40 Central Banks Are Betting This Will Be The Next Reserve Currency

As we have discussed numerous times, nothing lasts forever - especially reserve currencies - no matter how much one hopes that the status-quo remains so, in the end the exuberant previlege is extorted just one too many times. Headline after headlines shows nations declaring 'interest' or direct discussions in diversifying away from the US dollar... and as SCMP reports, Standard Chartered notes that at least 40 central banks have invested in the Yuan and several more are preparing to do so. The trend is occurring across both emerging markets and developed nation central banks diversifiying into 'other currencies' and "a great number of central banks are in the process of adding yuan to their portfolios." Perhaps most ominously, for king dollar, is the former-IMF manager's warning that "The Yuan may become a de facto reserve currency before it is fully convertible."

The infamous chart that shows nothing lasts forever...

Nothing lasts forever... (especially in light of China's recent comments)

As The South China Morning Post reports, Jukka Pihlman, Standard Chartered's Singapore-based global head of central banks and sovereign wealth funds (who formerly worked at the International Monetary Fund advising central banks on asset-management issues), notes that:

At least 40 central banks have invested in the yuan and several others are preparing to do so, putting the mainland currency on the path to reserve status even before full convertibility

The US dollar remains in charge (for now)...but

The US dollar is still the world's most widely held reserve currency, accounting for nearly 33 per cent of global foreign exchange holdings at the end of last year, according to IMF data. That ratio has been declining since 2000, when 55 per cent of the world's reserves were denominated in US dollars.

The IMF does not disclose the percentage of reserves held in yuan, but the emerging market countries' share of reserves in "other currencies" has increased by almost 400 per cent since 2003, while that of developed nations grew 200 per cent, according to IMF data.

As SCMP goes on to note, the rising popularity of the yuan among central bankers is probably mainly due to Beijing's extremely favourable treatment of them as it has sought to encourage investment in the yuan.

For example, central banks enjoy preferential treatment in the qualified foreign institutional investor category, both on the size of the quota and the length of the lock-up period. The QFII quotas given to central banks are not publicly known, but some of those announced by investing central banks are up to 10 times larger than others in the programme and, most importantly, free of any capital controls.

"Central banks and sovereign funds have special treatment," Pihlman said. "They have the ability to invest in a way that any other investor does not have. When it comes to convertibility, there is nothing formally out there, but it is fully convertible."

As Pihlman explains, things are accelerating...

Pihlman said "a great number of central banks are in the process of adding [yuan] to their portfolios".

"The [yuan] has effectively already become a de facto reserve currency because so many central banks have already invested in it," he said. "The [yuan] may become a de facto reserve currency before it is fully convertible."

The central banks more likely to add yuan holdings in the future were the ones with "strong trade linkages to China" and those which had relatively large levels of reserves which could consider diversifying more for return-related reasons, he said.

"The [yuan's] convertibility may be already there for central banks in a way that has got them comfortable to start investing in the currency," Pihlman said.

We leave it to a former World Bank chief economist, Justin Yifu Lin, to sum it all up...

"the dominance of the greenback is the root cause of global financial and economic crises,"

It appears the world is beginning to listen

http://www.zerohedge.com/news/2014-04-08/40-central-banks-are-betting-will-be-next-reserve-currency 

Hot Air Hisses Out Of Housing Bubble 2.0: Even Two Middle-Class Incomes Aren’t Enough Anymore To Buy A Median Home

Wolf Richter   www.testosteronepit.com   www.amazon.com/author/wolfrichter

As home prices have soared in cities around the country, sales have cratered. The weather has been blamed, though the weather has been gorgeous in California where sales have crashed too, even in temporary boom town San Francisco. The “lack of inventory” and other excuses have been dragged out as well. In reality, homes have gotten too expensive....

Even for hedge funds, private equity funds, REITs, and other forms of Big Money with access to the Fed’s limitless free juice. They’d become powerful buyers over the last two years, gobbling up vacant homes sight-unseen by the thousands, in order to get them off the closely watched for-sale list and shuffle them over to the ignored for-rent list, where they might languish undisturbed. The hope is that they might rent them out somehow and sell them later at a big fat profit, to the dumb money via a ridiculously hyped IPO. But now their business model has collapsed.

“Prices have gotten to the stage where we cannot buy a house, renovate it, rent it, and still make a reasonable return,” explained Peter Rose, a spokesman for Blackstone Group, a private equity giant whose real-estate division, Invitation Homes, has grown in two short years from nothing to the largest landlord in the country with 41,000 rental single-family houses to is name. “There was a moment in time where it made sense,” Rose said.

Not anymore. Blackstone already cut its purchases in California by 90% last year. It wasn’t alone. Another mega-buyer with access to nearly free money, Colony Capital, is doing the same thing. Oaktree Capital is trying to dump its portfolio of 500 homes before prices head south.

“Private capital made a lot of money early, and now they’re starting to pull back,” Dave Bragg, head of Residential Research at Green Street Advisors, told the LA Times. “Home prices are up significantly, and houses are definitely less attractive.”

