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Fear strikes policymakers as ‘dollar bloc’ begins to unravel

I am happy to announce that I in the future will be contributing to Geopolitical Information Service (GIS).

The fact that I will be contributing to GIS will not change anything in terms of what I write on this blog, which will continue to be focused on monetary policy issues, but it will give it me an opportunity to write about broader macroeconomic issues particularly from a geopolitical perspective. This is something I have long wanted to do.

Contributing to GIS also gives me the opportunity to work closely with two old friends of mine – veteran financial journalists David McQuaid and Andy Kureth. Both David and Andy are American, but both have lived in Poland for many years and share my fascination and love of Poland. David and Andy are editors at Geopolitical Information Service, along with managing editor Mariusz Ziomecki.

My first piece for GIS is on the unfolding break-up of what I have termed the ‘Dollar Bloc’ and given what has been going on in the global financial markets this week I think my first piece for GIS is rather timely.

Here a little appetizer for my first article for Geopolitical Information Service:

On December 11, 2015, the Chinese authorities unveiled a trade-weighted index to track the renminbi’s movements against 13 foreign currencies. Financial markets saw this announcement as a clear signal that the People’s Bank of China – the country’s central bank – would strive to keep the currency stable against the basket, rather than continuing its long-term policy of shadowing the U.S. dollar. Ultimately, this relaxation of the dollar peg could be China’s first step toward adopting a floating exchange rate.

The official policy of shadowing the dollar meant that the Fed has been setting monetary conditions in China for at least 35 years. In a nutshell, for decades the world’s two largest economies have been operating in a quasi-currency union.

Among the members of this unspoken union are the Persian Gulf States, which (with the exception of Kuwait) all peg their currencies to the dollar. The most important of these is Saudi Arabia, which has maintained the riyal in a hard peg to the dollar since 1986. Hong Kong has used a currency board to manage its own hard peg against the dollar. In Africa, Angola also retains a fixed exchange rate against the greenback – even though it was forced to undertake a major devaluation in 2015.

Read the rest of the article here (subscription only)

And finally, we all see what is going on in the global financial markets today. It is hardly surprising when the Fed insists on continuing to tighten monetary conditions – and ignoring monetary data and the signals from the markets – and the PBoC is too scared to float the Renminbi that we are seeing a market meltdown in China, which is spreading to global stock and commodity markets. And it is not over yet…

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If you want to hear me speak about these topics or other related topics don’t hesitate to contact my speaker agency Specialist Speakers – e-mail: daniel@specialistspeakers.com or roz@specialistspeakers.com.

 

 

 

 

 

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