Thomas Wagner

China and Brazil to Ditch U.S. Dollar? Hardly

Im somewhat puzzled by the author's assertion that China and Brazil are far away from settleing there current account transactions in BRL/RMB. In fact they already are. When Brazil purchases goods from China it pays for them in BRL and the sellor of the good is allowed to hold BRL or convert them to RMB throught Chin's SAFE. SAFE either sells it on the open market or increases Chin'a foreign reserve account. Most transactions are mearly invoiced in dollars as a matter of convenience, but they are not necessary settled using dollars as a cross currency. So the fact that they may or may not invoice in dollars is really irrelevant. I seriously doubt any BRIC company settles transactions by first converting to dollars then to the payee's currency. The simple fact is that as trade increases by and between BRIC countries and decreases between the US and BRIC countries the importance of dollars is deminished. More importantly the necessity of holding dollars and dollar denominated assets is deminished. Something Ive discussed in my recent articles.

Why China Will Continue to Buy U.S. Treasuries

I wrote about this senario several months ago and at the time no one believed that the chinese would contemplate selling there Treasuries. I see them trading them for commodities and investments in latin america and africa. I continue to be amazed at the sheer audacity of the Americans who state " they have to buy, were are they going to go". If this continues were on track for 14% interest rates and double digit inflation. A Chinese sell off of treasuries will make the 1974 oil shock look like a walk in the park.