With these mass-buyers out of the market, volumes have collapsed to a four-year low, according to Redfin, an electronic real-estate broker that covers 19 large metro areas around the country. Because, let’s face it, who can still afford to buy these homes?

Forget first-time buyers, the crux of a healthy housing market. In February, they only bought 28% of the homes, down from 30% a year earlier, down from the three-decade average of 40%, and down from the mid-40% range during good times. That hapless lot has been pushed out of the market a while ago.

And the middle-class household, supported by one earner? Teachers earning on average $69,300 in my beloved state of California, are facing a housing market where the median home lists for $485,000. With their salary, they can only afford a $260,000 home – or only 17.4% of the listed homes. Where exactly are all these high-income people who’re supposed to buy the remaining 82.6% of the homes? Sad fact: they don’t exist in those large numbers.

In the inland areas, teachers have a better chance for being able to buy a median home. But forget it in the coastal areas. My zany city of San Francisco topped the list: exactly 0% of the homes listed were within reach of a teacher’s salary [read.... California Housing Bubble: Now Even Teachers Can No Longer Afford To Buy A Home].

Turns out, even two middle-class incomes aren’t enough anymore for a median home in many cities around the country. Real wages that have stagnated for the last 25 years – thanks to that wondrous elixir of inflation – are now colliding with soaring home prices. Based on non-distressed homes listed on the Multiple Listing Service as of March 30,Redfin reports that in 40 large cities, only 10% of the homes are affordable on one median salary. It defined an affordable monthly payment as 28% or less of gross monthly income. And it found that “just 41% of homes currently for sale across 40 US cities are affordable for a family earning two median incomes.”

In San Francisco, where the median home lists for nearly $1 million, and in Santa Ana in Southern Cal, only 7% of the homes were within reach of a family with 2 median salaries. In San Diego 9%, in LA 12%, in Miami 19%, in Denver 23%, in Nassau (Long Island) 24%, in Austin 32%.

There are some cities where the fiasco is less pronounced. For example, in Atlanta a family with two middle-class incomes can afford 59% of the listed homes – but even there, who is going to buy the other 41% that are priced beyond the reach of two middle-class incomes?! The richest 1%? Or people who have to overextend themselves and become house-poor for years to come, assuming that another housing downturn, or a layoff, or an illness doesn’t wreck their homeowner status?

And where the heck are all the high-income people who will buy the median homes when investors, speculators, and PE firms that have become the largest landlords in the country are pulling up their stakes? There aren’t that many high-income people around, and they don’t like to live in median homes. Sales are already heading south. And last time this debacle happened, prices followed soon after. So this is going to be, let’s say, an interesting scenario.

And a direct consequence of the Fed’s policies that engineered an environment where Wall Street can borrow unlimited amounts for nearly free, buy all manner of assets, drive up prices, take huge risks that it then shuffles off at peak valuations to other entities, hopefully to the unsuspecting public via over-priced IPOs, toxic synthetic structured securities of the kind that blew up the banks during the financial crisis, and other shenanigans that end up getting stuffed into conservative-sounding funds that people buy for their retirement.

It starts here: evictions in San Francisco hit the highest level since 2001, when the dotcom bubble was disintegrating. Everything these days gets benchmarked against the last bubbles: the dotcom bubble that blew up in 2000, the housing bubble that blew up in 2007. Read.... Bay Area Home Sales Plunge To 2008 Levels, Prices Soar

China the world's most powerful nation in terms of market power

In terms of economic might, BBVA has created an index of "world market power" enabling an at-a-glance view of a nation's impact on the global economy via relevance of exports, exposure to external shocks, technological content, and retained value-added. And the winner is... Hint, not USA...

As BBVA sums up,

China shows the highest value not only among emerging economies but also when considering all the sample, inverting with the US the rank order given by the exports’ share in nominal terms.

China holds the largest share among emerging markets in the sample for 9 out of 18 industries, including all manufacturing groups except food (surpassed by Brazil). The largest industry share corresponds to textiles and leather (above 30%).

Russia and especially Saudi Arabia are well ahead in the ranking due to their key role in the oil market for which they show a high degree of product concentration.

India and Mexico have a similar share of world exports, although the market power index is significantly higher for the former on dominant positions in ‘other manufactures’ and business services.

On a side note, as Constantin Gurdgiev notes, three out of current G7 states should not be anywhere near G7. You might argue about Saudi Arabia's place in the world's 'power by exports' rankings, but China and Russia certainly are diversified enough and have a strong enough sway to be in G7.

