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India is the first buyer of Iranian oil to agree to pay for its purchases in gold instead of the US dollar, debkafile's intelligence and Iranian sources report exclusively. Those sources expect China to follow suit. India and China take about one million barrels per day, or 40 percent of Iran's total exports of 2.5 million bpd. Both are superpowers in terms of gold assets.
By trading in gold, New Delhi and Beijing enable Tehran to bypass the upcoming freeze on its central bank's assets and the oil embargo which the European Union's foreign ministers agreed to impose Monday, Jan. 23. The EU currently buys around 20 percent of Iran's oil exports.
The vast sums involved in these transactions are expected, furthermore, to boost the price of gold and depress the value of the dollar on world markets.
Iran's second largest customer after China, India purchases around $12 billion a year's worth of Iranian crude, or about 12 percent of its consumption. Delhi is to execute its transactions, according to our sources, through two state-owned banks: the Calcutta-based UCO Bank, whose board of directors is made up of Indian government and Reserve Bank of India representatives; and Halk Bankasi (Peoples Bank), Turkey's seventh largest bank which is owned by the government.
An Indian delegation visited Tehran last week to discuss payment options in view of the new sanctions. The two sides were reported to have agreed that payment for the oil purchased would be partly in yen and partly in rupees. The switch to gold was kept dark.
India thus joins China in opting out of the US-led European sanctions against Iran's international oil and financial business. ...
China and the United Arab Emirates on Tuesday signed a currency swap agreement worth 35 billion yuan ($5.54 billion), the People's Bank of China said, adding that the deal was effective for three years and would boost two-way trade and investment.
The agreement signed in Dubai was announced while Chinese Premier Wen Jiabao tours the Middle East, including the Emirates, and is the latest in a string of arrangements to facilitate greater use of China's yuan in international trade.
The PBOC announced the deal on its website (www.pbc.gov.cn) and said it was worth 20 billion dirhams, the UAE's currency.
In the first 11 months of 2011, trade between China and the UAE grew to $32.0 billion in value, a rise of 38.2 per cent on the same period in 2010, according to Chinese customs data. Chinese exports to the UAE, worth $24.3 billion, dominated that trade.
The UAE is a relatively modest exporter of crude to China. In the first 11 months of 2011, it shipped 6.4 million tonnes of crude to China, a rise of 26 per cent on the same period in 2010.
China has signed a series of currency swap agreements in recent years with key trading partners in a bid to boost the use of the yuan for the direct settlement of international trade. Other countries that have signed such deals recently include Thailand and South Korea.
Beijing's long-term ambition is to unseat the dollar as the dominant unit of international settlement for cross-border trade in goods and services, especially now that China is the world's single largest exporting nation and the second largest importer.
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Venezuelan officials completed a two-month process of repatriating 160 tons of the country's gold holdings Monday, by welcoming home the final shipment of the precious metal from Europe.
Declaring the process a "mission accomplished," government officials and state news crews met the 14-ton load at a Caracas area airport and heralded the televised event as a boost to national sovereignty.
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The State Bank of Vietnam is keeping a close eye on developments at the national gold market. In order to control the flight from the dong and the outflow of capital from the country, last year the central bank set limits on gold trading and significantly reduced the number of licensed refiners officially allowed to produce gold bars. From November 2011 onwards all companies wishing to continue their operations had to hold a minimum of 500 billion dong in funds and a market share of 25%. These requirements have forced many smaller producers out of business.
In an interview published at the end of January on the State Bank of Vietnam's website, governor Nguyen Van Binh states that the right to private ownership of gold will be upheld, but that the Bank is looking at ways of "mobilising" privately held gold. An increasing number of market observers have been long worrying that Vietnam might be heading towards total prohibition of private gold ownership. ...
So far, as a direct result of the government's attempts at limiting the national gold trade, gold prices at the black market have continued to increase in relation to the official price fix and the external value of the dong. Recently the country's banks raised the interest on gold deposits. Analysts take this as an evidence that the central bank is trying to control the gold circulating in Vietnam through commercial banks.
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Few are looking at dollar utilization falling in international contracting and settlement. That is a key element of 2012. The US dollar has enjoyed demand from settlement and contracting which it is now losing daily. Gold is gaining utilization as a competitive currency.
Enormous utilization was the blessing the dollar had when it was the reserve currency of choice. Utilization and settlement is falling fast as the dollar now is the reserve currency by default.
Very few have ever tried to quantify this serendipitous demand for the dollar. Allow me to assure you dollar utilization for these purposes is huge and extremely important to dollar valuation.
2012 is the year the dollar falls as a result of a significant drop in dollar contract and settlement utilization. Imagine the demand for gold as the dollar closes below the antiquated measure of .7200 on the redundant USDX. When this occurs you will be looking back at $2111 from higher levels.
