USD Reserve currency – what does it mean?
By Tshepo Magagane
Does the concept of a reserve currency work anymore?
And the argument various currencies has been:
GBP – in a drift
EUR – gamble
CHF – restricted in size
RMB – restricted regulation wise
But now with the USD (canary in the coal mine is Microsoft yielding less than Treasuries)
* Sanctions can be capriciously put on
* Access to SWIFT can be capriciously cut off
* Assets can be capriciously seized
So the arguments against other currencies are actually less onerous than the USD (and more predictable).
We have to then ask “what is a reserve currency” – and then “what are the implications”…
…dont have the answers but I know this “HARD ASSETS exposure regardless of what you do is a priority”!
Post GFC, our underlying thesis in the HF – Special Sits was as below: even when I mention that Qatar attack was more crucial for gold, I saw the Gold price not reacting one bit to negative rates for over a decade (real world experiment – not pontifications).
[The emperor has no clothes (i.e. the US$). Sterling is in drift. The Euro is a gamble (odds not in your favour).The Swiss Franc is restricted size wise. RMB restricted regulation wise. Hence “corporate/asset” purchases and/or gold, silver, commodity “bets” (note Agnelli talks of an implicit US$ hedge in his Vale “2nd largest mining company” model) in a weak dollar situation (in so far as no global financial structural crisis must be a good bet). Maybe overlaid with some select European government hedges (2-5 years forwards via CDS or the like).
The aim of QE2 is supposedly to boost the economy by lowering the cost of capital and propping up asset prices. Note the cynicism which the likes of Gross (a Ponzi scheme), Tudor, Scwarzman and Grantham have poured on the so-called magic portion. Maybe it is just that ingredient which is missing that cannot be got at (RMB/USD!). In any event, the thinking goes, lower long term rates will increase borrowing and spend. Also will debase the QE2 currency against non QE2 currencies (do not be long the USD!). Debasing a QE2 currency will cause an exodus to the likes of gold, commodities and non QE2 currencies.]
