Comments on: Has China lost interest in the euro? http://blogs.cfr.org/setser/2008/05/07/has-china-lost-interest-in-the-euro/ Sat, 21 Nov 2009 16:40:10 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: Guest http://blogs.cfr.org/setser/2008/05/07/has-china-lost-interest-in-the-euro/#comment-107562 Guest Sun, 11 May 2008 22:21:36 +0000 http://blogs.cfr.org/setser/2008/05/07/has-china-lost-interest-in-the-euro/#comment-107562 current currency "paradigm" is that the more rampant inflation in a country is, the more it is expected to appreciate. before bringing the case of Ukraine, you might want to check what is the credit growth doing in that country. inflation in most of these mismanaged countries has got NOTHING to do with the peg & "dollar weakness". same thing in China - loan growth is consistently above nominal GDP, yet nobody figures out PRC is a bigger money printer than US. it will all come back to roost, and eventually hryvnias and yuans of this world will fall against the dollar, not rise. current currency "paradigm" is that the more rampant inflation in a country is, the more it is expected to appreciate. before bringing the case of Ukraine, you might want to check what is the credit growth doing in that country. inflation in most of these mismanaged countries has got NOTHING to do with the peg & "dollar weakness". same thing in China – loan growth is consistently above nominal GDP, yet nobody figures out PRC is a bigger money printer than US. it will all come back to roost, and eventually hryvnias and yuans of this world will fall against the dollar, not rise.

]]> By: RebelEconomist http://blogs.cfr.org/setser/2008/05/07/has-china-lost-interest-in-the-euro/#comment-107561 RebelEconomist Sat, 10 May 2008 20:11:15 +0000 http://blogs.cfr.org/setser/2008/05/07/has-china-lost-interest-in-the-euro/#comment-107561 But how did the European importers obtain the dollars to pay the Chinese, Brad? By buying them in the market, so Chinese selling of dollars vs euros is conditional on someone else buying (more) dollars vs euro first. This is the problem I have with Macroman's thesis. But how did the European importers obtain the dollars to pay the Chinese, Brad? By buying them in the market, so Chinese selling of dollars vs euros is conditional on someone else buying (more) dollars vs euro first. This is the problem I have with Macroman’s thesis.

]]> By: bsetser http://blogs.cfr.org/setser/2008/05/07/has-china-lost-interest-in-the-euro/#comment-107560 bsetser Sat, 10 May 2008 19:17:23 +0000 http://blogs.cfr.org/setser/2008/05/07/has-china-lost-interest-in-the-euro/#comment-107560 i don't doubt that China's surplus with the US is falling, but there is a lot of seasonality in the data. US imports from China always peak in Oct/ Nov before falling off in q1. The US holidays = more demand for Chinese goods in q4; the chinese holidays in q1 = less production.<br><br><br><br>there is no necessary connection though between china's trade with europe and its euro/ dollar sales. so long as European importers are paying Chinese producers in dollars - and the Chinese producers are selling dollars to the central bank -- the central bank is still accumulating dollars. <br><br><br><br>the number of dollars it subsequently needs to sell to meet its portfolio target will then be a function of:<br><br><br><br>a) the number of dollars it is buying (more it buys, the more it needs to sell)<br><br>b) the existing composition of China's portfolio<br><br>c) moves in the euro dollar -- if the euro's value rises, china needs to buy fewer euros to hit its portfolio target.<br><br>c) the desired composition of China's portfolio. if China wants to lower the $ share of its portfolio, it has to sell more $.<br><br><br><br>At least that is how i see it. i don’t doubt that China’s surplus with the US is falling, but there is a lot of seasonality in the data. US imports from China always peak in Oct/ Nov before falling off in q1. The US holidays = more demand for Chinese goods in q4; the chinese holidays in q1 = less production.

there is no necessary connection though between china’s trade with europe and its euro/ dollar sales. so long as European importers are paying Chinese producers in dollars – and the Chinese producers are selling dollars to the central bank — the central bank is still accumulating dollars.

the number of dollars it subsequently needs to sell to meet its portfolio target will then be a function of:

a) the number of dollars it is buying (more it buys, the more it needs to sell)

b) the existing composition of China’s portfolio

c) moves in the euro dollar — if the euro’s value rises, china needs to buy fewer euros to hit its portfolio target.

c) the desired composition of China’s portfolio. if China wants to lower the $ share of its portfolio, it has to sell more $.