Please keep in mind that this is not a dress rehearsal but rather the real thing. There is no practical means to handle the problems at hand. We are at the dead end of the road the can has been kicked down.
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China expanded a trial of yuan settlement for exports to all companies qualified for foreign trade from a list of designated participants, the nation’s central bank said on its website yesterday.
The change is aimed at promoting trade and the Chinese currency’s cross-border use, the People’s Bank of China said, citing a combined directive with the ministries of finance and commerce, the customs and taxation bureaus and the China Banking Regulatory Commission. A circular on the new policy attached to the announcement is dated Feb. 3.
Premier Wen Jiabao is encouraging the wider use of the yuan in international trade and investment to curb reliance on the U.S. dollar while maintaining some controls on funds flowing in and out of China. Officials have said they want to gradually achieve the yuan’s full convertibility under the capital account by 2015.
U.S. Treasury Secretary Timothy Geithner said on Thursday that he saw no risk to the U.S. dollar from China's efforts to encourage other emerging market economies to use the yuan more in international trade.
"What you're seeing China do is gradually dismantle what were a comprehensive set of very, very tight controls on the ability of countries to use their (the Chinese) currency," Geithner told an event at the Dallas Regional Chamber.
"Over time that will mean — and this is a good thing for the United States — more use of that currency and it will mean the currency will have to reflect market forces ... So, I see no risk to the dollar in those reforms," he said.
China is planning to extend renminbi-denominated loans to its fellow BRICS countries — a grouping that includes China, Russia, South Africa, Brazil and India — in an attempt to boost trade between the leading emerging market nations and promote the use of the yuan, according to the Financial Times.
Geithner said he was skeptical the yuan, or renminbi, would soon become a world currency.
"I don't think so. I don't know, maybe in some long time after we're all gone, it would be possible," Geithner said after he toured a railcar facility here.
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Mexican Finance Minister Jose Antonio Meade said policy makers should avoid unilateral devaluations to boost economic competitiveness, website Emerging Markets reported.
Meade, who is serving as head of the Group of 20 nations, said relying on short-term devaluations will do less to help countries boost growth in the aftermath of the European debt crisis than policies to increase domestic demand, consumption and investment, Emerging Markets said.
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India has failed to reduce its purchases of Iranian oil, and if it doesn’t do so, President Barack Obama may be forced to impose sanctions on one of Asia’s most important nations, Obama administration officials said yesterday.
A decision to levy penalties under a new U.S. law restricting payments for Iranian oil could come as early as June 28, according to several U.S. officials who spoke on condition of anonymity because of the sensitivity of the issue.
“Given the level of trade, and in particular oil, between Iran and India, targeting an Indian entity that facilitates Iran’s access to the international financial market should be top of mind for the U.S. Treasury,” Avi Jorisch, a former Treasury Department official who is now a Washington-based consultant on deterring illicit finance, said in an interview.
The U.S. law, which targets oil payments made through Iran’s central bank, applies to any country that doesn’t make a “significant” reduction in its Iranian crude oil purchases during the first half of this year. If India fails to cut Iranian imports sufficiently, Obama may be compelled to bar access to the U.S. banking system for any Indian bank processing oil payments through Iran’s central bank, the U.S. officials said.
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The United State has threatened to impose sanctions against India if the South Asian country fails to reduce its purchase of crude oil from the Islamic Republic.
“If India fails to cut Iranian imports sufficiently, Obama may be compelled to bar access to the U.S. banking system for any Indian bank processing oil payments through Iran’s central bank,” Bloomberg quoted a US official as saying, on condition of anonymity, on Thursday.
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This comes as India has repeatedly insisted that it will continue to purchase crude oil from the Islamic Republic.
Indian Oil Minister Jaipal Reddy said on February 27, that New Delhi “has cordial relations with Iran and continues to import oil from them.”
In January, Iranian crude exports to India rose to 550,000 barrels a day, up 37.5 percent from December 2011.
India, the world's fourth-largest petroleum consumer, is Iran's second largest oil customer after China and purchases around USD 12 billion worth of Iranian crude every year, about 12 percent of its consumption.
Observers believe that India will press on with its plan to increase trade ties with the Islamic Republic despite fresh Western sanctions.
The Obama administration wants China, India and 10 other nations to present plans detailing how they will curtail Iranian oil imports, saying past cuts aren’t enough to win them an exclusion from new U.S. sanctions.
Secretary of State Hillary Clinton this week granted Japan and European Union countries six-month, renewable exemptions from the measures that take effect June 28, crediting them with “significantly reducing” imports from the Persian Gulf nation.
