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Source: https://www.scmp.com/comment/opinion/article/3224571/us-dollar-yuan-divergence-trade-could-spin-out-control-without-intervention-china-soon

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(Bloomberg) — The U.S. dollar has extended its dominance in Venezuela as locals increasingly turn to the greenback for even the smallest of purchases.

Physical dollars now account for more than half of all retail transactions as the amount in circulation has increased to as high as $2.7 billion, according to data from the Caracas-based research firm Ecoanalitica. That’s three times the value of all the cash bolivars in existence combined with the amount of local currency held in checking and savings accounts, the data show.

The dollar has taken hold of the economy following years of devaluations and hyperinflation that eroded the value of the bolivar to a level that hovers just a hair above worthless, and amid a shortage of local-currency notes. Rather than putting in the work to assemble a big enough pile of bolivar notes and dragging them around in bags, it’s more practical for Venezuelans to conduct their commerce in dollar bills flown into the country as remittances or picked up at exchange houses at the borders of Colombia and Brazil.

While until recently it was illegal to transact in U.S. currency, those restrictions have all but evaporated in any practical sense. Even the authoritarian President Nicolas Maduro, who has generally tried his best to keep an iron grip over the economy, has accepted the transition as the country suffers from a crippling economic crisis that has caused mass emigration amid growing poverty. Things are so bad, and the bolivar so weak, that Venezuela has struggled to print enough physical bolivar bills to keep up with the devaluation.

“That process that they call dollarization can help the recovery of the country, the spread of productive forces in the country, and the economy,” Maduro said in a televised interview last month. “Thank God it exists.”

Venezuela’s reliance on overseas currency also goes beyond greenbacks. Amid sanctions that limit the country’s access to the mainstream global financial system, the state-owned oil company has been known to conduct transactions in Chinese yuan, and the central bank has recently been looking into the possibility of using cryptocurrencies such as Bitcoin or Ether.

More recently, Maduro’s regime has been stuffing the economy with the euros that the government gets from oil and gold sales. New rules require local banks to sell the European currency every week in an effort to reduce pressure on the bolivar. There may be as many as 1 billion euros circulating in the economy at this point, according to Asdrubal Oliveros, the director of Ecoanalitica.

With Bloomberg’s local inflation gauge — the Cafe Con Leche Index — running at an annual rate of 8,900%, it’s unlikely the bolivar will be making a comeback anytime soon. In the meantime, it’s gonna take 40,000 of them to buy a dollar.

–With assistance from Fabiola Zerpa.

To contact the reporter on this story: Alex Vasquez in Caracas Office at avasquez45@bloomberg.net

To contact the editors responsible for this story: Patricia Laya at playa2@bloomberg.net, Brendan Walsh, Dave Liedtka

Source: https://www.bnnbloomberg.ca/there-are-more-dollars-in-venezuela-now-than-there-are-bolivars-1.1356829

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The US wants its fiat dollar system to prevail for as long as possible. It has every interest in preventing a “rush out of dollars towards gold”, as happened in the 1970s. Since then, bankers have been trying to exercise control over the precious metal’s price. This war on gold has been ongoing for almost 100 years but gained traction in the 1960s with the forming of the London Gold Pool – whose members included the US, UK, Netherlands, Germany, France, Italy, Belgium and Switzerland.

During meetings of central bank chiefs at the Bank for International Settlements in 1961, the eight participating countries agreed to make available a gold pool worth US$270 million. This was focused on preventing the gold price from rising above US$35 per troy ounce, as set during Bretton Woods, by selling official gold holdings from the central banks’ gold vaults.

However, in March 1968, the pool was disbanded because France would no longer cooperate. This signaled the start of a 13-year “bull market” and sent gold to more than US$800 per troy ounce in 1980.

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The dollar traded higher against a basket of currencies on Monday amid fears of a potentially major escalation in the China-U.S. trade conflict, while Sweden’s crown rose following the previous day’s election.

U.S. President Donald Trump warned on Friday that he was ready to slap tariffs on virtually all Chinese imports into the United States, threatening duties on another $267 billion of goods in addition to the $200 billion already facing the risk of duties.

“If there are any signs that the U.S. economy is finally hit by its own protectionist moves, then I think that’s the start of full-blown risk aversion,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

“This will at least lead to the weakness of the dollar against the yen,”

Yamamoto said. He warned markets didn’t yet fully price in the impact of U.S. tariffs on virtually all imports from China.

The dollar index, which measures the greenback against a basket of six currencies, traded about 0.1 percent higher at 95.472, not far off a three-week high of 95.737 hit on Tuesday last week.