At least that is how i see it.

]]> By: Anonymous http://blogs.cfr.org/setser/2008/05/07/has-china-lost-interest-in-the-euro/#comment-107559 Anonymous Fri, 09 May 2008 23:00:28 +0000 http://blogs.cfr.org/setser/2008/05/07/has-china-lost-interest-in-the-euro/#comment-107559 Macro Man in his blog today, makes a similar argument, that the BRIC central banks now need to purchase fewer Euros to maintain portfolio benchmarks (http://macro-man.blogspot.com/2008/05/has-voldemort-fallen-out-of-love-with.html). Macro Man in his blog today, makes a similar argument, that the BRIC central banks now need to purchase fewer Euros to maintain portfolio benchmarks (http://macro-man.blogspot.com/2008/05/has-voldemort-fallen-out-of-love-with.html).

]]> By: DoctorK http://blogs.cfr.org/setser/2008/05/07/has-china-lost-interest-in-the-euro/#comment-107558 DoctorK Fri, 09 May 2008 22:45:34 +0000 http://blogs.cfr.org/setser/2008/05/07/has-china-lost-interest-in-the-euro/#comment-107558 The trade figures today indicated that China’s trade balance with the United States is shrinking fast. In March, it came to $16.1 billion, the lowest figure for any month in two years and nearly $10 billion below the peak monthly figure of $25.9 billion, reached in October (http://norris.blogs.nytimes.com/2008/05/09/chinese-reversal/). If China's trade balance with Europe remained stable, would not China have to sell Euro's to maintain a fixed US dollar to euro reserve ratio? The trade figures today indicated that China’s trade balance with the United States is shrinking fast. In March, it came to $16.1 billion, the lowest figure for any month in two years and nearly $10 billion below the peak monthly figure of $25.9 billion, reached in October (http://norris.blogs.nytimes.com/2008/05/09/chinese-reversal/). If China’s trade balance with Europe remained stable, would not China have to sell Euro’s to maintain a fixed US dollar to euro reserve ratio?

]]> By: RebelEconomist http://blogs.cfr.org/setser/2008/05/07/has-china-lost-interest-in-the-euro/#comment-107557 RebelEconomist Fri, 09 May 2008 17:41:47 +0000 http://blogs.cfr.org/setser/2008/05/07/has-china-lost-interest-in-the-euro/#comment-107557 Having discussed Macroman's idea of what drives eurodollar on his blog, I understand his argument, but I am still not entirely convinced. His mechanism depends on China being forced to intervene against sales of borrowed dollars, which I guess is most relevant when there is speculation of an imminent revaluation of the renminbi. Personally, I think that the news matters; given the day's news, I reckon I could tell you at least the direction of eurodollar that day. For example, hints that the Fed is done easing = dollar strengthening; hawkish talk from Trichet = dollar weakening.<br><br><br><br>By the way, I presume DC's figures about the insignificance of potential Chinese currency reallocation are rhetorical - do the math! Having discussed Macroman’s idea of what drives eurodollar on his blog, I understand his argument, but I am still not entirely convinced. His mechanism depends on China being forced to intervene against sales of borrowed dollars, which I guess is most relevant when there is speculation of an imminent revaluation of the renminbi. Personally, I think that the news matters; given the day’s news, I reckon I could tell you at least the direction of eurodollar that day. For example, hints that the Fed is done easing = dollar strengthening; hawkish talk from Trichet = dollar weakening.

By the way, I presume DC’s figures about the insignificance of potential Chinese currency reallocation are rhetorical – do the math!

]]> By: gillies http://blogs.cfr.org/setser/2008/05/07/has-china-lost-interest-in-the-euro/#comment-107556 gillies Thu, 08 May 2008 19:30:30 +0000 http://blogs.cfr.org/setser/2008/05/07/has-china-lost-interest-in-the-euro/#comment-107556 china's impact may come from choosing their moment - plus the psychological effect of a general belief that chinese policies have changed.<br><br><br><br>how much money did saddam hussein shift when he switched from the dollar to the euro ? hard to beat his move for timing plus impact.<br><br><br><br>- and 100 dollars invested in i b m stock can shift the markets under certain conditions.<br><br><br><br>- so can plunge protection teams.<br><br><br><br>and china's move to sell the euro, and support their own currency by buying the dollar - if it turns out to be the case - was predicted on this site. so argue all you want, but don't stop reading it . . . china’s impact may come from choosing their moment – plus the psychological effect of a general belief that chinese policies have changed.

how much money did saddam hussein shift when he switched from the dollar to the euro ? hard to beat his move for timing plus impact.