While China and India, the two biggest buyers of Iran’s crude, have made cuts in recent months and years, they were not granted exemptions. The distinction is that the EU and Japan offered assurances they will go beyond past reductions and continue to curb purchases from the world’s fourth biggest producer, U.S. officials say.
“What we are looking for is for countries to come to us and tell us if they believe that they should be in that category that deserves an exemption, what are the kinds of significant reductions that they are willing to pursue,” said Carlos Pascual, the State Department’s special envoy and coordinator for international energy affairs.
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If a country doesn’t prove it’s making the necessary reductions by the end of June, any institution in that nation that settles petroleum trades through Iran’s central bank will be cut off from the U.S. banking system.
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“China has been importing Iranian crude through normal channels based on our own needs for economic development,” Hong Lei, a foreign ministry spokesman, said at a media briefing yesterday, when asked if the Asian country was considering import cuts from Iran. “China has always been against unilateral sanctions, based on domestic laws, imposed by any one country on another. We especially do not accept unilateral sanctions that are forcibly imposed on a third-party country.”
Sanctions have made it increasingly difficult to insure, ship and pay for Iranian oil. India has used a Turkish bank to route payments to Iran, dealt in currencies such as the rupee and yen, and asked Iran to secure its own ship insurance.
Efforts to arrange barter deals to pay for Iranian oil may be perceived by some in Washington as a means to skirt sanctions, one U.S. envoy said. India and Iran are considering bartering commodities and other products for crude through a rupee account with state-run UCO Bank (UCO), said two people with knowledge of the matter.
“Despite whatever the Indians say about decreasing Iranian oil imports, there are other ways they can continue to get it, through Iraq and Afghanistan, for example,” Barbara Slavin, a senior fellow on Iran at the Atlantic Council, a research institute in Washington, said in an interview. “India has such energy needs, they can’t comply with these sanctions.”
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"If a country doesn’t prove it’s making the necessary reductions by the end of June, any institution in that nation that settles petroleum trades through Iran’s central bank will be cut off from the U.S. banking system."
This is terribly ill advised and poorly timed. It smells like a threat of selective lockout via the Swift system.
At a time when the US dollar is sundering as the major international settlement mechanism this is the last thing that dollar managers should consider. Whoever came up with this idea has no appreciation of two points – the weakness of the Western financial system and whatever weapon of war will be used in kind.
The major financial weakness in the US is the level of the US dollar due to sundering use in international contract settlement, the clear and present trend of substituting both the Yuan and Euro as international settlement currencies, and the lack of true economic buyers in the US long bond market.
History will record this decision at this time as a major factor in the final move to financial unwind in the West.
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Brics’ move to unseat US dollar as trade currency
South Africa will this week take some initial steps to unseat the US dollar as the preferred worldwide currency for trade and investment in emerging economies.
Thus, the nation is expected to become party to endorsing the Chinese currency, the renminbi, as the currency of trade in emerging markets.
This means getting a renminbi-denominated bank account, in addition to a dollar account, could be an advantage for African businesses that seek to do business in the emerging markets.
The move is set to challenge the supremacy of the US dollar. This, experts say, is the latest salvo in the greatest worldwide currency war since the 1930s.
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Africa’s largest bank, Standard Bank, says in a research document: “We expect at least $100 billion (about R768 billion) in Sino-African trade – more than the total bilateral trade between China and Africa in 2010 – to be settled in the renminbi by 2015.”
The bank anticipates that the use of the renminbi will lower transaction costs in Africa, thus lowering the barriers to doing business.
It also says that the Chinese will be more successful in transacting in renminbi in Africa than anywhere else because most currencies are weak and somewhat localised.
Not only will the US dollar be challenged, but also the entire international financial regime – led by the World Bank and the International Monetary Fund – which has been dominant since the end of World War II.
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India’s proposal to set up a bank of the BRICS nations (Brazil, Russia, India, China and South Africa) will top the agenda at the summit of the group in New Delhi Mar. 28.
India believes a joint bank would be in line with the growing economic power of the five-nation group. The bank could firm up the position of BRICS as a powerful player in global decision-making.
"The BRICS bank does not need much capital for a start," Alexander Appokin, senior expert at the Moscow- based Centre for Macroeconomic Analysis and Forecasting tells IPS. "What is more important is that the BRICS development bank presents a unique opportunity for indirect investment of central bank foreign reserves inside the countries."
A BRICS bank could for example issue convertible debt, which would arguably be top-rated and can be bought by central banks of all BRICS countries. BRICS countries would thus have a vessel for investment risk-sharing.
"China will be the biggest beneficiary of that," says Appokin. "Moreover, infrastructure investment mostly needs not just long-term financing but external monitoring for more transparency and efficiency increases. Here, a BRICS development bank could offer some advice for successful implementation of regional projects."
