The Write Direction: Currency capers

SOME recent heavy trading in US government bonds immediately caught international attention.

It turns out that China has dumped the largest ever parcel of US bonds to the value of $74 billion US.

Further research has shown that it has been strategically unloading its largest ever investment in US government bonds since 2022.

In Australian dollar terms we are looking at approximately $112 billion.

When you see or hear of investments being unloaded in those dollar values it is prudent to assume either the seller is in financial strife, or it suspects that the originator of the product could be in economic difficulty.

As we all know, when the USA’s economy was going great guns – and printing more money to lend out to its movers and shakers in order for them to do even better – it needed someone to buy/invest in bonds that supported its currency.

China was on a similar economic boom trajectory but had too much spare money and nowhere to invest it.

They then became the major buyer/investor in USA bonds.

Now that China is finding economic life a bit harder, it could be argued that now might be a good time for them to cash up to protect their local economy.

This might not be the real reason however.

It may be the introduction of a new currency.

The new currency has been called BRICS, named after some of the countries involved in its inception: Brazil, Russia, India, China and South Africa.

Soon to join the team were some bastions of financial prudence; the nations of Iran, Egypt, Ethiopia and some of the Arab UAE states.

I don’t know how much confidence the economic ability of those nations gives you but I’m finding it hard to be enthusiastic.

They set the value of the BRICS to be worth US$1-67 per single BRICS for the purpose of exchange with other currencies.

Then they declared to the world that the de-dollarisation of the US currency had commenced.

So far, the BRICS is mainly being used by China and Russia when buying from each other, and of course only by governments or government agencies.

But my guess is that countries like Iran, Ethiopia and Brazil will need to use BRICS as they are economically supported by Russia and China.

With US economic sanctions being metered out to these countries mainly because they are seen to be supporting or funding terrorist groups – in particular the wars in Ukraine and certain European areas – this looks like this group of nations’ way of hitting out against the USA.

Yes, it has had some effect on the value of the US dollar and also on the rising price of gold, which is seen as the supreme safe hedge against currency failure.

However it certainly does not discourage the majority of nations from dealing with the USA or maintaining that currency’s position as the best and safest holder of value.

We all lived happily with Europe’s conversion to the EURO but to understand or use the BRICS is a jump too far for conservative players in the financial game.

I have said many times that the only value of money is the goods that you can convert it into.


Leave a Reply