- and 100 dollars invested in i b m stock can shift the markets under certain conditions.

- so can plunge protection teams.

and china’s move to sell the euro, and support their own currency by buying the dollar – if it turns out to be the case – was predicted on this site. so argue all you want, but don’t stop reading it . . .

]]> By: bsetser http://blogs.cfr.org/setser/2008/05/07/has-china-lost-interest-in-the-euro/#comment-107555 bsetser Thu, 08 May 2008 13:46:17 +0000 http://blogs.cfr.org/setser/2008/05/07/has-china-lost-interest-in-the-euro/#comment-107555 macroman -- thanks for the tidbit. no doubt DC gave them a call indicating that they could no buy w/o moving the market. note the BoR reserves data as well -- up over $25b in April. that is a lot of $ that would need to be sold for euros to hit russia's portfolio target.<br><br><br><br>judy -- no guarantees. china isn't a forced seller b/c of leverage(so long as its reserves are constant). but if it moved big sums around quickly it could cause a bit of disruption. and well china's continuous appreciation v the $ was smooth but it also caused china some problems, so it seems to be reconsidering ... macroman — thanks for the tidbit. no doubt DC gave them a call indicating that they could no buy w/o moving the market. note the BoR reserves data as well — up over $25b in April. that is a lot of $ that would need to be sold for euros to hit russia’s portfolio target.

judy — no guarantees. china isn’t a forced seller b/c of leverage(so long as its reserves are constant). but if it moved big sums around quickly it could cause a bit of disruption. and well china’s continuous appreciation v the $ was smooth but it also caused china some problems, so it seems to be reconsidering …

]]> By: Judy Yeo http://blogs.cfr.org/setser/2008/05/07/has-china-lost-interest-in-the-euro/#comment-107554 Judy Yeo Thu, 08 May 2008 13:40:49 +0000 http://blogs.cfr.org/setser/2008/05/07/has-china-lost-interest-in-the-euro/#comment-107554 volumes are a product of tons of money moving around quickly b/c a lot of big players don't want big open positions. China's impact comes from the fact that it is holdings euros and dollars unhedged and thus is a big net buyer of both. <br><br><br><br>Brad<br><br><br><br>Agree with 2 fish , the problem is 'cos the trade takes place at such speed (partly 'cos the margins are razor-thin) the real impact of trades may not appear till some time later- though the SG case was in index futures, the back office ops are pretty much standard. A trader who doesn't take a holiday is probably the only employee who's not seen as a better worker - after all, one who covers his tracks/trades can't do that out of office or so it's alleged. <br><br><br><br>If China is an unhedged buyer of both, could it then be assumed that any downward trajectory will be a smooth and steady one? volumes are a product of tons of money moving around quickly b/c a lot of big players don’t want big open positions. China’s impact comes from the fact that it is holdings euros and dollars unhedged and thus is a big net buyer of both.

Brad

Agree with 2 fish , the problem is ‘cos the trade takes place at such speed (partly ‘cos the margins are razor-thin) the real impact of trades may not appear till some time later- though the SG case was in index futures, the back office ops are pretty much standard. A trader who doesn’t take a holiday is probably the only employee who’s not seen as a better worker – after all, one who covers his tracks/trades can’t do that out of office or so it’s alleged.

If China is an unhedged buyer of both, could it then be assumed that any downward trajectory will be a smooth and steady one?

]]> By: Macro Man http://blogs.cfr.org/setser/2008/05/07/has-china-lost-interest-in-the-euro/#comment-107553 Macro Man Thu, 08 May 2008 13:38:47 +0000 http://blogs.cfr.org/setser/2008/05/07/has-china-lost-interest-in-the-euro/#comment-107553 ..and right on cue, China comes back and starts buying euros today...and it's higher. I guess DC had a word with his guv'nor that it's time to start buying again... ..and right on cue, China comes back and starts buying euros today…and it’s higher. I guess DC had a word with his guv’nor that it’s time to start buying again…

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