But, he cautions, "development structures like a BRICS bank are effective only in case they are given independence in project financing decisions from the governments, or at least room to operate in long- term development framework."
Yuhua Xiao, assistant professor at the Institute for African Studies in the Zhejiang Normal University (ZNU) in China says the idea of setting up a development bank for financing projects in these countries is a sign of the growing self-assertiveness and of independence or interdependence of emerging economies.
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We’ve already seen that Iran has been basically shut out of the SWIFT system and the SWIFT system is what this is all about. The SWIFT system doesn’t take any money for the money that goes through it. The SWIFT system is like the old telephone company. What it does is charge for the use of its communication.
Believe me the SWIFT system works for the West. It’s located in Belgium and you would think the US had no power on it. It’s never discussed as being a US arm, but it is a US weapon.
But we’ve already taken Iran and put a big X on it....
You’ve got to see now you’ve got this visual in front of you of a battlefield. You’ve got Wall Street firing by lighting off something that looks like a cruise missile, but it’s got SWIFT written on the side.
We tell India to cooperate or suffer the consequences. The statement was made, almost as it was at the beginning of the Iraq war, that if you’re not with us, you’re against us. If you’re not with us, you’re not in the SWIFT system. If your not with us, we’ll shut down your economy.
Now that hasn’t gone over too well with our friends, if we have any. Our friends have been saying, ‘This simply can’t be tolerated. You can’t shut down our economy.’ So we said, ‘Okay, we won’t shut down your economy, but we’ll do it selectively.’ India has said, ‘No way.’ China, ‘No way.’
What we’ve done is we’ve started barter dealing, around the world, in an enormous amount. China has been importing Iranian crude and other Asian countries are doing exactly the same thing. But in truth, over in Asia this hasn’t gone over so well.
You are starting to actually choose economic sides. You see the cruise missile coming over, with SWIFT written on the side, heading straight down into Iran. You see five or six more coming, one says China, one says India and the other three says selectively.
You are beginning to force barter transactions and degrade the system of currency exchange. You are saying to countries around the world, in today’s economic system, today’s world run by bankers and their associates, if we go to war, we’re going to war economically.
If we going to war economically, we have to have to be able to barter. There’s only one thing in the world you can barter with, that’s in a modest size. It can go by air transport and represent a huge amount of money to pay for oil, it’s called gold.
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... Another development that’s been happening in recent days is swaps are being made. China and Australia just recently completed a $31 billion swap of their currencies. To me that’s tantamount to barter. These countries have essentially pre-positioned their currencies, probably because they are worried about being cutoff from international transfers.
Jim Sinclair has pointed out what is taking place with the SWIFT system. I would just like to add that SWIFT has now become a weapon in the currency wars and as Sinclair correctly stated, unfortunately the United States is now threatening other countries. We are saying if they do not do what we want, we will cut them off from SWIFT, which will effectively shut down their economy.
We have already seen this with Iran, so India and Iran were trying to do an oil for gold swap. Evidently we’ve warned the Indians because we’re not happy about that. So SWIFT is being used to threaten our trading partners and allies....
As we now know, South Africa is actively trying to participate in dethroning the dollar as the reserve currency. If you look at the pattern of what is happening, these are like mini earthquakes all over the world.
When you add these seismic events together, it suggests that something may be imminent, perhaps in the next month or two. Saudi Arabia is suddenly sending 22 million barrels to the United States. Why did they do that?
Are they trying to get paid for it before there is some sort of eruption in the Middle-East? Is the US stockpiling oil ahead of war? There are military assets being positioned all over the Middle-East, on all sides. So something is building and these countries are taking action ahead of that for self preservation which is understandable.
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Brazil, Russia, India China and South Africa are meeting next week because of the use of SWIFT as a weapon of war. Expect the formation of a competitive SWIFT system in three blocks. ...
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2012 is the year that the US dollar will suffer from a significant drop in utilization as the international settlement currency. The utilization of the SWIFT system as a means of making war is the singular greatest mistake dollar managers have ever made.
Phil, that might have seemed logical to you, but you fail to focus on the consequences now in motion soon to isolate the dollar in a three currency block (Yuan/Euro/Dollar) losing at least 1/2 of its previous strength from the international settlement mechanism provided. It is too late now to rethink the use of the SWIFT system as a weapon of war. The cat is out of the bag and the damage is done.
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SWIFT has never expelled an institution in its 39-year history and in 2010 it processed 2 million messages for 19 Iranian member banks and 25 financial institutions. This is a vastly significant change in tactics and the repercussions are still unknown. Governments have long used the financial system as a method of tracking and blocking payment flow for targeted individuals and companies, but now it has been escalated to the nation-state level via the modern telecommunications network.
