You are currently browsing the Capital Comments weblog archives for the day 26. April 2009.
26. April 2009 by Dan Walkow, CFA, CMT.
China central bank governor Zhou Xiauchuan’s remarks made in March for the eventual replacement of the U.S. dollar as the world’s main currency with special drawing rights (SDR), the quasi-currency issued by the International Monetary fund is becoming a hot topic amongst world central bankers.
Chinese central bank reserves are about 60% US dollars and 31% Euros. If the Chinese realligned their currency reserves along SDR lines then the USD dollar allocation falls to 44% and the Euro goes up to 34%. The Canadian dollar is such as small player in world currency markets that the allotment to CAD dollars is relatively small. However I am of the opinon the allocation would go up and not down. How much who knows but it would not be unrealistic to see CAD/USD over par and perhaps more.
Europeans are not keen to have the Euro increase in value as it makes for a higher cost economic area. If the Chinese reduce their USD holdings by a third and increase the holdings of Euros any competitive advantage Europe has is eroded.
Our bullish stance on gold, precious metals and investments that benefit from a decline in the USD continue. For those investors who believe that the long term direction of the Chinese currency is up there is a new exchange-traded fund that allows investors to invest accordingly. Investing in yuan may not be suitable for all investors and you want to give us a call to discuss whether such an investment is appropriate for you. Recently the Chinese have been consummating trade deals for settlement in yuan rather than insisting that trade settlements are done in USD or EUROS. This can only be bullish for the yuan.
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