BBVA's Full Report below:

140402_EW_exports_tcm348-438276

http://www.zerohedge.com/news/2014-04-05/and-worlds-most-powerful-nation

US Threatens Russia Over Petrodollar-Busting Deal

On the heels of Russia's potential "holy grail" gas deal with China, the news of a Russia-Iran oil "barter" deal, it appears the US is starting to get very concerned about its almighty Petrodollar

• *U.S. HAS WARNED RUSSIA, IRAN AGAINST POSSIBLE OIL BARTER DEAL
• *U.S. SAYS ANY SUCH DEAL WOULD TRIGGER SANCTIONS
• *U.S. HAS CONVEYED CONCERNS TO IRANIAN GOVT THROUGH ALL CHANNELS

We suspect these sanctions would have more teeth than some travel bans, but, as we noted previously, it is just as likely to be another epic geopolitical debacle resulting from what was originally intended to be a demonstration of strength and instead is rapidly turning out into a terminal confirmation of weakness.

As we explained earlier in the week,

Russia seems perfectly happy to telegraph that it is just as willing to use barter (and "heaven forbid" gold) and shortly other "regional" currencies, as it is to use the US Dollar, hardly the intended outcome of the western blocakde, which appears to have just backfired and further impacted the untouchable status of the Petrodollar.

...

"If Washington can't stop this deal, it could serve as a signal to other countries that the United States won't risk major diplomatic disputes at the expense of the sanctions regime,"

And here is Voice of Russia, "Russia prepares to attack the Petrodollar":

The US dollar's position as the base currency for global energy trading gives the US a number of unfair advantages. It seems that Moscow is ready to take those advantages away.

The existence of “petrodollars” is one of the pillars of America's economic might because it creates a significant external demand for American currency, allowing the US to accumulate enormous debts without defaulting. If a Japanese buyer want to buy a barrel of Saudi oil, he has to pay in dollars even if no American oil company ever touches the said barrel. Dollar has held a dominant position in global trading for such a long time that even Gazprom's natural gas contracts for Europe are priced and paid for in US dollars. Until recently, a significant part of EU-China trade had been priced in dollars.

Lately, China has led the BRICS efforts to dislodge the dollar from its position as the main global currency, but the “sanctions war” between Washington and Moscow gave an impetus to the long-awaited scheme to launch the petroruble and switch all Russian energy exports away from the US currency .

The main supporters of this plan are Sergey Glaziev, the economic aide of the Russian President and Igor Sechin, the CEO of Rosneft, the biggest Russian oil company and a close ally of Vladimir Putin. Both have been very vocal in their quest to replace the dollar with the Russian ruble. Now, several top Russian officials are pushing the plan forward.

First, it was the Minister of Economy, Alexei Ulyukaev who told Russia 24 news channel that the Russian energy companies must should ditch the dollar. “ They must be braver in signing contracts in rubles and the currencies of partner-countries, ” he said.

Then, on March 2, Andrei Kostin, the CEO of state-owned VTB bank, told the press that Gazprom, Rosneft and Rosoboronexport, state company specialized in weapon exports, can start trading in rubles. “ I've spoken to Gazprom, to Rosneft and Rosoboronexport management and they don't mind switching their exports to rubles. They only need a mechanism to do that ”, Kostin told the attendees of the annual Russian Bank Association meeting.

Judging by the statement made at the same meeting by Valentina Matviyenko, the speaker of Russia's upper house of parliament, it is safe to assume that no resources will be spared to create such a mechanism. “ Some ‘hot headed' decision-makers have already forgotten that the global economic crisis of 2008 - which is still taking its toll on the world - started with a collapse of certain credit institutions in the US, Great Britain and other countries. This is why we believe that any hostile financial actions are a double-edged sword and even the slightest error will send the boomerang back to the aborigines,” she said.

It seems that Moscow has decided who will be in charge of the “boomerang”. Igor Sechin, the CEO of Rosneft, has been nominated to chair the board of directors of Saint-Petersburg Commodity Exchange, a specialized commodity exchange. In October 2013, speaking at the World Energy Congress in Korea, Sechin called for a "global mechanism to trade natural gas" and went on suggesting that " it was advisable to create an international exchange for the participating countries, where transactions could be registered with the use of regional currencies ". Now, one of the most influential leaders of the global energy trading community has the perfect instrument to make this plan a reality. A Russian commodity exchange where reference prices for Russian oil and natural gas will be set in rubles instead of dollars will be a strong blow to the petrodollar.

Rosneft has recently signed a series of big contracts for oil exports to China and is close to signing a “jumbo deal” with Indian companies. In both deals, there are no US dollars involved. Reuters reports, that Russia is close to entering a goods-for-oil swap transaction with Iran that will give Rosneft around 500,000 barrels of Iranian oil per day to sell in the global market. The White House and the russophobes in the Senate are livid and are trying to block the transaction because it opens up some very serious and nasty scenarios for the petrodollar. If Sechin decides to sell this Iranian oil for rubles, through a Russian exchange, such move will boost the chances of the “petroruble” and will hurt the petrodollar.

It can be said that the US sanctions have opened a Pandora's box of troubles for the American currency. The Russian retaliation will surely be unpleasant for Washington, but what happens if other oil producers and consumers decide to follow the example set by Russia? During the last month, China opened two centers to process yuan-denominated trade flows, one in London and one in Frankfurt. Are the Chinese preparing a similar move against the greenback? We'll soon find out.