Mark Dubowitz is a sanctions specialist in Washington D.C. who advised U.S. lawmakers on the recent SWIFT legislation. He said the decision could limit the ability of Iran’s banks “to move billions of dollars in financial transactions and put immense pressure on Iran’s leaders to reconsider their policies” and that it underscores “the growing political isolation of Iran as it becomes the first country to be expelled from what is the financial equivalent of the United Nations.”
Highlighting and exposing the structural importance of centralized financial institutions that sit at the very top of the payments pyramid will hasten the trend to more decentralized and regional payment structures. Moreover, a single worldwide financial structure with near-absolute authority will begin to be seen as a vulnerability to many nations because they cannot always be expected to comply with U.S. and European Union directives. Now that the precedent has been set for evicting a country’s financial institutions from the prevailing global payments network, all nations will be rightly suspicious of that powerful weapon.
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Defending the move by BRICS nations to set up a bank, China said developing world had been left with few options but wants the Governments to allocate the initial seed money.
If Beijing had its way, after leaders of the five countries approve the pacts for local currency trade and the bank on Thursday, the idea could be forwarded to other emerging countries at the forthcoming G-20 summit in Mexico. This is an idea that India and Brazil had also suggested at the G-20 Finance Ministers' meeting.
China expects a broad consensus to emerge at the BRICS Ministerial meeting on Wednesday, a day before the summit proper and its Foreign Ministry official Li Kexin is hoping that India - as chairperson of BRICS till the next summit and draft-country for the action plan - will be able to draw up a realistic timetable of follow up meetings to make it a reality.
Explaining the need for Government money in the initial capitalisation of the Bank, BRICS specialist at the influential Chinese Academy of Social Sciences Li Zhongmin said this would ensure good credit ratings from Moody’s and Standard & Poor which in turn would enable the bank to raise finance at lower interest rates.
“BRICS countries have been left with few other options. One avenue is utilisation of foreign exchange reserves, which all BRICS countries have in ample quantity, for infrastructure development in BRICS and other developing countries. But routing foreign exchange reserves through multilateral financial institutions such as the IBRD, ADB and IMF will not give these countries enough say over utilisation because their voting power still remains small.
In Beijing, his senior Song Hong touched on two aspects – the inability of multilateral banks to finance huge infrastructure projects world-wide as “they are short of money in trying to save the Eurozone and Japan’’ and extending the concept of BRICS banks to include other countries. “On the BRICS bank, there is some different opinion from the Indian side. They want to go further and set up a South-South Bank. This is a very interesting proposal,’’ he told visiting Indian journalists last week.
Speaking at the inauguration of the Chinese Press Centre, the only one set up so far, Mr. Li said the other option would be to establish a bank. Even the host country is yet to set up a media centre but this could be because bulk of the Foreign Ministry’s media team was with Prime Minister Manmohan Singh in Seoul for the Nuclear Security Summit.
China, Mr. Li said, wanted internationalisation of local currency. This could be done by cross border currency swaps or using the local currency for settlement and foreign direct investment. “This is quite possible. It needs to be realised that any one country cannot move currency globally, BRICS must act together. They should focus on the real economy which is their strength and not the financial market which any way accounts for a very miniscule percentage of their GDP, ‘’ he counselled.
Even as New Delhi prepares for the arrival of BRICS Heads of States towards the later part of the week, media and experts across the world continue to debate the relevance, capacity and cohesiveness of the grouping. The common refrain in the western press is that it is a ‘motley crew' with little in common and therefore with little capability to create institutions and multilateral platforms of substance. Well, they may be in for a surprise. In fact, BRICS may also surprise itself.
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The second announcement that has people most interested is on the much discussed “BRICS Bank” or the “South-South Bank” that many consider to be an Indian proposal for creating an institution that can serve the development needs and aspirations of the emerging and developing world. This proposal saw much debate (some heated) at the recent BRICS Academic Forum and surely was a key issue for deliberations at the recently concluded BRICS Finance Ministers Meeting. There are many complex and some contested issues that need to be discussed and thought through, but due to the growing support for such an institution among BRICS it is almost certain that the leaders will, at the very least, announce a working group to study the feasibility and operational modalities of such a multilateral bank. Whether they are bold enough to suggest a time line for its establishment remains to be seen but in the opinion of many, it is an idea whose time has come.
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Goldman Sachs Group Inc. (GS) (GS) directors converge on India this week for their first meeting in the nation, where economic growth is headed for a three-year-low and the pace of reforms has disappointed the firm’s analysts.
