Lula Wants Brazilians and Chinese to Eliminate Dollar for Trade Between Them

[Judi Lynn]

Source: BrazzilMag. newsroom

Lula Wants Brazilians and Chinese to Eliminate Dollar for Trade Between Them
Written by Newsroom
Monday, 18 May 2009

Brazil and China will start conducting business with each other in their own currencies instead of the dollar, a publication quoted Brazil's president Luiz Inácio Lula da Silva as saying ahead of his trip to Beijing.

In an interview published Friday in Caijing, a respected Chinese business magazine, Lula said it was important that the two countries "establish a trade that is paid for in our own currencies."

"We don't need dollars." Lula was quoted as saying in the transcript posted on Caijing's Web site. "It's crazy that the dollar is the reference and that you give a single country the power to print that currency."

The Brazilian president has been urging the end of the use of the US dollar in South American trade, saying it will reduce transaction costs for both exporters and importers, especially those operating on a smaller scale.

Brazil and Argentina have already agreed to trade with each other using their own currencies and negotiations for a similar accord with Uruguay are advancing.


Read more: http://www.brazzilmag.com/content/view/10743/

[northzax]

1. and what are the Chinese supposed to do with Reals?

or the Brazilians with Yuan? Yuan are not convertible on the open market, they are quite literally worthless outside of China. and Reals, which is what I suppose Brasil wants to spend in China, what value do they have outside Brasil? (or yes, Argentina, who trades with Brasil in Pesos/Reals, but since the Peso is de facto tied to the Dollar, it's basically the same thing)

[JackRiddler]

3. Funny, right now the Chinese are asking themselves what they're supposed to do with the DOLLARS.

[northzax]

17. no they aren't

Dollars are perfectly fungible. you can spend them anywhere. or is Saudi Arabia no longer accepting Dollars for oil? China imports food and energy primarily. both are available almost entirely only in Dollars. and you may have noticed, the Dollar has increased in value over the past six months against every fungible marker in the world, gold, oil, Euros, Yen, anything.

here's a little thought experiment. your boss tells you tomorrow that you will be paid in cash next week. your choices are Dollars, Euros, Pounds or Yuan, at the current exchange rate. She will pay you ten percent more in Euros or Yuan to compensate you for the trouble in exchanging it. what do you choose? (you might want to check with your bank, I bet they'll exchange Euros or Pounds, and I bet they will laugh at the idea of exchanging Yuan.

another thought. I offer to buy your car tomorrow. I will pay you ten thousand dollars (let's assume that is the blue book value), 7,400 Euros (just over $10k) 6,500 pounds (just over $10k) or 70,000 Yuan (just over 10K) which do you take? which will buy you a new car?

[JackRiddler]

19. Your abstract middle school bromides aside, have you been following actual news?

Apparently not.

China's purchase of T-bills in Dec. 2007 - late 2008, increasing their holdings by nearly 50 percent, financed the tripling of the deficit to cover for the criminal banks that went bankrupt and control the US government. They also made up for a sharp decline in T-bill purchases by other parties.

Now it's an open issue how long they're supposed to hold on to a potential junk currency and recommendations to stop buying dollars and diversify have been in the official Chinese press.

Hillary Clinton in one of her first statements as Sec'y of State saw fit to pitch T-bills as an excellent continuing investment for China. Why would she do that?

Obama echoed the comment a couple of weeks later.

March 13: Wen Jiabao announced that his country was “worried” about its holdings of over $1 trillion in US treasury securities, and warned that he wanted the US to assure China that it would maintain its good credit and “honor its promises” and “maintain the safety of China’s assets.”

One reason to prop up AIG with endless billions for its counterparties is that it scammed a good chunk of the Chinese workers pension action and if they default on that, China will retaliate on the US (financially).

Russia and China have repeatedly spoken on the dangers of the dollar's instability. It was a background issue at the G-20 beauty pageant.

Lula's not an idiot. He wouldn't advance the idea of Real-Yuan trade publicly if he didn't think it would find an echo with the Chinese. So he's probably talked to them about it. Why?

There have been many other statements, also after the recent $2 trillion Fed printing to keep inflating the assets of bankrupt criminal banks. Read up on the subject for a while.

The dollar advance was after a plunge to historic lows and mainly reflects the awesome sucking of money from abroad into the US to pay off on the insolvencies of the criminal banks. Not exactly a solid economic foundation.

Things change. Real world matters more than your hypothetical examples. Condescension, ignorance and unfounded confidence in the superiority of what happens to be your own nation's currency do not mix well, by the way.

