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GREECE IS CRYING OUT LOUD FOR A WILLING RESERVE CURRENCY - WHY NOT RENMINBI? [Copy link] 中文

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Post time 2015-6-29 02:58:17 |Display all floors
This post was edited by abramicus at 2015-6-29 03:04

Come Monday, the remaining 45 billion Euros that Greece has at its disposal will run out in an avalanche of withdrawals.  Come Tuesday, all commerce will stop as there is not enough currency or credit in the system to transact with.

I thought that the PBOC wanted China to play the role of a reserve currency for the world.

Well, here is its first challenge, and a doable one, provide Greece with enough loans denominated in Yuans, that Greece can the exchange for Euros in order to pay its depositors with, at least until July 5th.  Possibly, by that date, Greece would have agreed to be bound in iron chains and links by its creditors, and will be willing to pay its debts to China by working for it in the coming years - unlikely to happen as it may be.  Or, Greece would have decided to print its own money to pay its depositors with, at which point, it would have to peg the Drachma to the Yuan, which in turn would have to based on the exchange rate of the Yuan against the Euro, since the debts of Greece are denominated in Euros - this is more feasible and likely.

In either case, Greece gets a chance to breathe before doing its referendum.

This will cost China nothing, actually, because it has a surplus of Euros that are earning next to nothing in terms of interest, and here, Greece would be willing to pay it back with interest denominated in Yuans!

The key is for China to purchase 100 billion Euros overnight, and lend its equivalent to Greece in Yuans.  This makes certain that the reserve currency of Greece, even for this short period of transition only, is in Yuans.  

Given the following exchange rates:

1 Euro = 6.94 Yuan
1 Euro = 340.75 Drachma (establishing the Euro as the official currency of Greece on June 19, 2000, just a little over 15 years ago)

The exchange rate of the Drachma to the Yuan, if the Bank of Greece uses the original Euro-Drachma conversion rate for its new Drachma, should be:

1 Yuan = 48.99 Drachma.

Factoring an interest rate of 2.0%, paid upfront as a coupon, the initial conversion rate would simply be 1 Yuan = 50 Drachma.

If Greece has to pay China back its principal in one year, Greece would have to either have earned the same amount in exports to China, or convert its Drachma into other currencies, like the Euro, Dollar, or Yen, which can then be converted into Yuans, such that the value of the Yuan with respect to other currencies remains unchanged.

However, this transaction would have achieved two objectives, otherwise not achievable without it.

First, Greece's economy will not freeze up, and businesses would not have to close, while their workers would not have to be laid off - keeping intact Greece's means of production.

Second, China's excess manufacturing capacity will now find a ready market in Greece, and Greek products and services will have a ready market in China.  Greece has to earn Yuans to pay off its debt by the end of the year, or otherwise, it would have to earn enough Euros, Dollars or Yens, which would be even harder, so Greece can export to China products or services, chief of which are its tourism services, and port facility services (without loss of sovereignty over the ports themselves), to add new legs to China's thrust to rebuild and extend the Silk Road and Belt into Europe and Africa.  It merely provides an alternate route for trade to the southern part of Europe and the northern part of Africa by sea, that would be too difficult to negotiate by land.

A third benefit, unique to China, is that its artificially overvalued Yuan exchange rate could climb down from its high perch without having to reduce its interest rate or bank reserve requirement ratio at home, allowing its manufacturing sector to be revived.  Obviously, if Greece uses its Yuans to buy Euros, the Euro will rise and the Yuan exchange rate will fall, to some degree.

Finally, China can make this a win-win solution by first buying up Euros on Monday on the cheap, to the tune of 100 billion or even 200 billion Euros, which it can then use to back up its extension of credit to Greece, for the same amount, denominated in Yuans.  Just this arbitrage operation would generate a good profit overnight.  The subsequent demand for Yuans by Greece, should it export instead to the Eurozone countries, will later on raise the exchange rate of the Yuan back to its present level, without causing contraction of China's manufacturing sector, because the net result of all of this is that the demand for Chinese manufactured products would have increased, in the Greek economy at least, if not in other countries planning to go back to their own sovereign currencies, like Austria, which is highly solvent.  In this manner, the Yuan can truly become an international reserve currency without being limited to the 4% maximum of the SDR market, and the 6% maximum quoto of SDRs reserved for developing countries, breaking through the 2.4% barrier set by the IMF, which is at best a token, and at worst an albatross around the neck of the manufacturing sector of China.





