UN Says New Currency Is Needed to Fix Broken ?Confidence Game?

[Lumi]

By Jonathan Tirone
Sept. 7 (Bloomberg) -- The dollar?s role in international trade should be reduced by establishing a new currency to protect emerging markets from the ?confidence game? of financial speculation, the United Nations said.
UN countries should agree on the creation of a global reserve bank to issue the currency and to monitor the national exchange rates of its members, the Geneva-based UN Conference on Trade and Development said today in a report.
China, India, Brazil and Russia this year called for a replacement to the dollar as the main reserve currency after the financial crisis sparked by the collapse of the U.S. mortgage market led to the worst global recession since World War II. China, the world?s largest holder of dollar reserves, said a supranational currency such as the International Monetary Fund?s special drawing rights, or SDRs, may add stability.
?There?s a much better chance of achieving a stable pattern of exchange rates in a multilaterally-agreed framework for exchange-rate management,? Heiner Flassbeck
co-author of the report and a UNCTAD director, said in an interview from Geneva. ?An initiative equivalent to Bretton Woods or the European Monetary System is needed.?
The 1944 Bretton Woods agreement created the modern global economic system and institutions including the IMF and World Bank.
Enhanced SDRs
While it would be desirable to strengthen SDRs, a unit of account based on a basket of currencies, it wouldn?t be enough to aid emerging markets most in need of liquidity, said Flassbeck, a former German deputy finance minister who worked in 1997-1998 with then U.S. Deputy Treasury Secretary Lawrence Summers to contain the Asian financial crisis.
Emerging-market countries are underrepresented at the IMF, hindering the effectiveness of enhanced SDR allocations, the UN said. An organization should be created to manage real exchange rates between countries measured by purchasing power and adjusted to inflation differentials and development levels, it said.
?The most important lesson of the global crisis is that financial markets don?t get prices right,? Flassbeck said. ?Governments are being tempted by the resulting confidence game catering to financial-market participants who have shown they?re inept at assessing risk.?
The 45-year-old UN group, run by former World Trade Organization chief Supachai Panitchpakdi, ?promotes integration of developing countries in the world economy,? according to its Web site. Emerging-market nations should consider restricting capital mobility until a new system is in place, the group said.
The world body began issuing warnings in 2006 about financial imbalances leading to a global recession.
The UN Trade and Development report is being held for release via print media until 6 p.m. London time.

 

[Lumi]

The Dollar Collapses

The Dollar Collapses

The Dollar Collapses
Carl Gutierrez, 09.08.09, 4:05 PM ET



The U.S. dollar reached its lowest point against the euro this year due to a myriad of forces including rising global stocks and commodities prices, low interest rates, and investors diversifying out of Treasury debt and into other assets including U.S. stocks with the Dow Jones industrial average approaching 9500 in late afternoon trading.
Stocks in Asia and Europe saw big gains, and gold topped $1,000 an ounce. (See "Stocks, Commodities Rally After Long Weekend.") Oil also gained 4.9%, or $3.31, to $71.33, on the New York Mercantile Exchange, due in part to Goldman Sachs affirming its year-long outlook. By midday trading one euro traded for $1.45, meanwhile the Dollar Index, which tracks the greenback against a basket of currencies, fell to its lowest level since September of 2008.
"It isn't as if the fundamentals are better in Europe," said Jessica Hoversen, a foreign exchange and fixed income futures analyst at MF Global. "There are other factors outside of economic growth taking hold in the market."
Japan's special drawing rights holdings hit a record $18.5 billion, from $3 billion in July. SDRs are the currency of the International Monetary Fund and other international institutions. It's a basket of currencies composed of the dollar, euro, sterling and yen in a fixed weighting determined by the IMF and World Bank every five years.
One of the reasons cited for the rise is an increased in commitment in overseas aid, but Hoversen noted that to a certain degree it speaks to the general demand for the dollar, and that scares the market. "It doesn't necessarily mean diversification away from the dollar, but there is a heightened sensitivity about the topic," Hoversen said.
Currency investors have been obsessed with the prospect of central banks diversifying out of the dollar. (See "Spotlight On The Dollar.") The fixation has been fueled by meetings under the G20/G8 framework, as well as candid comments from some of the largest reserve managers, namely Russia and China. The prospects of a massive diversification are low though, at least in the short-term, because most of the alternatives, including using SDRs as a global reverse currency are unrealistic.
The three-month London Interbank Offer Rate, commonly known as the Libor, which reached a record low of 30 basis points and that also contributed to the dollar's slide. "It makes the dollar the cheapest interest rate differential in the G10 on a Libor basis," Hoversen said.
The dollar's fall follows a United Nations report released Monday calling for a reduced role of the dollar as the world's primary reserve currency.
"This is not the first time the U.N. has called for this, but it's the most recent," Hoversen said. The report, which was produced by the U.N. conference on Trade and Development, stated that a viable solution to the exchange-rate problem would be a system of managed flexible exchange rates targeting a rate that is consistent with a sustainable current-account position.
"What the U.N. may be trying to do is eliminate global dependence on the dollar," Hoversen said. "However, more details would be needed on the mechanism for adjustment to judge how it would affect the global currency markets."
To be sure, the U.S. isn't solely responsible for the global imbalance. While the U.S. current account deficit is being funded by developing countries, the demand from developed countries is improving their living standards. Meanwhile, developing countries have kept their currencies low in order to stimulate economic growth via their export market, and ultimately change will be required on both sides. (See "Decouple Or Die.")
Hoversen also pointed out that curves of the overnight index swaps have Norway and Australia pricing interest rate hikes first. "They gain on the idea the global economy is going to recover," Hoversen said. "Their central banks have also been more hawkish than other banks." Commodity-based economies will be on the ground floor of supplying the increased demand. Moreover, Australia and New Zealand will be greater beneficiaries of the Chinese stimulus than other commodity currencies. G20 members also promised to keep fiscal and monetary stimulus running on full cylinders, suggesting an increased amount of risk, Hoversen said.