The index also found support after data showed U.S. jobs growth accelerated in August and wages notched their largest annual increase in more than nine years, boosting the prospect of faster interest rate rises by the Federal Reserve.

Still, markets remained on edge about a possible new round of U.S. tariffs on imports from China.

Investors have been waiting for a fresh salvo to be fired in the Sino-U.S. trade war after a public comment period for proposed U.S. tariffs on a list of $200 billion worth of Chinese imports, which includes some consumer products, ended late last week.

An emerging market currency index dipped more than 0.4 percent on Monday after booking its biggest weekly loss in three weeks last week.

“Further tariffs are likely to lead to a weaker Chinese yuan and stronger dollar, and I think emerging market currencies will fall in response,” said Minori Uchida, chief currency strategist at MUFG Bank.

The Swedish crown strengthened after an election in the country on Sunday that saw support for the nationalist Sweden Democrats surge.

One of the negative drivers for the Swedish crown before the election has been hedging activity against a strong showing by the Sweden Democrats, but the outcome avoided the worst of the market’s fears even as the nation headed for a hung parliament.

The Swedish crown rose about 0.6 percent against the euro to 10.43 crowns.

The pound was flat at $1.2915 after Steve Baker, a former junior Brexit minister told the Press Association that British Prime Minister Theresa May’s Conservative Party faces a “catastrophic split” if she persists with her so-called Chequers proposals on Brexit.

The euro was 0.1 percent lower at $1.1544 after falling more than half a percent during the previous session in the wake of the U.S. job data.

The Australian dollar edged lower, last trading at $0.7100, pinned near a 2-1/2-year low of $0.7097 touched earlier in the day.

Source: https://www.cnbc.com/2018/09/10/forex-markets-us-dollar-china-us-trade-in-focus.html

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Manly exclusively told RT that there is a shift occurring regarding the two countries building up their gold reserves, to perhaps returning to gold-backed currencies in the future and a move away from the global dominance of the US dollar, which is no longer supported by gold.

“China and Russia have both been aggressively accumulating their official gold reserves over the last 10 – 15 years,” he said, adding that only a decade ago each of them held around or less than 400 tons. “But now both these nations hold a combined 3670 tons of gold.”

“Interestingly, both Russia and China publicize and promote their accumulations of gold and publicly refer to gold as a strategic monetary asset. They make no secret of this. But on the flipside, the US does the opposite, and constantly downplays the strategic role of gold.”

According to Manly, for Russia and China gold is the only strategic monetary asset that could provide independence from the US dollar.

Manly said the sides could conceivably be holding a lot more gold than they declare in their official reserves due to many channels through which they could buy the precious metal.

“If China and Russia combined showed that they held more gold on a combined basis than the US, this would, even symbolically, be a blow to the US dollar and to the position of the US in the global economy,” the expert concluded.

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Source: https://www.garnertedarmstrong.org/wp-admin/post-new.php

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Quoted by Reuters, Ryabkov said that “we will of course intensify work related to import substitution, reduction of dependence on U.S. payment systems, on the dollar as a settling currency and so on. It is becoming a vital need.” The reason for that is that “the US is using its dominating role in the monetary and financial system to impose pressure on foreign business, including Russian companies.”

As a reminder, three years ago the MasterCard payment system stopped serving clients of seven Russian banks without warning after Washington imposed its first set of sanctions on Moscow in 2014. In response, the Russian government ordered the creation of a national payment system. With the support of the country’s banking system, the Mir charge card was introduced in 2015, although there is no information on what its adoption rate has been in the following years.

As we discussed previously, as part of the latest set of Russian sanctions the US has imposed new restrictions on the Russian banking and energy sectors: the ban targets already sanctioned Russian firms, limiting the financing period for them to 14 and 60 days. Additionally, the new law will punish individuals for investing more than $5 million a year or $1 million at a time in Russian energy export pipeline projects or providing such enterprises with services, technology or information support, a provision that has drawn strong condemnation from Washington’s European allies.

US energy companies criticized the tightening of already existing sanctions as damaging for business. At the same time, the European Union expressed concerns the new penalties may undermine the bloc’s energy security. European Commission head Jean-Claude Juncker pledged to prepare an “adequate” response and “within days” if the measure hurt the interests of European companies. So far Europe has to elaborate on what, if any, retaliation to the sanctions it will unveil.

Source: http://www.zerohedge.com/news/2017-08-07/russia-cut-dependence-us-dollar-payment-systems

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