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Post time 2015-6-29 03:59:55 |Display all floors
The most important qualification for a currency being an "INTERNATIONAL RESERVE CURRENCY" is that it can serve as the basis for any country needing foreign currency backing for its own domestic currency, in order to establish the credibility of the domestic currency as a medium of exchange and as a store of value, problems all new currencies face, particularly in an interdependent world where imports necessary to the energy and raw material needs of the country are priced in foreign currencies, and where one's own exports used to pay for one's imports are priced in the domestic currency instead.  The reserve currency serves first as a source of liquidity, and secondly as a buffer that allows foreign entities to exchange one's domestic currency for something that they can use in turn as a medium of exchange and store of value.

As a source of liquidity, a reserve currency has to be able to step up to the risks of being the "lender of last resort" in return for which it becomes the "lender of first choice" when liquidity is re-established, which is where the reward of being a reserve currency resides.

If Greece wishes to return under the Euro, because the ECB and IMF are willing to temper down their demands for austerity, China would nevertheless have established the value of the Yuan as an "emergency reserve currency", and even if it cannot dominate the reserve currency market in day-to-day operations, its value in times of need would have been proven, and therefore other central banks would want to keep some of it as a reserve currency, when they run out of Euros and Dollars.  What they would want above all, is a credit line from China that they can draw from, but first, they would need to borrow some amount from China to establish that credit line, much like a down payment is to the total cost of a property being mortgaged. With no ill-will towards the Euro or IMF, which themselves are now unable to extend liquidity to Greece based on their own rules, China actually helps the ECB and IMF stave off their own insolvency, but supplying to Greece, via the mechanism of Yuan-denominated loans, its own surplus Euros, lying dormant in its foreign currency reserve vaults.

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Post time 2015-6-29 05:16:03 |Display all floors
four generations of the same bundles words in my family. You owe as Greek .
So this is not new news for us at all
Round Up is good for developing the mind

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Post time 2015-6-29 05:38:13 |Display all floors
This post was edited by abramicus at 2015-6-29 05:48

TSIPRAS MUST BEGIN MAKING THE DRACHMA AVAILABLE BY JULY 1, 2015, TO AVOID A EURO-CAUSED FREEZE-UP OF THE GREEK ECONOMY - NO TIME TO WASTE AS THE NEXT MEAL ON THE TABLE DEPENDS ON EVERY GREEK HAVING ACCESS TO HIS SAVINGS IN THE FORM OF THE NEW OFFICIAL CURRENCY - THE DRACHMA.

Hamlet may indulge in a soliloquy contemplating suicide, but the Greek people have a good life to live, more so using their OWN currency.

Hamlet mused, "To be, or not to be, that is the question:
Whether 'tis Nobler in the mind to suffer
The Slings and Arrows of outrageous Fortune,
Or to take Arms against a Sea of troubles,
And by opposing end them."


Tsipras should simply "take arms against this sea of troubles and by issuing the new Drachma immediately on the largest scale possible, END them".

IF THE ECB AND IMF CANNOT WAIT FOR THE REFERENDUM TO END THE SUPPLY OF EUROS, THEN THE PEOPLE OF GREECE EVEN MORE SO CANNOT WAIT TO BEGIN THE SUPPLY OF THEIR OWN DRACHMAS, AS THEIR NEXT MEALS ARE LITERALLY ON THE TABLE.

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Post time 2015-6-29 05:44:43 |Display all floors
Greece needs to change its fiscal management like Ireland did

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Post time 2015-6-29 05:50:19 |Display all floors
dusty1 Post time: 2015-6-28 22:44
Greece needs to change its fiscal management like Ireland did

They need to cut alot of free money also. Rise pension age also take away bonus that some sectors had
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Post time 2015-6-29 05:56:48 |Display all floors
Motika Post time: 2015-6-29 05:50
They need to cut alot of free money also. Rise pension age also take away bonus that some sectors  ...

I agree they seem to not want to change yet they keep taking the German money.

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