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The IMF Changes its Rules to Isolate China and Russia

December 18, 2015

The IMF Changes its Rules to Isolate China and Russia

IMF-nameplate

The nightmare scenario of U.S. geopolitical strategists seems to be coming true: foreign economic independence from U.S. control. Instead of privatizing and neoliberalizing the world under U.S.-centered financial planning and ownership, the Russian and Chinese governments are investing in neighboring economies on terms that cement Eurasian economic integration on the basis of Russian oil and tax exports and Chinese financing. The Asian Infrastructure Investment Bank (AIIB) threatens to replace the IMF and World Bank programs that favor U.S. suppliers, banks and bondholders (with the United States holding unique veto power).

Russia’s 2013 loan to Ukraine, made at the request of Ukraine’s elected pro-Russian government, demonstrated the benefits of mutual trade and investment relations between the two countries. As Russian finance minister Anton Siluanov points out, Ukraine’s “international reserves were barely enough to cover three months’ imports, and no other creditor was prepared to lend on terms acceptable to Kiev. Yet Russia provided $3 billion of much-needed funding at a 5 per cent interest rate, when Ukraine’s bonds were yielding nearly 12 per cent.”[1]

What especially annoys U.S. financial strategists is that this loan by Russia’s sovereign debt fund was protected by IMF lending practice, which at that time ensured collectability by withholding new credit from countries in default of foreign official debts (or at least, not bargaining in good faith to pay). To cap matters, the bonds are registered under London’s creditor-oriented rules and courts.

On December 3 (one week before the IMF changed its rules so as to hurt Russia), Prime Minister Putin proposed that Russia “and other Eurasian Economic Union countries should kick-off consultations with members of the Shanghai Cooperation Organisation (SCO) and the Association of Southeast Asian Nations (ASEAN) on a possible economic partnership.”[2] Russia also is seeking to build pipelines to Europe through friendly instead of U.S.-backed countries.

…click on the above link to read the rest of the article…

The Rise Of The Yuan Continues: LME To Accept Renminbi As Collateral

July 28, 2015

The Rise Of The Yuan Continues: LME To Accept Renminbi As Collateral

As far-fetched as the notion may be to those who are wedded – by choice, by misguided beliefs, or by virtue of being completely beholden to the perpetuation of the status quo – to idea that the dollar will forever retain its status as the world’s reserve currency, the yuan is set to play a critical role in global finance, investment, and trade going forward.

We’ve long argued that the BRICS bank, the AIIB, and to an even greater extent, the Silk Road Fund, will help to usher in a new era of yuan hegemony in international investment and trade. A number of recent developments support this, including Beijing’s push for the renminbi to play an outsized role in loans doled out through the AIIB, the denomination of loans from the BRICS bank in yuan, and China’s aggressive investment in Pakistan and Brazil via the Silk Road initiative (here and here).

As for financial markets, China recently confirmed the impending launch of a yuan denominated gold fix which conveniently dovetailed with the LBMA’s acceptance of the first Chinese banks to participate in the twice-daily auction that determines London gold prices.

Now, in the latest sign of yuan proliferation and penetration, the renminbi will be accepted as collateral by the LME along with the dollar, the euro, the pound, and the yen.

Here’s WSJ with more:

China’s domestic stock market may be in turmoil but the country’s currency, known as the yuan or renminbi, is making a seemingly relentless push deeper into the global financial system.

The latest step: the London Metal Exchange, the world’s largest venue for trading metals where $15 trillion of metals was traded last year, is set to accept yuan as collateral for banks and brokers that trade on its platform.

…click on the above link to read the rest of the article…

 

 

 

China Targets Dollar, Washington Has Conniptions

April 3, 2015

China Targets Dollar, Washington Has Conniptions

Now even Israel – joined at the hip to the US though the relationship has run into rough waters – has applied to become a founding member of the China-led Asian Infrastructure Investment Bank. Despite US gyrations to keep them from it, over 40 countries, including bosom buddies Australia, Britain, and Germany, have signed up to join. Japan is still wavering politely.

