Ali’s blog

Mostly quant stuff with occasional digressions

Archive for March, 2009

China calls for new reserve currency

Posted by alifinmath on March 24, 2009

Apologies to all and sundry: this is just more cut-and-paste. In the FT:

China’s central bank on Monday proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund.

In an essay posted on the People’s Bank of China’s website, Zhou Xiaochuan, the central bank’s governor, said the goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies”.

Analysts said the proposal was an indication of Beijing’s fears that actions being taken to save the domestic US economy would have a negative impact on China.

“This is a clear sign that China, as the largest holder of US dollar financial assets, is concerned about the potential inflationary risk of the US Federal Reserve printing money,” said Qu Hongbin, chief China economist for HSBC.

Although Mr Zhou did not mention the US dollar, the essay gave a pointed critique of the current dollar-dominated monetary system.

“The outbreak of the [current] crisis and its spillover to the entire world reflected the inherent vulnerabilities and systemic risks in the existing international monetary system,” Mr Zhou wrote.

China has little choice but to hold the bulk of its $2,000bn of foreign exchange reserves in US dollars, and this is unlikely to change in the near future.

To replace the current system, Mr Zhou suggested expanding the role of special drawing rights, which were introduced by the IMF in 1969 to support the Bretton Woods fixed exchange rate regime but became less relevant once that collapsed in the 1970s.

Today, the value of SDRs is based on a basket of four currencies – the US dollar, yen, euro and sterling – and they are used largely as a unit of account by the IMF and some other international organisations.

China’s proposal would expand the basket of currencies forming the basis of SDR valuation to all major economies and set up a settlement system between SDRs and other currencies so they could be used in international trade and financial transactions.

Countries would entrust a portion of their SDR reserves to the IMF to manage collectively on their behalf and SDRs would gradually replace existing reserve currencies.

US dollar R.I.P. US Imperium R.I.P.


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Norwegian krone as the new safe haven currency?

Posted by alifinmath on March 18, 2009

In the FT:

Norway’s krone: the new safe haven currency?

David Bloom at HSBC says “The ultimate haven currency in our view is the Norwegian krone. “It’s probably the best currency in the world.”

This might seem surprising. Only last December the krone dropped to a record low against the euro, as falling oil prices took their toll on the currency. But, as crude prices have stabilised, the oil producer’s currency has fought back strongly.

Mr Bloom says: “The Norwegian krone is our preferred major currency and we expect a sustained appreciation over the next 18 months.”

Analysts say on a number of measures, the krone is near or at the top of the league among the world’s 10 most traded currencies.

Monetary policy is also supportive of the krone, with the Norges Bank, Norway’s central bank, like those in other commodity-producing countries such as Australia and New Zealand, not expected to resort to quantitative monetary easing to boost inflation expectations. The country also has a large current account surplus.

The cost of insuring against sovereign default in Norway through credit default swaps is the lowest among the countries with the ten most traded currencies.

Mr Bloom says that if the stock of assets Norway has salted away from its oil revenues in the Government Pension Fund of Norway is added to the mix, the bullish story for the krone is complete.

But some analysts are less glowing about the krone’s prospects.

Gavin Friend at NAB Capital agrees the krone appears one of the best of a bad lot, with a healthy current account balance and interest rates likely to lend it support.

But he says: “You are trying to win the least ugly currency contest at the moment. I can’t disagree that it might move higher, but I can’t get too enthusiastic.”

His main concerns are the lack of liquidity in the market and the krone‘s long-held correlation with oil prices.

“I struggle to see how the Norwegian krone can outperform for a sustained period if oil prices remain low,” he says.

But he believes that the krone, along with the Australian dollar, is ideally positioned for prolonged gains as risk appetite improves.

He says the Australian dollar represents an economy with a superior growth outlook. The country’s budget surplus is expected to hover at 1 per cent of gross domestic product – which compares with the deepening deficits of the US, Europe and Japan.

He says: “The krone has the upper hand as its structural situation is boosted by a hefty current account surplus standing at 5 per cent of GDP – the biggest in the industrialised world”.

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FT interview with Slavoj Zizek

Posted by alifinmath on March 7, 2009

Yes, I’m a Zizek devotee. I hang onto the man’s every word and gasp at his verbal pyrotechnics. I believe I have almost every book he’s ever written. He’s been interviewed by the FT today  (March 07, 2009), and I’m posting a couple of choice extracts:

He claims that São Paulo in Brazil is mutating into a real-life version of the film Blade Runner (1982). The city now has 70 heliports with the rich travelling on another level to the poor….

Žižek is obsessed with the way that societies interpret events and the belief systems that underpin politics. One of the most powerful ideological “factories”, he argues, is Hollywood, which is influential in forging our understanding of the world. Žižek admits he enjoys many Hollywood films and says that the best, such as Robert Altman’s Short Cuts (1993), deserve to be called art and are superior to many “fake” European films. But, he suggests, Hollywood also serves an ideological purpose, shaping the way we lead our lives. “I don’t mean big ideological schemes. All that’s dead, I know. What interests me is ideology as part of everyday life,” he says. “My interest is: what’s the message? I like to find a different texture which gives another story.”

Take Titanic (1997). Most viewers see it as a straightforward love story. Not Žižek. Many critics noted the anti-establishment tone of the film: how the rich passengers are cruel while those on the lower decks are far more sympathetic. But, according to Žižek, the film reinforces the social order rather than subverts it. The true narrative concerns a spoiled, rich girl who has lost her identity. She takes a lower-class lover to restore her vitality, to put her ego image together, he says. The lover literally draws her picture. “And then, after his job is done, he can f*** off and disappear. He is – what I would call in theory – a pure vanishing mediator. It is not a love story. It is vampiric, egotistic exploitation.”

After discussing the ideological “messages” of Batman (1989), Kung Fu Panda (2008) and The Lives of Others (2006), which all – in their very different ways – explore how we can happily live with deceit, we arrive at the similarities between the Hollywood disaster movie Armageddon (1998) and The Fall of Berlin, the great Stalinist movie of 1949. This sets Žižek off about the mutual fascination of Hollywood and high Stalinism: how the producers of King Kong (1933) stole the idea of a giant gorilla on top of a skyscraper from the futurist architects who wanted to place a giant statue of Lenin on top of the Palace of Soviets; how Stalin’s favourite film stars were Ginger Rogers and Fred Astaire.

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