Finally, those curious what may happen next, only not to Iran but to Russia, are encouraged to read "From Petrodollar To Petrogold: The US Is Now Trying To Cut Off Iran's Access To Gold."

http://www.zerohedge.com/news/2014-04-04/us-threatens-russia-sanctions-over-petrodollar-busting-deal

Furious Russia Will Retaliate Over "Illegal And Absurd" Payment Block By "Hostile" JPMorgan

While everyone was gushing over the spectacle on TV of a pro-HFT guy and anti-HFT guy go at it, yesterday afternoon we reported what was by far the most important news of the day, one which was lost on virtually everyone if only until this morning, when we reported that "Monetary Blockade Of Russia Begins: JPMorgan Blocks Russian Money Transfer "Under Pretext" Of Sanctions." This morning the story has finally blown up to front page status, which it deserves, where it currently graces the FT with "Russian threat to retaliate over JPMorgan block." And unlike previous responses to Russian sanctions by the West, which were largely taken as a joke by the Russian establishment, this time Russia is furious: according to Bloomberg, the Russian foreign ministry described the JPM decision as "illegal and absurd."  And as Ukraine found out last month, you don't want Russia angry.

More:

The biggest U.S. bank thwarted a remittance from the Russian embassy in Astana, Kazakhstan, to Sogaz Insurance Group “under the pretext of anti-Russian sanctions imposed by the United States,” the ministry said yesterday in a statement on its website. Sogaz lists OAO Bank Rossiya, a St. Petersburg-based lender facing U.S. sanctions over the Ukrainian crisis, as a strategic partner on its website.

Interfering with the transaction was an “absolutely unacceptable, illegal and absurd decision,” Alexander Lukashevich, a ministry spokesman, said in the statement.

U.S. President Barack Obama announced the action against Bank Rossiya last month as part of a broadening of sanctions that targeted government officials and allies of Russian President Vladimir Putin, whose associates own Rossiya. The embassy’s transaction was for less than $5,000 dollars, a person with knowledge of the dispute said, asking not to be identified because such transfers aren’t public.

Did JPMorgan just move the second Cold War into semi-hot status? Very possibly:

“Any hostile actions against the Russian diplomatic mission are not only a grossest violation of international law, but are also fraught with countermeasures that unavoidably will affect activities of the embassy and consulates of the U.S. in Russia,” Lukashevich said.

As we reported yesterday, for now the JPM party line is to plead ignorance, as it does not want to incur the wrath of the US government, because apparently lying to Congress is less of an issue than transacting with Russian oligarchs.

JPMorgan could still process the embassy payment if U.S. regulators approve, the person familiar with that dispute said.

“As with all U.S. financial institutions that operate globally, we are subject to specific regulatory requirements,” New York-based JPMorgan said in a statement. “We will continue to seek guidance from the U.S. government on implementing their recent sanctions.”

Russia’s Finance Ministry has done business with JPMorgan. It picked the lender to improve the country’s standing among U.S. credit-rating firms. Putin said in 2011 the rankings given to Russia were an “outrage” that increased borrowing costs for domestic companies and the government. JPMorgan also was among banks selected to advise Russia on a 1 trillion ruble ($28.5 billion) privatization program.

There's that. And then there's this, which we also said yesterday:

Wait, did JPM just take a unilateral action, not mandated by the state department (because nowhere in the Russian sanction list does it say putting a freeze on Russian bank transfers), and refuse to process a simple money transfer? Why? And if indeed JPM is doing this, how long until all other US banks, most of which are just as allegedly criminal in dealing with offshore sources of illegal money, follow suit and leave Russia entirely in the world when it comes to USD-backed transactions.

Because what JPM may have just done is launch a preemptive strike which would have the equivalent culmination of a SWIFT blockade of Russia, the same way Iran was neutralized from the Petrodollar and was promptly forced to begin transacting in Rubles, Yuan and, of course, gold in exchange for goods and services either imported or exported.

One wonders: is JPM truly that intent in preserving its "pristine" reputation of not transacting with "evil Russians", that it will gladly light the fuse that takes away Russia's choice whether or not to depart the petrodollar voluntarily, and makes it a compulsory outcome, which incidentally will merely accelerate the formalization of the Eurasian axis of China, Russia and India?

Once again: watch this space carefully - should more western commercial banks (here's looking at you Citigroup, Bank of America, and Citi, and of course "money launderer to criminals everywhere" extraordinaire HSBC) just say no to more Russian hot money, things get really interesting.... if for nothing else, then certainly the ultra-luxury end of the Manhattan real estate market.

