Ali’s blog

Mostly quant stuff with occasional digressions

Chinese staying away from dollars

Posted by alifinmath on March 28, 2008

In the FT:

Chinese exporters shun flagging dollar

According to Alibaba.com, the online company that matches Chinese suppliers with international buyers, the vast majority of their almost 700,000 Chinese suppliers no longer use dollars to settle non-US transactions to minimise foreign exchange risk.

“They are moving to euros, pounds, Australian dollars or even quoting prices in renminbi,” David Wei, chief executive, told the Financial Times. Moreover, he added, prices quoted in dollars were now often valid for just seven days compared with the 30-60 days common previously.

The dollar’s decline is still an orderly retreat and not yet a rout, as happened with the Russian rouble in the early ’90s. I remember the rates at the currency exchanges in Warsaw in 1994, when I had to exchange some pounds for zlotys. The spread for major currencies was barely 1/2 of 1% (thus if 35,100 zlotys bought one pound, one could trade a pound for 34,900 zlotys). But while one Russian rouble bought two zlotys, it took eight zlotys to buy one rouble. This is the kind of spread one sometimes encounters for third-world currencies where the official rate and the black-market rate are at variance. For example the Nigerian naira was at parity with the pound in the mid ’80s — but since the Nigerian government wasn’t willing to buy nairas for pounds, the black market rate was between four and five nairas to one pound in the London currency exchange kiosks. This fate hasn’t yet hit the dollar but there is a growing reluctance to accept them and to hold on to them which doesn’t bode well for the USA. Ultimately, of course, all fiat money becomes worthless.

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