Chairman and Chief Executive Officer Lloyd C. Blankfein is leading a three-day meeting in Mumbai and New Delhi, India’s business and government capitals. The gathering completes trips by the New York-based firm’s board to all of the so-called BRIC nations -- Brazil, Russia, India and China -- whose rapid economic expansion has made them a priority for investment.
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Blankfein, 57, and the rest of the board will host dinners for government officials and heads of the nation’s biggest conglomerates, including Mukesh Ambani, chairman of Reliance Industries Ltd. and India’s richest man, a person with knowledge of the event said, declining to be named as the matter is confidential. Tata Group Chairman Ratan Tata, Tata Sons Ltd. Deputy Chairman Cyrus Mistry and Kumar Mangalam Birla, who controls Hindalco Industries Ltd. (HNDL), are on the guest-list for an event in Mumbai tonight, the person said.
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BRICS nations sign pacts to promote trade in local currency
In an initiative to promote trade in local currencies, the BRICS nations on Thursday signed two agreements to provide line of credit to business community and decided to examine the possibility of setting up a development bank on lines of multilateral lending agencies.
The agreements were signed by officials of five countries -- Brazil, Russia, India, China and South Africa -- at the fourth BRICS summit in New Delhi.
"The agreements signed today by development banks of BRICS countries will boost trade by offering credit in our local currency," Prime Minister Manmohan Singh said in a media statement after the meeting.
The Master Agreement on Extending Credit Facility in Local Currency and the Multilateral Letter of Credit Confirmation Facility Agreement are being perceived as a step towards replacing the dollar as the main unit of trade between them.
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Brazilian Trade and Industry Minister Fernando Pimentel ...
Brazil accuses rich countries of causing a "monetary tsunami" by engaging in expansionist policies such as low interest rates and bond-buying programs.
The policies are designed to stimulate the troubled U.S. and European economies, but have also unleashed a wave of global liquidity that has poured into emerging markets like Brazil, driving up their currencies and making their economies less competitive abroad.
Pimentel said that the five emerging markets that make up the BRICS, a disparate group that often struggles to find common ground on a wide array of issues, "have more or less the same vision on this matter."
"I think there's going to be a mention of this (in the communique), for sure," Pimentel said.
A united front among the BRICS is unlikely to persuade rich nations to change their monetary policies. But it could give Brazil and other countries critical political cover to seek palliative action by raising their tariffs or pursuing change at global bodies like the WTO. Brazil is spearheading a discussion on currencies this week at the Geneva-based body.
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... the dominance of the U.S. dollar was almost entirely dependent on the grip it had over oil producers and this allowed the oil price to be designnated in the U.S. dollar. The U.S. has gone to war in Kuwait and Iraq over this issue under the guise of destroying "weapons of Mass Destruction" as it appears on the verge of doing in Iran. It is no coincidence that Iran has long since ceased using the dollar to price its oil. It has also eliminated the U.S. dollar from its reserves.
THE SWIFT SETTLEMENT SYSTEM
But of greater importance to the emerging world has been the use of the Belgian-based SWIFT system of international settlements. Not only has the move stopped the sale of Iranian oil, but it has also interfered with an important source of oil to the emerging world.
Right now there are ongoing discussions between the BRICS (Brazil, Russia, India, China and South Africa) countries over their use of the SWIFT system of international settlements as a 'weapon' against Iran. The full extent of the impact of this appears to have been ignored. With China and India as two of Iran's clients, they found that the U.S. could hurt them considerably with this action. If they can hurt them in this way, then they can hurt them the same way on other issues. So the question that the BRIC nations are now asking is, "Must we be subject to the financial will of the U.S.?"
The question has long-term implications that could affect these nations' freedom of financial activity. The question demands to see just how powerful the U.S. really is. It is very clear to these emerging nations that if they are to keep on growing, unfettered by the U.S. will, they must set up a system that is not vulnerable to U.S. influence and to reduce the influence of the dollar itself.
What is being realized slowly is that the actions that come out of this conference may well mark a watershed in the shift of power from West to East and the significant reduction in the power of the U.S. as the globe's main financial influence. Consequently, these nations will have to lower the influence of the U.S. dollar on their affairs if they are to achieve real financial independence. This has to be a future and extremely negative influence on the international value of the U.S. dollar.
While the SWIFT settlement system is a Belgian-based international banking settlement agency, the U.S. influence over it was sufficient to halt all Iranian interbank transfers. It is not the system that is faulty but the influence of the U.S. over it that is the danger to the BRIC nations.