And if you offered to buy my car, I'd have to decline because this is New York and I like to get around unencumbered by two tons of useless junk I have to feed and pay fees for and spend hours a day stuck in traffic sucking fumes with and moving from one side of the street to the other to avoid parking tickets.

But if you want to give me your money, I'll take it in euros and travel happily for a while.

Thanks!

[Dreamer Tatum]

20. Your post is sort of nonsensical

You seem highly invested in the prospect of other countries moving away from the dollar. If you think the current recession is painful, wait and see what happens if foreign investment stops flowing into this country.

I don't think you know what you're talking about in the least, so I'll give you a thought experiment that's simple enough for you to understand, even if you're going to post a snarky response. China holds a great deal of US debt, which is denominated in dollars. If China supports a substantial move away from the dollar, it lowers the already-paltry yield on the notes it owns. If China takes any action that substantially cuts the inflow of capital to this country, the skyrocketing interest rates and prices would further suppress demand for Chinese imports. China is already hurting in this recession; if they make it worse, they can always burn those T-bills for warmth and fuel.

Said differently, our economies are intimately connected. China and Brazil changing numeraire doesn't really alter anything.

[JackRiddler]

21. Projection is bad for your cholesterol.

Those who snark, as you have, should at least be able to back it with something meatier than a pedantic and obvious "thought experiment."

I'm well aware of why China has propped up the dollar this far: because, as you mention, it is in their interest to retain the value of their own reserves as the world's largest foreign dollar holder, and to maintain export sales to the US. Although, you should note, their trade with Japan surpassed their trade with the US already in 2004, and the objective global trend away from US consumers as the buyers of everything -- which has gone on largely thanks to high-interest credit -- is certain to continue. China is investing heavily in the Third World and establishing dozens of bilateral trade arrangements, and now apparently considering a Brazilian offer to denominate trade in their own currencies (not a huge step in itself, but a logical part of a larger strategy).

Despite China's short and mid-term interests in dollar stability, a situation of global crisis has developed due to the fiscal and financial irresponsibility of US actors and the resulting insolvency of US-based criminal banks. (Just the top US banks now are exposed to about $100 trillion in bad derivatives, having bet several planets' worth of wealth at their unregulated casino.) And in this situation, even Chinese officials and economists have joined in the public expression of doubts about the dollar's stability in the long term -- an empirical reality you don't mention, perhaps because of your preference for "thought experiment." They're talking openly about buying fewer T-bills and diversifying away from dollars (whether or not you choose to acknowledge that is irrelevant). As you know how markets work, you might concede that open talk about this by high officials already contributes to the risk of a run on the dollar. So why do it?

Chinese elites are aware of their own dollar dilemma, and appear to have determined they need to accept a drop in the dollar's value and the loss of export sales to the US as the inevitable cost of moving out of that dilemma and putting their finances and economy on a sounder footing in the future. In fact, that decision is in largely in their hands, and not under US control -- a further indicator of the crisis. That's the direction they appear to be taking, cautiously and with attempts to make the best of it.

YOU seem to be "highly invested" in the idea of other countries remaining in the dollar, as their diversifying away from it would be bad for the US economy. You argue (fallaciously) backwards from that adverse consequence: that because it must not happen (in your view), it therefore will not and cannot happen. You also project on to me the false view that I want it to happen. Quite the contrary: it's no skin off my teeth either way, thanks to my Stoic philosophy, see? I'm more into knowing the truth of the present and the likely scenarios of what may come, even if these outcomes, which I can't control, might dash my individual preferences.

But hey, I hear the DOW's up again today, so everything's good, right?

[Dreamer Tatum]

23. Whoops, sorry, didn't see the links in your sig

Otherwise wouldn't have engaged you. My bad. :crazy:

[JackRiddler]

24. Your declaration of intellectual bankruptcy is acknowledged.

[2bornot2b]

7. Brazil will use the Yuan the same way Walmart does

This is an assumption that trade only goes one way, which is a little different from reality.

Walmart has over 100 stores in China, and they collect Yuan every day. Proctor & Gamble sells hundreds of products in China and they get paid in Yuan. What do you think they do with the millions they collect? They use it to fund their operations there, to pay for products that they sell to American consumers, and when they need to convert the Yuan back to US dollars, there are many ways to do that.

Likewise, Brazil can buy stuffs from China and pay for them in Real. China can then turn around and use the Real to buy raw materials from Brazil. Or China can pay Yuan for the raw materials, and Brazil use it for manufactured goods from China. As long as it is cheaper and/or less risky to do the conversion directly than to go through US dollars, people will do it.