The US government sees the China-dominated AIIB as competition to the US-dominated World Bank and Asian Development Bank. But now that it is clear even to the White House that the US can’t stop the tide, Treasury Secretary Jack Lew backpedaled vigorously on Tuesday. The government would welcome the AIIB, he suddenly said, as long as certain conditions are met, such as adequate transparency.

So after this bruising setback, the US now has another opportunity to oppose China’s financial and monetary ambitions.

China is trying to get the IMF to bestow reserve currency status on the yuan, which would add the yuan to a glorious basket that includes the dollar and the euro – currently the dominant reserve currencies with a 63% and 22% share respectively. So it has been lobbying core members of the IMF behind the scenes for support, and they’re coming around despite US conniptions, the Wall Street Journal reported.

China also wants the yuan to become part of the IMF’s Special Drawing Rights “in the foreseeable future,” Yi Gang, Director of the State Administration of Foreign Exchange and Deputy Governor of the People’s Bank of China, pointed out a couple of weeks ago. With the yuan, SDRs – which currently include only the dollar, the euro, the yen, and the British pound – would “undoubtedly” be more “representative” of the global economic landscape, Yi said.

 

…click on the above link to read the rest of the article…

Putin Security Council Slams Obama Attempts At “New World Order”

March 25, 2015

Putin Security Council Slams Obama Attempts At “New World Order”

Moscow — which may or may not have to nuke Denmark — says the US has adopted a national security strategy that is decidedly anti-Russian. Although attempts to prove how “isolated” Putin truly is on the geopolitical stage haven’t fared very well of late (what with Russian bombers refueling at former U.S. air bases and Putin plotting Eurasian currency unions) and although Washington’s experience with China’s AIIB membership drive seems to indicate it may be the US that is in fact isolated, The Kremlin doesn’t think The White House is likely to give up on its attempts to ostracize Russia any time soon.

From a Russian Security Council statement entitled “About The US National Security Strategy“:

In the long term, the United States, in cooperation with its allies will continue the policy of political and economic isolation of Russia, including limiting its ability to export energy and the displacement of all markets for military products, while making it difficult for the production of high-tech products in Russia.

Putin’s security council then proceeds to deliver a remarkably accurate description of Washington’s foreign policy aims including the desire to show off NATO military capabilities (on full display along the Russian border currently), installing puppet governments and propping them up with financial and military support (which is precisely what’s going on now in Ukraine as the US is set to provide military assistance and also financial assistance via a Ukrainian bond issue back by the full faith and credit of the US government), and preserving US hegemony by taking unilateral action across the globe at Washington’s behest (something the US does all the time):

 

…click on the above link to read the rest of the article…

Washington Blinks: Will Seek Partnership With China-Led Development Bank

March 23, 2015

Washington Blinks: Will Seek Partnership With China-Led Development Bank

Don’t look now, but Washington just blinked. As we’ve documented exhaustively over the past week, pressure has been building steadily for the US to strike some manner of conciliatory tone towards China with regard to the Asian Infrastructure Investment Bank, a China-led institution aimed at rivaling the US/Japan-backed ADB. Britain’s decision to join China in its new endeavor has prompted a number of Western nations to throw their support behind the bank ahead of the March 31 deadline for membership application. Because the AIIB effectively represents the beginning of the end for US hegemony, the White House has demeaned the effort from its inception questioning the ability of non-G-7 nations to create an institution that can be trusted to operation in accordance with the proper “standards.” Now, with 35 nations set to join as founders, it appears Washington may be set to concede defeat. Here’s more, via WSJ:

The Obama administration, facing defiance by allies that have signed up to support a new Chinese-led infrastructure fund, is proposing the bank work in a partnership with Washington-backed development institutions such as the World Bank.

The collaborative approach is designed to steer the new bank toward economic aims of the world’s leading economies and away from becoming an instrument of Beijing’s foreign policy. The bank’s potential to promote new alliances and sidestep existing institutions has been one of the Obama administration’s chief concerns as key allies including the U.K., Germany and France lined up in recent days to become founding members of the new Asian Infrastructure Investment Bank.

…click on the above link to read the rest of the article…

 

The new order emerges

March 23, 2015

The new order emerges

China and Russia have taken the lead in establishing the Asian Infrastructure Investment Bank (AIIB), seen as a rival organisation to the World Bank and the Asian Development Bank, which are dominated by the United States with Europe and Japan.