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The latest moves by the U.S. are deeply disturbing to China, as they have the power to directly hurt the spread of the Yuan on a global basis, if the U.S. so decides. Consequently, China is threatened right now! China has been working on alternatives so far, but the moves on the SWIFT system by the U.S. have made the issue urgent as she now faces a security threat. As China continues to develop, she will face a massive demand to be able to provide financing for expensive capital goods. China can no longer afford to depend on the U.S. dollar as the financing currency for its goods, as it is technically possible, although unlikely, at the moment, to face threats from the U.S. even on this subject.
It is clear to the BRICS nations that they need to set up institutions at the heart of the present world financial systems to act as an alternative to the World Bank and the International Monetary Fund and perhaps a replacement to the SWIFT system for transactions with the emerging world. It will not be sufficient to just have an important role in the developed world institutions. It will also be inappropriate to rely on the U.S. dollar as the currency of the emerging world as it is now.
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Far from Delhi's decked-up roundabouts and sanitised hotels, Robert Zoellick was aboard a boat on Wednesday, crossing the river Bhitarkanika on his way to a village in Orissa. After greeting the villagers with folded hands, the World Bank president sat down to talk to a global news agency. A few stock questions later, the Bank chief turned his attention to the proposed BRICS bank. "It's a complicated venture which will have a hard time getting off the ground and match the expertise of the World Bank," Zoellick said.
It was hard to miss the symbolism of Zoellick's foray into a dark corner of India and raise doubts about a new development bank just one day before the leaders of Brazil, Russia, India, China and South Africa (BRICS) met in the Capital to thrash out the nitty-gritty of the Delhi Declaration. It was clear that the Bank didn't want a new global rival that couldn't be controlled from Washington.
But by Thursday evening, BRICS leaders had proposed to trade among themselves in their local currencies, made significant progress on the setting up of the new development bank, expressed their concern at the slow pace of quota and governance reforms in IMF, and decided to abide by UN sanctions and not the unilateral ones imposed by the US and European countries on Iran and Syria. "We wish to see these countries living in peace and regain stability and prosperity as respected members of the global community," the declaration said.
This was a giant leap forward, much more than what skeptics like Zoellick had expected. In the days leading to the summit, the air was thick with negativity. "What do they talk at these summits? It's just a talk shop and a photo op," an American diplomat had said, making no effort to hide biting sarcasm. The same day, an op-ed piece in the New York Times argued that the focus of the new bank was misplaced. "It is the fundamental incompatibility of the BRICS nations, not their lack of organisation, which prevents this collection of emerging economies from acting as a meaningful force on the world stage," the op-ed said. In this western worldview, BRICS is an idea whose time hasn't come.
By Thursday evening, however, the mood at the summit was upbeat, with ministers, diplomats, businessmen and journalists smelling a change in the air. "BRICS is not an idea. It's already a reality. The balance of the existing global order is tipping," says Jackson Schneider, vice-president of Embraer, the Brazilian aviation giant. "If BRICS has no force, why is the NYT wasting so much ink and time on us?"
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New Emerging World Monetary System
The key participants in these new developments are the emerging world's key players: Brazil, Russia, India, China and South Africa. ...
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How far will the development of this system go? As far as is necessary for financial independence to be achieved! The most dramatic consequence of these developments will be twofold:
1. The ability of these countries to access oil in their own currencies and not the dollar.
2. A large fall in the use of the dollar internationally, in line with the rise of the BRIC currencies, with the Yuan acting as the 'hub' of this new monetary world.
This will not mean that they will not use the dollar or any other of the developed world currencies in daily trades, but simply remove themselves from U.S. dollar dominance.
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In this episode, Max Keiser and co-host, Stacy Herbert, discuss Ben Bernanke's 'happy dust' and Angela Merkel's 'red lines' cause ire in BRICS trade partners. In the second half of the show Max talks to Jim Rickards about a BRICS currency, gold and the fog of currency war.
As per a decree issued by the Prime Minister's office on April 3, gold has been banned as a medium for exchange, along with seven bullion-related activities that will take effect from May 25.
The decree prohibits use of gold as a medium of exchange; manufacturing gold jewellery without a licence from the central bank; trading gold without a licence; and conducting any other gold-related businesses without the approval of the prime minister and the central bank.
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The Indian government will offer tax incentives to exporters for sales in rupees to Iran, in the latest effort by New Delhi to bolster exports in return for oil from the Islamic Republic squeezed by Western sanctions, a finance ministry official said.
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To skirt the sanctions, India this year decided to buy oil through a mechanism that lets refiners deposit rupees, which are not freely traded on global markets, for about 45 percent of Iranian crude purchases in an account at India's UCO Bank.
India sent a trade delegation in March to Iran to boost merchandise exports as a way of securing oil in return. But the delegation came back empty handed, and Indian exporters have complained of difficulties in trading through the new mechanism.