Finally, we certainly can not be the only ones looking forward to the epic battle prospect that is Vlad "Shootin" Putin vs JP "Fail Whale" Morgan. Especially if it involves more such sudden moves in gold as what just happened.

http://www.zerohedge.com/news/2014-04-02/furious-russia-will-retaliate-over-illegal-and-absurd-payment-block-hostile-jpmorgan

12 Largest Banks Sued By Public Retirement Funds For "Conspiring To Rig Global FX Markets"

Yesterday, we read with some amusement that Goldman has moved Guy Saidenberg, reportedly one of the greater profit centers at the firm - and how could he not be when he always traded against Tom Stolper's recommendations which led to tens of thousands of pips in losses to those who listened to him over the past five years - from head of global foreign-exchange trading to a new role, as co-head of commodities.  Why did Goldman decide to scrap its once uber-profitable FX vertical and redo it from scratch? Simple - the ability to rig and manipulate FX markets, which are now under every global regulator's microscope after the "Cartel" members so foolishly let themselves be exposed to the entire world, is no longer there, as confirmed last night by news that a dozen large investors have filed a joint lawsuit against 12 banks for "allegedly conspiring to rig global foreign-exchange prices." Allegedly? Hasn't everyone read the Cartel chatroom transcripts yet?

WSJ reports:

The class-action lawsuit, filed in U.S. District Court in the Southern District of New York late Monday, was from a group of investors across the U.S. and Caribbean, including city and state pension plans.

They accused the banks of communicating "with one another, including in chat rooms, via instant messages, and by emails, to carry out their conspiracy," and for rigging foreign-exchange rates as far back as January 2003, the lawsuit said.

The bank sued are BofA, Barclays, BNP, Citi, Credit Suisse, Deutsche, Goldman, HSBC, JPM, Morgan Stanley, RBS and UBS, or, in other words, everyone. And certainly all the Too Big To Prosecute banks. So best of luck there, even though the plaintiffs include some very recognizable public investment funds:

The investors behind the consolidated lawsuit are: Aureus Currency Fund LP, a Santa Rosa, Calif., investment fund; the City of Philadelphia and its board of pensions and retirement; the Employees' Retirement System for the Government of the Virgin Islands; the Employees' Retirement System of Puerto Rico Electric Power Authority; Fresno County Employees' Retirement Association; Haverhill Retirement System for the city of Haverhill, Mass.; Oklahoma Firefighters Pension and Retirement System; State-Boston Retirement System; Tiberius OC Fund, a Cayman Islands fund; Value Recovery Fund LLC, a Delaware fund with offices in Connecticut; Syena Global Emerging Markets Fund LP, a hedge fund in Connecticut; and the United Food and Commercial Workers Union.

In the complaint, the investors accused the banks of controlling foreign-exchange rates via a "small and close-knit group of traders." They alleged it became possible for banks to rig the market because the traders "have strong ties formed by working with one another in prior trading positions" and by in many cases living "in the same neighborhoods in the Essex countryside just northeast of London's financial district."

"They belong to the same social clubs, golf together, dine together and sit on many of the same charity boards," the complaint adds.

Of course, the rigging of FX markets, disclosed hot on the heels that Libor too was massively manipulated (to the delight of "conspiracy theorists" everywhere) is by now well known.

But the punchline is not that FX is rigged, and as a result virtually all carbon-based traders are now gone, leaving the FX market at the mercy of Virtu and GETCO algos (those USDJPY momentum ignitions at specific, recurring times of the day are just that), but that as Goldman has shown by relocating Saidenberg, the commodity market is the only one where manipulation, rigging and fraud are not only possible but smiled upon by regulators. Because one of the key commodities in said market is gold. And as everyone knows, alongside getting the Russell 200,000 to all time highs, the other core mandate of central bankers everywhere is to push gold to 0.

The worst news: we are rapidly running out of "conspiracy theories" that haven't become conspiracy facts yet.

http://www.zerohedge.com/news/2014-04-01/12-largest-banks-sued-public-retirement-funds-conspiring-rig-global-fx-markets

Swiss regulators step up scrutiny of foreign exchange markets

Swiss regulators stepped up their scrutiny of alleged manipulation of foreign exchange markets yesterday.

Switzerland's competition commission Weko said it opened an investigation into several Swiss, US and British banks including Barclays and Royal Bank of Scotland, over potential collusion to manipulate currency rates.

The UK Financial Conduct Authority (FCA), meanwhile, said it will assess if banks have cut the risk of traders manipulating benchmark rates in the coming year, to see if lessons have been learned from the scandal over benchmark rate rigging.

In addition to Barclays and RBS WEKO said it is investigating UBS, Credit Suisse , Zuercher Kantonalbank (ZKB), Julius Baer, JP Morgan and Citigroup. "Evidence exists that these banks colluded to manipulate exchange rates in foreign currency trades," Weko said, adding it assumed the most important exchange rates were affected.

Regulators around the world are looking closely at traders' behaviour on a number of key benchmarks, spanning interest rates, foreign exchange and commodities markets. Eight financial firms have already been fined billions of dollars by US and European regulators in the past two years for manipulating benchmark interest rates and several more are being investigated.

The probe into currency trading could be even more costly. Authorities in the United States, Britain, Switzerland, Germany and Singapore are looking into allegations of collusion and manipulation by traders at major banks of the largely unregulated $5.3tn-a-day foreign exchange market.

"Even if there is no further alleged wrongdoing, the current concerns will take years to work out," said Marshall Bailey, head of the ACI Financial Markets Association, the sector's main international umbrella organisation.