[Judi Lynn]

8. Makes total sense, of course. Thanks.

Welcome to D.U., 2bornot2b. :hi:

[Old and In the Way]

9. Exactly....and welcome aboard.

Looks like the USD's days as the world's reserve currency are, indeed, numbered.

[northzax]

16. right, there's only one problem

you're basically suggesting that Brasil become a colony of China. Trading raw materials for manufactured goods is not the way to wealth or sustainability, it is a road to poverty and dependance. If, for example, Brasil and China have a basically always equal trade balance, it might work for a while, it's a barter system, in essence. but what happens when it is unequal? let's take a look.

let's say that you and I make a deal. I will paint your house in exchange for you mowing my lawn. good deal, you can mow well, and I can paint well. works for us both. until I need fifty more hours to finish your house than it takes you to mow my lawn. what value do I have? 50 hours of lawn mowing labor in the bank? what can I do with that? I can't buy food, I can't buy gas, all I can do is buy more lawn mowing. which is fine, but I don't need it. so you ask me to paint more, what am I going to do?

Brasil, for instance, runs a trade surplus with China of about $100b a year. so in about ten years, or about 1.4 trillion yuan at the legal (chinese) rate. so every year, there will be 1.4 trillion Yuan entering Brazil. what are they supposed to do with that paper? buy more stuff from China? they can't buy from anyone else in the world (because China doesn't accept Yuan from anyone outside China) how much oil will a trillion yuan buy? how much food from Venezuela? and what is that country going to do with it? remember, Yuan is not tradable outside of China, you could walk into a bank with a trillion Yuan and they would give you nothing, because it is literally worthless. you could walk into your local grocery store with a trillion Yuan, and they wouldn't sell you a banana. because it's worthless.

Dollars have value anywhere in the world. Euros have value anywhere, Yen have value anywhere. Yuan have value inside the People's Republic of China. and let's be honest, Beijing has plenty of them, and doesn't need more. this idea of trading in Yuan and Reals is a great idea for China, they can send all the Yuan they want to Brasilia, worth literally whatever they want them to be worth. the Reals they get in exchange can be sold for dollars or euros or oil or tacos. the Yuan that Brasil gets back can be spent in China only. it's brilliant for Beijing and awful for Brasil.

[muriel_volestrangler]

18. No, it's not 'become a colony of China'

Many countries thrive when being a net exporter of raw materials, and importer of manufactured goods. Norway, Australia and Saudi Arabia, to take some different examples.

As for the value of the yuan - they are making it convertible, and trading directly with other countries with their own sizeable economies and currencies, like Brazil, is part of that:

A pilot scheme will start soon in Hong Kong to use the yuan to settle trade with selected companies in southern Guangdong province; China has signed yuan swap deals totalling 650 billion yuan ($95 billion) since December with six central banks; and on Tuesday two foreign banks said they had won permission to float yuan bonds in Hong Kong.

Zhang Guangping, vice-head of the Shanghai branch of the China Banking Regulatory Commission, acknowledged that a series of conditions would have to be met for the yuan internationalisation trend to gather momentum.

China would have to gradually make the yuan convertible on the capital account; it needed a more liquid foreign exchange market; its bond markets and banking system needed to be more developed; and there had to be proper monitoring of cross-border capital flows, Zhang told a foreign exchange conference.

But, hypothetically, he said there was no reason why the yuan could not account for over three percent of global reserves by 2020, the target date for Shanghai to have evolved into an international financial centre.

http://www.guardian.co.uk/business/feedarticle/8516462

And this is OK for Brazil because it cuts down on the transaction and currency-holding costs for the merchants, as the original article says. It doesn't actually say "all trade will be in the yuan, and none in the real" anyway.

[sasquatch]

2. So when do the marines arrive on the shores of Rio de Janiero?

[JackRiddler]

4. This used to be a job for a CIA covert op, but they're no longer what they were.

Viva Chavez, most everyone will one day realize what he and the Venuzuelan people achieved on April 13, 2002 as one of the most important breakings of the US-run covert power system.

[Judi Lynn]

11. Unbelievable triumph for the people, to overturn a coup attempt by the oligarchs in 2 countries. n/t

[bongbong]

5. Lights, Camera, Action

Bad portents here. The only thing keeping the USA out of total bankruptcy is the reserve status of the dollar.