 

[Lumi]

Momentum ushers gold above $1,000/oz

Momentum ushers gold above $1,000/oz

Momentum ushers gold above $1,000/oz

Tue Sep 8, 2009 1:46pm EDT
By Humeyra Pamuk and Veronica Brown
LONDON (Reuters) - Gold powered through the $1,000 per ounce psychological barrier on Tuesday, carried by a wave of pent-up technical momentum and dollar weakness, with some analysts eyeing last year's record high at $1,030.80.
Some investors were also seeing the spike in gold as a warning signal to stock market bulls and were fretting about the result of central banks and governments pumping billions of dollars into banking systems to boost growth.
Spot gold rose to $1,007.45 an ounce, its highest since March 2008, when bullion touched the $1,030.80 record. It was trading at $1,001.75 an ounce by 1442 GMT (10:42 a.m. EDT), after briefly dipping below $1,000, and versus $993.85 an ounce late in New York on Monday.
U.S. gold futures for December delivery rose to $1,009.4 an ounce, before easing to $1,006.80 an ounce, versus Friday's close at $996.70 an ounce before the U.S. long weekend.
"Gold's probably the most technically traded financial instrument in the world," analyst David Thurtell at Citigroup in London.
"Where can it go? If it closes through $1,010 and plus tonight, you'd have to think there would be a lot of very nervous shorts around that are getting close to covering, and then it really could pop and go up another $50 quite quickly,"
For a technical story on gold, see and for a snap analysis on gold's price prospects, see
But the sustainability of the precious metal's rally above $1,000 an ounce, which also helped boost palladium and silver to 2009 highs, was in question.
UBS analyst John Reade said in a note to clients that gold options had moved sharply after breaking through $1,000.
"Today's move in implied volatility suggests...that a scramble for upside gold options could lead the spot gold price higher," he said.
"We are unconvinced that all the ingredients are in place for a sustained surge higher in gold," he added.
Implied volatility is a measure of demand for options, which investors use to take advantage of, or protect themselves against, sharp movements in spot rates.
Spot gold has now made three attempts to rise and stay above $1,000, including Tuesday's push. The market stayed above the key level for one day in February this year and three days in record-setting March 2008.
SUSTAINABLE?
Despite gold hitting $1,000, it is far from an inflation-adjusted record, which analysts at GFMS have put as high as $2,079 per ounce.
Some analysts have said the higher gold price reflects uncertainty across markets about how central banks will untangle themselves from fiscal stimulus aimed at reviving economic growth, as well as dollar weakness.
"Gold is celebrating because the day when inflation might return is getting sooner rather than later," Ashok Shah, chief investment officer at London and Capital.
"As long as the authorities are intent on not reversing their policies then gold will remain in demand and it will be wanted."
Investment action took a break, with holdings in the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, standing at 1,077.63 tonnes as of September 7, unchanged from Friday, denting the price prospects for gold.
"We are still skeptical that this is a sustainable rally," said Andrey Kryuchenkov, an analyst at VTB Capital.
"There is very little reason to be long gold, with already record spec long positions accumulated in the market."
In other metals, silver hit a 13-month high of $16.81 an ounce and was at $16.69 an ounce versus $16.29 an ounce. Palladium touched $296.50 an ounce, its highest since September last year. It was last at $294.00 an ounce versus Monday's $291.50.
Platinum was at $1,283.50 an ounce versus $1,255.00 an ounce on Monday.

 

[DOGS THAT BARK]

Short quotes from Cheng at U.N.

<LI _extended="true">"The US spends tomorrow's money today," he said. "We Chinese spend today's money tomorrow. That's why we have this financial crisis."
Yet the consequences are not symmetric. "He who goes borrowing, goes sorrowing," said Mr Cheng. It was a quote from US founding father Benjamin Franklin.
Excellent use of putting founding fathers language in a context that Americans can only scoff at today. [remember, founding fathers are only to be quoted when it conveniently fits your dogma]
What Mr. Cheng is saying is the American ethos (I call it "kick the can" nation), put in simpler terms:

"I'll gladly pay you Tuesday for a hamburger today."
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