My two bits ...
Message 17515000
<<Demand for dollars in the world is not primarily driven by its appreciation potential. Ethnic Chinese within East Asia hold most of the dollars offshore.>> Yes, he be talking about folks like Jay …
Message 14861804
<<Ethnic Chinese apparently measure their wealth in US dollars and consider holding other currencies as speculative>> Yes sir, he is right.
<<There are complicated historical, social and political reasons for this strong dollar preference>> Yes, but
<<which would only change with fundamental political changes in the Chinese societies in East Asia. This is a distant prospect>> does not have to be true. The wealth is denominated and kept in large part in USD because we have little faith in the local governments where we live (China, Malaysia, Singapore, Hong Kong, Taiwan, Philippines, Indonesia, Thailand … Trinidad and Tobago). And we are beginning to feel edgy about the US in the same way.
<<Chinese in Hong Kong and Taiwan hold thousands of dollars per capita in foreign currency deposits>> Yup, down to the Rolex-wearing lady that sells fish.
<<China … $100>> but multiplied by … and if folks prefer their savings in monetary gold when they are allowed to own it, in 36 months.
<<The development of China could increase demand for dollars in East Asia by US$2 trillion over the next 10 years alone>>
Not so fast, not if US does as the Pentagon wants, stop selling high-tech goodies to China. Not if Australian food replaces Indiana corn during trade war. Not if Japanese factories that has been transplanted to China starts turning out the stuff that China had purchased from the US (chip manufacturing equipment). Not if Sino-Russian trade and cross-border investments heats up. Not if …
Anticipation is a survival trait.
Oh, yes, and not if the US starts having to buy a lot more from China but denominated in non-US currency, or that such USD proceeds are exchanged for other currency.
<<In addition to the unique demand for dollars among Chinese, the dysfunctional banking systems of Japan and China are the other equally important factor. Interest rates are exceptionally low in these economies due to inefficient capital allocation, which has probably increased the savings rates there. The higher interest rate in the US has served to lure Asian savings there>>
I think Andy is limiting his imagination here. After Argentina, I would have thought folks distaste for the banking system extends to their USD savings account as well. Most of China’s private foreign exchange savings are with onshore banks (even if the cash is offshore), and so folks may switch to metallic savings when allowed, especially if the interest rate stays low.
<<We could characterize the dollar strength as a bubble in the sense that, when Asian structural problems are solved, the dollar demand will weaken substantially and, hence, the dollar value against East Asian currencies will decline. But, only banking reforms in China and Japan would bring about such an outcome>> Not true. The US is doing its best effort in bringing down the USD construct through degradation of …
(a) confidence in political leadership at the top
(b) fiscal responsibility at the grassroots level
(c) monetary prudence at the FED level
and all the problems in Asia is making the relative price levels at home and in US (PPP and expected returns vs. risk) more favorable at home.
<<in our view. The dollar's fate doesn't really depend on what is happening in the US>>
… I believe Andy is very wrong on this point.
<<The US dollar is basically the proxy for renminbi under China's pegged exchange rate>> Yes, and thus the danger, especially as China, having feasted on (took exports from) Thailand, Philippines and Indonesia, is starting to snack on Taiwan, while eyeing Korea and aging Japan in the pantry. By the time the structural adjustment, hidden within a cyclical movement, is complete, the world will have changed, seemingly overnight. Remember how surprised folks were when the Berlin Wall came down, marveling, ‘oh whoa, how fast did that happen’, when the true answer was 45 years.
<<As the region's currencies appreciate, the stock markets will obviously struggle>> yes, and I am very excited about the prospects in my neighborhood, almost giddy with bullish anticipation, otherwise known as optimism. |
