Thursday, 20 September 2007

Linkage

Gathering storm?


Two scary articles in the Telegraph:

  • September 20: Fears of dollar collapse as Saudis take fright
    Saudi Arabia has refused to cut interest rates in lockstep with the US Federal Reserve for the first time, signalling that the oil-rich Gulf kingdom is preparing to break the dollar currency peg in a move that risks setting off a stampede out of the dollar across the Middle East.

    "This is a very dangerous situation for the dollar," said Hans Redeker, currency chief at BNP Paribas.

    "Saudi Arabia has $800bn (£400bn) in their future generation fund, and the entire region has $3,500bn under management. They face an inflationary threat and do not want to import an interest rate policy set for the recessionary conditions in the United States," he said.

    The Saudi central bank said today that it would take "appropriate measures" to halt huge capital inflows into the country, but analysts say this policy is unsustainable and will inevitably lead to the collapse of the dollar peg.
  • August 10: China threatens "nuclear option" on dollar sales
    Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress.
    ...
    Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.
    ...
    A bill drafted by a group of US senators, and backed by the Senate Finance Committee, calls for trade tariffs against Chinese goods as retaliation for alleged currency manipulation.
Note that today the Canadian dollar hit parity with the U.S. dollar for the first time in 31 years:
The Canadian dollar rose as high as $1.0008, before retreating to 99.87 U.S. cents at 4:16 p.m. in New York. It has soared 62 percent from a record low of 61.76 U.S. cents in 2002. The U.S. dollar fell as low as 99.93 Canadian cents today. The Canadian currency last closed above $1 on Nov. 25, 1976, when Pierre Trudeau was Canada's prime minister.

UPDATE 070921 23:05: Some discussion of the China story at Daily Pundit.

Posted by: Old Grouch in Linkage at 22:20:34 GMT | No Comments | Add Comment
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