’s the way it is with fiat currencies. There is no way to determine value.
This is one way to end Bretton Woods II.
BTW, it looks like the AMERO and North American Union are going to happen regardless of what any of the citizens think about it.