Credit Suisse said it was "astonished" to be drawn into such a probe after not being subject to a preliminary investigation last year. It said WEKO's statement contained incorrect references to Credit Suisse which were "inappropriate and harmful" to its reputation.

Aside from the fines, banks fear that the response to the row from international regulators and politicians will put an end to the self-regulation model the sector has championed for decades and, in the process, raise the cost of foreign exchange dealing for banks, companies and individuals.

WEKO said it was in touch with some international authorities but had not been prompted by a foreign authority to open the investigation. "We have to conduct the investigation ourselves. There's no legal basis at the moment to exchange data directly with foreign authorities," WEKO director Rafael Corazza told Reuters.

WEKO opened a preliminary investigation last October after learning about potential manipulation of foreign exchange markets.

Julius Baer said an internal investigation had found no evidence of foreign exchange market abuse. Zuercher Kantonalbank, Switzerland's biggest regional bank, said it would co-operate with authorities.

RBS said it would co-operate with any investigation, but declined to comment further. UBS, JP Morgan, Barclays and Citi all declined to comment.

WEKO Vice Director Olivier Schaller said the WEKO investigation would take months and could result in fines of up to 10% of turnover generated in the relevant market in Switzerland over the last three years.

UBS last week suspended up to six FX traders, bringing the total number of traders suspended, placed on leave or fired to around 30.

The Swiss National Bank (SNB) last year estimated the daily turnover in foreign exchange markets of 25 sizeable banks in Switzerland amounted to $216bn.

London dominates foreign exchange trading, accounting for 40.9% of global turnover last year, compared with 18.9% in the US and 3.2% in Switzerland, according to Bank of International Settlements data.

The FCA said it will also look at whether investment banks are handling potential conflicts of interest adequately and ensuring that so-called "Chinese walls" are strong enough to prevent confidential information received in one part of the business not being abused by a different part of the business.

http://www.theguardian.com/world/2014/apr/01/swiss-regulator-currency-rate-collusion/print

China & Germany Sign Yuan-Settlement Pact And Obama Heads To Saudi Arabia

Submitted by Mike Krieger of Liberty Blitzkrieg blog,

I haven’t paid too much attention as of late to agreements between China and other nations intended to expand the use of the yuan (renminbi) internationally, because the near-term implications always seem to be exaggerated by many market commentators. That said, this deal between the People’s Bank of China (PBOC) and Germany’s Bundesbank seems quite significant given the importance of Germany within the global economy generally and the E.U. specifically.

From Bloomberg via BusinessWeek:

Germany’s Bundesbank and the ?People’s Bank of China agreed to cooperate in the clearing and settling of payments in renminbi, paving the way for Frankfurt to corner a share of the offshore market.

The central banks signed a memorandum of understanding in Berlin today, when Chinese President Xi Jinping met German Chancellor Angela Merkel, the Frankfurt-based Bundesbank said in an e-mailed statement.

Germany’s financial capital prevailed over Paris and Luxembourg in a euro-area race to win trade in renminbi, which overtook the euro to become the second-most used currency in global trade finance in October, according to the Society for Worldwide Interbank Financial Telecommunication. The U.K. Treasury said on March 26 that the Bank of England would sign an initial agreement with the PBOC on March 31 to clear and settle yuan transactions in London.

“Frankfurt is one of Europe’s foremost financial centers and home to two central banks, making it a particularly suitable location,” said Joachim Nagel, a member of the Bundesbank’s executive board. “Renminbi clearing will strengthen the close economic and financial ties between Germany and the People’s Republic of China.”

China was Germany’s third-biggest foreign trade partner last year, with 140 billion euros in turnover passing between the two countries, according to the Federal Statistics Office in Wiesbaden. China ranks fifth among importers of German goods and is the second-biggest exporter to Germany.

German companies including Siemens AG, the country’s biggest engineering company, and Volkswagen AG are embracing the renminbi internally as a third currency for cross-border trade settlements.

“The potential is vast,” said Stefan Harfich, the Siemens Financial Services manager, who steered the introduction of the yuan at the Munich-based company in October. “The introduction of the renminbi as an official company currency will therefore have a big impact on Siemens’s business in the coming years.”

Daimler AG, the Mercedes manufacturer that sold 235,644 autos in China last year, issued 500 million yuan of one-year notes in Asia’s largest economy on March 14, in the first so-called panda bond by an overseas non-financial company.

With all that in mind, let’s not forget that Obama is currently in Saudi Arabia trying to restore ties with the Medieival Kingdom, i.e., he is trying to figure out a way to arm al-Qaeda in Syria without the American public finding out about it.

From the Wall Street Journal:

RIYADH—Barack Obama’s visit to Saudi Arabia on Friday marks a bid to warm relations that the Saudis hope will result in commitments by the U.S. president to boost the supply of sophisticated weapons to Syrian insurgents.