In response, the finance ministry will now offer tax incentives in the range of 4-12 percent of the value of products to exporters for sales to Iran in rupees. That brings them on a level playing field with exports sold in freely convertible currencies, such as the dollar.
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A system to settle cross-border yuan payments and boost the convertibility of the currency will be set up, central bank officials said on Wednesday.
The move will promote the international use of the yuan, analysts said.
The China International Payment System will be established in one or two years. It will make yuan clearance safer and more efficient for cross-border trade and investment settled in the currency, said Li Bo, head of the central bank's second monetary policy department, at a news briefing in Beijing.
The system will help gradually make the currency convertible and will facilitate wider use of the yuan in cross-border settlements, Li said.
Currently cross-border yuan clearance is conducted through the Hong Kong and Macao branches of Bank of China, or agency banks of overseas participants.
While demand for cross-border renminbi settlement is increasing, transaction costs in the current payment system are higher than those conducted in other major currencies, such as the US dollar, analysts said.
"The new system will link domestic and overseas participants directly, and support different languages including Chinese and English. What's more, the working hours will be extended to 17 or 18 from the current eight to nine hours to cover yuan settlement demand from different time zones," said Li Yue, director of the payment and settlement department at the People's Bank of China.
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Britain’s exchange rate is “crippling” the economic recovery, and devaluing the pound by as much as 25 percent could push growth back to an annual 4 percent, research group Civitas said.
The pound’s “significant” drop since 2008 hasn’t been enough to make U.K. exports competitive on world markets, and a future decline in the currency is inevitable, according to John Mills, the author of the Civitas report published in London today. A devaluation of as much as 15 percent would balance the U.K.’s trade deficit, he said.
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Syria is trying to sell gold reserves to raise revenue as Western and Arab sanctions targeting its central bank and oil exports begin to bite, diplomats and traders said.
Western sanctions have halved Syria's foreign exchange reserves from about $17 billion, French Foreign Minister Alain Juppe said on Tuesday after a meeting with about 60 nations aimed at coordinating measures against President Bashar al-Assad's government.
"Syria is selling its gold at rock bottom prices," said a Western diplomatic source, declining to say where it was being sold.
A second diplomatic source confirmed the information, adding that Damascus was looking to offload everything it could to raise cash, including currency reserves.
On February 27, the European Union agreed more sanctions including prohibiting trade in gold and other precious metals with Syrian state institutions, including the central bank.
Two gold traders in the United Arab Emirates said the Syrian government had been offering gold at a discount, with one saying it was making offers at about 15 percent below the market price.
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London is seeking to become a hub for yuan trade and investment in an initiative backed by Bank of China Ltd., Barclays Plc (BARC), Deutsche Bank AG (DBK), HSBC Holdings Plc (HSBA) and Standard Chartered Plc. (STAN)
Institutions in the U.K. capital currently have more than 109 billion yuan ($17 billion) of customer and interbank deposits in the Chinese currency and that is “growing strongly,” according to a policy paper by research firm Bourse Consult released today.
Chancellor of the Exchequer George Osborne pushed the case for London to become an offshore center for yuan trade as closer financial ties with the world’s second-largest economy may help buffer Britain’s economy against the sovereign-debt crisis in Europe. China doubled the yuan’s trading band and allowed banks to hold dollar short positions this week, steps seen as paving the way for a convertible currency.
“London is making a push to become the second offshore yuan market,” said Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB. “This is likely to occur wherever local markets need the offshore yuan business to boost their status. At the same time it will offer China a platform to expand the international use of the currency, preferably in time zones other than its own.”
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... This is China versus the USA with the thrust being the SWIFT system and the parry being gold bullion.
This is history in the making. This is monetization of gold brought on as a parry to the trust of economic attack via the weapon, the SWIFT system. This is certainly economic war. It may well be an aggressive act that will change the economic world as we know it. It may be Phil that you have not thought out the implications of using the SWIFT system as a weapon. There is a huge backfire probable at a most unwelcome time in economic history.
Gold, copper and other commodities could be paid for in yuan within a decade or two, bankers and traders said on Wednesday, provided China pursues its policy of gradually freeing up trade in the currency.
Already the world's biggest consumer of commodities such as industrial metals and oil, China's economy is growing more than three times faster than most developed countries.
Chinese customers and end-consumers such as refiners and fabricators now typically pay for such imports with dollars, but bankers at a Financial Times commodities conference in Switzerland think that will change, possibly quite rapidly.
They expect the yuan, also known as the renminbi, to be used increasingly to settle contracts into China and eventually as the basis for commodities trading, at least in Asia.
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I got warned about a trojan after clicking the link...Long and interesting analysis of macro events from an Asian perspective:
A history of the world, BRIC by BRIC
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