Word: traded
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...agreements are an unusual step for China, which has historically used U.S. dollars to conduct its external trade. But with some 70% of its $2 trillion in foreign reserves parked in the U.S. currency, China is searching for ways to diversify. Beijing's main concern is that the dollar will inevitably weaken, eroding the value of its holdings, due to the growing U.S. budget deficit that is expected to swell to more than $1.75 trillion in 2009, the country's largest debt load as a percentage of GDP since World War II. "This is the tip of the iceberg," warns...
...There have been other recent hassles with dollar-based trade. When U.S. financial institutions like AIG and Lehman Brothers began to disintegrate in 2008, global money markets were so roiled it became expensive for any trade to be done at all in dollars. "What precipitated [China's swap agreements] was the collapse of Lehman Brothers and the worries over trade financing at that time," says Johanna Chua, a regional economist with Citigroup in Hong Kong. "If the dollar is extremely volatile it costs more to hedge...
...agreements have so far drawn an indifferent response from the private sector. Intel, the world's largest semiconductor maker, has manufacturing facilities in both Malaysia and China. Yet so far Intel hasn't used the currency-swap facility Malaysia has in place with China. Much of Intel's internal trade is still transacted in dollars, according to Loo Cheng Cheng, a Penang-based corporate-affairs executive with Intel. According to Citigroup's Chua, companies in South Korea, which was the first to sign a swap facility with China, have so far also declined to utilize it. Indeed, even...
...what is the point of China issuing all these swaps? "This is a contingency plan in case the dollar implodes," says Fox-Pitt Kelton's Matthews. "It is a way of continuing trade with its major trading partners." Other analysts say China is trying to assert itself, through words rather than deeds, on the global economic stage by taking a step toward making the yuan a global currency. "A lot of this is symbolic," says Citigroup's Chua. "China wants to be a player." And one sure way to be a player, as everyone knows, is to threaten to quit...
...visit to Tashkent, the dreary capital of Uzbekistan, several years back. While heading into town from the airport, my babbling taxi driver kept one hand (barely) on the steering wheel while his other shoved a stack of local currency, the som, into my face. He insistently urged me to trade the money for dollars. After checking in at the grim Hotel Uzbekistan, a nattily clad porter showed me and my wife to a room, fiddled with a broken TV set, and then reached into his jacket pockets for large bricks of som. He, too, persistently begged me for greenbacks...