Mr. Obama’s stopover at the end of a European tour will mark his first visit to the kingdom since U.S.-Saudi ties were severely strained last year following the renewal of high-level U.S. contacts with Iran and the cancellation of planned airstrikes against the regime of Syrian President Bashar al-Assad.

Saudi officials also are hoping he will bring word of a breakthrough in U.S. and Jordanian opposition to supplying Syrian rebels with more advanced weapons, including shoulder-launched missiles, known as manpads, capable of bringing down Syrian aircraft, according to Saudis, a Western diplomat and regional security analysts familiar with the situation.

Saudi officials also are hoping he will bring word of a breakthrough in U.S. and Jordanian opposition to supplying Syrian rebels with more advanced weapons, including shoulder-launched missiles, known as manpads, capable of bringing down Syrian aircraft, according to Saudis, a Western diplomat and regional security analysts familiar with the situation.

Jordan also has blocked delivery of the additional weapons through its territory to rebels in Syria, for fear of getting pulled deeper into the Syrian conflict. The diplomat and two Syrian opposition officials said Amman is waiting for the U.S. to approve the deployment of Saudi-bought manpads currently sitting in Jordanian warehouses.

Saudi royals have muted their angry rhetoric since last autumn’s rift. Prince Turki Al Faisal, whose criticism of the Obama administration’s policies on Iran and Syria made front-page news in December, made virtually no mention of the U.S. during a U.S. speech about Iran this month. A Saudi ambassador who wrote of Saudi Arabia breaking with the U.S. in the New York Times in December has been publicly silent since.

It appears that becoming entrenched in a Syrian civil war is still very much on the table…

Lots of moves appear to be afoot on the macro front at the moment. The months ahead should be very interesting to say the least.

http://www.zerohedge.com/news/2014-03-28/china-germany-sign-yuan-settlement-pact-and-obama-heads-saudi-arabia

Sanctioned Russian Bank Shuts US Accounts To "Protect" Russian Clients

The sanctioned Russian bank - Bank Rossiya - is "taking measures to protect its Russian clients" from potentially unfair actions by US banks by shutting correspondence accounts in the US. Furthermore, the bank, which is oh so grateful for the support of Vladimir Putin (who opened a personal account with the bank soon after the sanctions), added it will meet all obligations and will not need additional support as will concentrate only on its Russian clients and work only in Rubles.

• *BANK ROSSIYA SAYS IT WILL ONLY WORK WITH RUBLES, ONLY IN RUSSIA
• *BANK ROSSIYA SAYS IT'S TAKING MEASURES TO PROTECT CLIENTS
• *BANK ROSSIYA TOLD U.S. BANKS IT WAS CLOSING CORRESPONDENT ACCTS
• *BANK ROSSIYA SAYS WILL MEET OBLIGATIONS, DOESN'T NEED SUPPORT
• *BANK ROSSIYA THANKS RUSSIAN PRESIDENT PUTIN FOR SUPPORT

STATEMENT OF "AB" RUSSIA "DATED 28/03/2014

In order to protect customers from fraud Bank foreign financial institutions AB "RUSSIA" decided to work exclusively on the domestic market and only one currency - the national currency of the Russian Federation - the ruble.

In this regard, a number of U.S. banks sent notification of the closure of correspondent accounts. In the near future similar notice will be sent to other foreign financial institutions. These changes in the Bank's work will not affect the implementation of the obligations of the Bank before its clients and partners.

All obligations of the Bank will perform on time and in full. Bank's activities are not in need of financial support, including from the state regulator.

AB "RUSSIA" will take part in the development and implementation of the national payment system and its activities will be focused exclusively by national rating agencies.

AB "RUSSIA" expresses sincere gratitude to the President of the Russian Federation and the Russian citizens for the Bank's credibility.

http://www.zerohedge.com/news/2014-03-28/sanctioned-russian-bank-shuts-us-accounts-protect-russian-clients

The next financial crisis looms: Here’s where it may come from

Bloomberg financial reporter Bob Ivry has written an entertaining new book, “The Seven Sins of Wall Street,” which, instead of rehashing the various illegal activities that triggered the financial meltdown, focuses on what the banks have been up to since the crisis. Much of it would be familiar to readers of this space: the Bank of America whistle-blowers who were instructed to lie to homeowners, and received gift card bonuses for pushing them into foreclosure; the London Whale derivatives trade that lost JPMorgan Chase more than $6 billion; the investment banks who traded commodities while also operating physical commodity warehouses and facilities; and more. All the while, megabanks continue to enjoy subsidies on their borrowing costs because of the (accurate) perception that they will get bailed out in the event of any trouble.

The odds are that trouble will present itself soon.

Ivry’s opening quote in the book comes from Jamie Dimon, whose daughter asked him, “’Dad, what’s a financial crisis?’ Without trying to be funny, I said, ‘It’s something that happens every five to seven years.’” A quick check of the calendar reveals that we’re almost six years out from the bursting of the housing bubble and the fall of Lehman Brothers.

So are we on the precipice of another financial crisis, and what will it look like?