Will the last person with a job in America be sure to turn out the lights? Thanx

[rpannier]

10. I was watching the news out of Hong Kong this morning

The Chinese government called this a preliminary discussion and one government official was on the record as saying it probably won't happen.

[madrchsod]

6. time to devalue the dollar.....

[Purveyor]

12. Brazil and China Eye Plan To Axe Dollar

Source: Financial Times UK

Brazil and China will work towards using their own currencies in trade transactions rather than the US dollar, according to Brazil’s central bank and aides to Luiz Inácio Lula da Silva, Brazil’s president.

The move follows recent Chinese challenges to the status of the dollar as the world’s leading international currency.

Mr Lula da Silva, who is visiting Beijing this week, and Hu Jintao, China’s president, first discussed the idea of replacing the dollar with the renminbi and the real as trade currencies when they met at the G20 summit in London last month.

An official at Brazil’s central bank stressed that talks were at an early stage. He also said that what was under discussion was not a currency swap of the kind China recently agreed with Argentina and which the US had agreed with several countries, including Brazil.

“Currency swaps are not necessarily trade related,” the official said. “The funds can be drawn down for any use. What we are talking about now is Brazil paying for Chinese goods with reals and China paying for Brazilian goods with renminbi.”

Henrique Meirelles and Zhou Xiaochuan, governors of the two countries’ central banks, were expected to meet soon to discuss the matter, the official said.

Read more: http://www.ft.com/cms/s/0/996b1af8-43ce-11de-a9be-00144feabdc0.html

[dixiegrrrrl]

13. Massive OH SHIT.

This has been predicted for about a year now.

Not good at all for us.
In fact, the story is that the Shah of Iran was going to drop the dollar...bad move for him.

[keep_it_real]

14. Time for the USA to print some Greenbacks and get us out of this Economic mess.

Obama should do like Benjamin Franklin loved and Lincoln and Kennedy did and print some greenbacks and get us out of the economic mess/bs. The USA must do what the founding fathers wanted, and print our own money and not use federal reserve private bank notes and establish our own US government banks that issue credit based on the "faith and CREDIT of the US government" of and we the people of the USA.

This is the IDEA whose time has come; this is the IDEA upon which the people's movement and revolution must be based and established.

Long live Benjamin Francklin, President Lincoln and President Kennedy!!!

[KamaAina]

15. Ah yes, the old central bank debate.

That one hasn't been on the front burner for nearly two centuries.

Back then, populists (like most of us here at DU, I would imagine) opposed a central bank because they thought it would wield too much power over the economy. Of course, there was no Federal Reserve back then, either.

[JackRiddler]

22. Quoth FT: "The move follows recent Chinese challenges to the status of the dollar..."

"... as the world’s leading international currency."

Shhh! Please don't disturb those among us who are in denial!

[JackRiddler]

25. Dollar hits 4 month low on doubts about US creditworthiness!

Dollar Falls to 4-Month Low Versus Euro on U.S. Credit Outlook
Share | Email | Print | A A A

By Theresa Barraclough and Ron Harui

May 22 (Bloomberg) -- The dollar fell to a four-month low against the euro and dropped versus the yen on speculation the U.S. government’s creditworthiness is weakening, sapping demand for the U.S. currency.

The yen climbed to a nine-week high versus the dollar after Japan’s Finance Minister Kaoru Yosano said the government isn’t planning to intervene in the currency market. The dollar headed for its biggest weekly loss in two months versus the euro after Standard & Poor’s lowered its outlook on the U.K.’s AAA credit rating to “negative” from “stable,” raising concern that the same may happen to the U.S. The New Zealand dollar advanced to a seven-month high.

“We’re seeing a breakdown of the correlation of risk appetite and the dollar,” said Sean Callow, a senior currency strategist in Sydney at Westpac Banking Corp., Australia’s biggest lender by market value. “A lot of Treasuries are held by foreign investors and any concern about the value of U.S. debt will have a massive impact on dollar sentiment.”

The dollar declined to $1.3935 per euro as of 11:08 a.m. in Tokyo, after dropping to $1.3955, the lowest since Jan. 5. It has slumped 3.3 percent this week, the biggest loss since the five days to March 20.

The yen rose to 94.25 per dollar, after reaching 93.87, the strongest since March 19. The yen traded at 131.32 per euro from 131.15. New Zealand’s dollar surged 0.7 percent to 61.54 U.S. cents, after reaching 61.78 cents, the highest since Oct. 21.

http://www.bloomberg.com/apps/news?pid=20601080&sid=alquIukZ7viU&refer=asia