These banks do business at the behest of the old Bretton Woods* order. The AIIB will dance to China and Russia’s tune instead.

The geopolitical importance was immediately evident from the US’s negative reaction to the UK’s announcement this week that it would join the AIIB. And very shortly afterwards France, Germany and Italy also defied the US and announced they might join. In the Pacific region, one of America’s closest allies, Australia, says she is considering joining too along with New Zealand. The list of US allies seeking to join is growing. From a geopolitical point of view China and Russia have completely outmanoeuvred the US, splitting both NATO and America’s Pacific alliances right down the middle.

This is much more important than political commentators generally realise. We must appreciate that anything China does is planned well in advance. Here is the relevant sequence of events:

• In 2002 China and Russia formally adopted the founding charter for the Shanghai Cooperation Organisation, an economic bloc that today contains about 35% of the world’s population, which will become more than 50% when India, Pakistan, Iran, Afghanistan and Mongolia join, which is their stated intention. Russia has the resources and China the manufacturing power to develop the largest internal market ever seen.

…click on the above link to read the rest of the article…

Plan B? Major European “Allies” Desert Obama, Join China-led Infrastructure Bank

March 17, 2015

Plan B? Major European “Allies” Desert Obama, Join China-led Infrastructure Bank

It appears the sea of de-dollarization has reached the shores of Europe. With Australia and UK having already moved in the direction of joining the China-led AIIB, The FT reports that France, Germany, and Italy have now all agreed to join the development bank as ‘pivot to Asia’ appears to be Plan B for Europe. As Greg Sheridan previously noted, “the saga of the China Bank is almost a textbook case of the failure of Obama’s foreign policy,” but as The FT concludes, the European decisions represent a significant setback for the Obama administration, which has argued that western countries could have more influence over the workings of the new bank if they stayed together on the outside. As Forbes notes, this leaves Obama with 3 uncomfortable options…

As The FT reports,

France, Germany and Italy have all agreed to follow Britain’s lead and join a China-led international development bank, according to European officials, delivering a blow to US efforts to keep leading western countries out of the new institution.

The decision by the three European governments comes after Britain announced last week that it would join the $50bn Asian Infrastructure Investment Bank, a potential rival to the Washington-based World Bank.

…

The European decisions represent a significant setback for the Obama administration, which has argued that western countries could have more influence over the workings of the new bank if they stayed together on the outside and pushed for higher lending standards.

The AIIB, which was formally launched by Chinese President Xi Jinping last year, is one element of a broader Chinese push to create new financial and economic institutions that will increase its international influence. It has become a central issue in the growing contest between China and the US over who will define the economic and trade rules in Asia over the coming decades.

This follows Australia and UK…

 

…click on the above link to read the rest of the article…

China’s ‘Marshall Plan’ Will Not Solve Overcapacity in China’s Economy

February 13, 2015

China’s ‘Marshall Plan’ Will Not Solve Overcapacity in China’s Economy

The majority of industries in China face severe overcapacity, which seriously threatens the smooth functioning of China’s economy.

Despite China’s high hopes, “the road map for launching an Asian Investment Bank” remained only a plan at the APEC summit this year. In addition, the Mexican government decided to cancel a $3.7 billion Chinese bid for a hi-speed railway project. China’s “Marshall Plan”—to export its overcapacity—is thus off to a bad start, and Beijing will still need to find ways to deal with this “nuclear threat” to China’s economy.

Phasing out overcapacity would result in huge layoffs, which would destabilize society and contradict the government objective of stability maintenance.

Why China Wants to Implement a “Marshall Plan”

Most comments made in China regarding the country’s “Marshall Plan” focus on overseas investments. And while some mention the term “export capacity,” they deliberately omit the key modifier for the word capacity: over.

China seeks to establish an Asian Infrastructure Investment Bank (AIIB) and, with that bank as the core, to materialize its plan for a “one belt and one road,” i.e., a “Silk Road Economic Belt” and a “Maritime Silk Road of the 21st Century.” Through this “one belt and one road,” China would be able to export its unwanted excess capacity. Commentators have dubbed this “China’s Marshall Plan.”

…click on the above link to read the rest of the article…

 

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