To be sure, danger still lurks in the mortgage market. The latest get-rich-quick scheme, with private equity firms buying up foreclosed properties and renting them out, then selling bonds backed by the rental revenue streams (which look suspiciously like the bonds backed by mortgage payments that were a proximate cause of the last crisis), has the potential to blow up. And continued shenanigans with mortgage documents could lead to major headaches. A new court case against Wells Fargo uncovered a bombshell, a step-by-step manual telling attorneys how they can fake foreclosure papers on demand; the fallout could throw into question the true ownership of millions of homes. Even subprime mortgages are in the midst of a comeback, because what could go wrong?

However, in this era of the government-backed housing market, new mortgages have largely gone through Fannie Mae and Freddie Mac, and the mortgage giants have diligently scrutinized them for defects. As a result, mortgages originated in 2013 have actually performed quite well. Industry types grouse that this leads to “tighter” credit; you could also call it “safer” credit, without the tricks and traps that preyed upon low-income Americans in the last decade.Proposed legislation to eliminate Fannie and Freddie could change this dramatically and return us to the Wild West show, but for the moment, financial risk may be located somewhere other than mortgages.

That’s not to say that Wall Street firms have been choir boys. The risk is merely harder to see, and you can’t just look at the banks. In fact, banks have reduced their stake in many normal banking activities, leaving things like small business lending to the shadow banking system. This is the broad term given to hedge funds, private equity firms and the labyrinthine deals they initiate to move money around. These less-regulated entities have increased their overall portfolios 60 percent over the past five years, bingeing on subprime loans to businesses that could not otherwise access traditional credit. Nontraditional leveraged loans, issued to companies that end up with large amounts of debt, have fewer protections for lenders and carry much more risk.

Typically lenders sell these loans off into the capital markets, where years of ultra-low interest rates have encouraged investors to search for any deal that will make them a bit more money. Thus we have seen an explosion in junk bonds, speculative investments in risky companies that return a high reward. Just as with subprime mortgages, these junk bonds feature shoddy underwriting, with money handed out to businesses that should in no way get an infusion of cash. Got an idea for a vegan restaurant on a cow farm? A lingerie shop in a nunnery? No problem, the shadow banking system will fund you! The junk bond market has doubled to nearly $2 trillion since 2009, causing more cautious investors to head for the exits, wary that the market could turn quickly. If losses mount and some of the bigger shadow banks take a hit, they remain so interconnected to the traditional banking industry that the risk could spread.

Regulators have displayed a vague awareness of these blind spots, though it may be too late. Recent actions from the Federal Reserve suggest that they are thinking about guarding against financial instability, amid concern that microscopic interest rates and expanded balance sheets have fed speculation. In addition, the Securities and Exchange Commission recently began looking into leveraged loans that have been packaged into bonds known as collateralized loan obligations, or CLOs. These CLOs are traded privately between buyers and sellers, so regulators cannot discern whether they hide risks, or whether the sellers cheat the buyers on prices. And some of them are “synthetic” CLOs – derivatives that are basically bets on whether the underlying loans will go up or down, without any stake in the loans themselves. Recently, commercial banks have attempted to get CLOs exempt from the Volcker rule, the prohibition on trading with depositor funds. CLO issuance has skyrocketed since this lobbying push, and it could be the next vessel Wall Street uses for their gambling activities.

But whether the SEC will actually enforce securities laws on CLOs, and drive them out of the shadows, remains to be seen. And other examinations of shady derivatives deals and price-fixing, if past history is a guide, will end with cost-of-doing-business settlements instead of true accountability. Meanwhile, we are told that the economy has little to fear from big bank failures. The Federal Reserve recently released results of its stress tests on the 30 biggest banks; it claims that 29 of them would hold up in the event of a deep recession. But the stress tests, designed in conjunction with the banks subjected to them, do not realistically measure the reality of a financial crisis, and if they did, the banks would all fail them.

Ultimately, we don’t yet know exactly where the next financial crisis will emerge. But we do know how the conditions for future crises get set. When law enforcement fails to prosecute Wall Street for prior misdeeds, they give no reason for them to curb their behavior. As the head of New York’s Department of Financial Services, Ben Lawsky, said recently, “There are certain bad apples in any large institution who are willing to push the limits. And if they don’t think there are going to be large consequences for them, they’re going to keep doing it.”

Similarly, the size and power of the largest financial institutions, which has only grown since the crisis, virtually guarantees similar outcomes. Congress and the White House have not yet moved to chop these behemoths down to size; as a result, their sprawling corporate structures and inadequate risk controls make them almost unmanageable.

It’s telling and sad that it took until the past couple of weeks for top regulators to publicly consider whether Wall Street exhibits a culture of corruption. Those seven sins Bob Ivry documents in his new book practically comprise a credo in the financial industry, with a desire for making fast profits, ignoring pesky things like rules or ordinary people’s lives, and offloading risk like a hot potato. We saw in 2008 how this puts all of us in peril.

http://www.salon.com/2014/03/26/the_next_financial_crisis_looms_heres_where_it_may_come_from/