Are The 12 Regional Banks Of The Fed Private Entities?

Submitted by Lars Schall or LarsSchall.com,

Related to a book that I’m writing in German, I was asking myself whether the 12 regional Federal Reserve banks are privately owned.

The US Supreme Court, I found out, said this on January 3, 1928 in the case “United States Shipping Board Emergency Fleet Corporation v. Western Union Telegraph Co.“:

Instrumentalities like the national banks or the federal reserve banks, in which there are private interests, are not departments of the government. They are private corporations in which the government has an interest. Compare Bank of the United States v. Planters’ Bank, 9 Wheat. 904, 907, 6 L. Ed. 244.

See here for yourself.

Connected to the Freedom of Information Act (FOIA) case “Bloomberg LP v. Board of Governors of the Federal Reserve System, 08-CV-9595, U.S. District Court, Southern District of New York (Manhattan)“, Bloomberg reported in May 2009:

The New York Fed is one of 12 regional Federal Reserve banks and the one charged with monitoring capital markets. It is also managing $1.7 trillion of emergency lending programs. While the Fed’s Washington-based Board of Governors is a federal agency subject to the Freedom of Information Act and other government rules, the New York Fed and other regional banks maintain they are separate institutions, owned by their member banks, and not subject to federal restrictions.

See here for yourself.

In connection to the same FOIA case, Yvonne Mizusawa, Senior Council of the Board of Governors of the Federal Reserve System, stated on January 11, 2010 that the regional banks of the Federal Reserve System are indeed “private banks“.

See here for yourself.

Moreover, I’ve asked today Nomi Prins, the author of the book “All the Presidents’ Bankers“, the following:

Do you think it is right to say that the Federal Reserve System includes private member banks, which receive a 6% dividend for their shares from the profits that the regional fed banks are making on their market operations?

Nomi Prins responded:

As I understand Section 7 of the Federal Reserve Act, that is the case. Stockholders, or member banks, of the Federal Reserve System are entitled to receive a 6% per annum dividend on their paid-in capital stock, and any surplus fund can be used to pay dividends in the event that any year’s current earnings of the Federal Reserve System are insufficient to cover funds for that year.

See the early 1922 letter from its General Counsel, here:

The material portions of Section 7 of the Federal Reserve Act read as follows:

“After all necessary expenses of a Federal reserve bank have been paid or provided for, the stockholders shall be entitled to receive an annual dividend of six per centum on the paid-in capital stock, which dividend shall be cumulative. After the aforesaid dividend claims have been fully met, the net earnings shall be paid to the United States as a franchise tax except that the whole of such net earnings, including those for the year ending December thirty-first, nineteen hundred and eighteen, shall be paid into a surplus fund until it shall amount to one hundred per centum or the subscribed capital stock of such bank, and that thereafter ten per centum of such net earnings shall be paid into the surplus.

“…Should a Federal reserve bank be dissolved or go into liquidation, any surplus remaining, after the payment of all debts, dividend requirements as hereinbefore provided, as the par value of the stock, shall be paid to and become the property of the United States and shall be similarly applied.”

See here.

As additional information on the dividends, the law requires dividends are paid to reserve member banks, before the Fed transfers any excess earnings to the Treasury Dept. as interest on Federal Reserve notes, (see p 398 of the Fed’s 2013 annual report)…It should be noted that the amounts aren’t huge, for 2013, annual dividends were $1.65 billion.

See here.

Update – July 10, 2014:

On the same day, I wrote this e-mail to some people at the press office of the New York Fed:

Dear Ladies and Gentlemen,
I am a financial journalist from Germany. Related to this article, I would like to know whether the NY Fed pays local property tax, and if it doesn’t, on what ground does it claim exemption?

Moreover, may I ask you whether the NY Fed sees itself as a private entity as suggested in its response to the FOIA case “Bloomberg LP v. Board of Governors of the Federal Reserve System, 08-CV-9595, U.S. District Court, Southern District of New York (Manhattan)“? You find the quote to which I’m referring in the article above.

Furthermore, how does the NY Fed respond to the statement by Yvonne Mizusawa, Senior Council of the Board of Governors of the Federal Reserve System, that the regional banks of the Federal Reserve System are “private banks“? See also in the article above, please.

Thank you very much for your attention!

Kind regards,
Lars Schall.

That e-mail was inspired by an idea that it might be worthwhile to check whether the regional Fed banks pay local property tax. After all, that was how Wright Patman established that the Board of Governors, in Washington, is a public entity. But I believe the same logic would apply to the regional banks.

I’ve arranged a PDF copy of a certain passage in William Greider’s book “Secrets of the Temple,” so that you can read for yourself that strange story about Wright Patman and the Fed’s headquarter building in Washington DC – see here. According to Patman, “constitutionally, the Federal Reserve is a pretty queer duck.”

Furthermore, I wrote yesterday an e-mail to US economist L. Randall Wray. In the book that I’ve mentioned, I quote Prof. Wray from an essay about the so called “independence” of the Federal Reserve, and specifically one sentence in the sense of this article:

“The Glass-Owen bill split the difference, with private ownership and a decentralized system, but with the Treasury Secretary and the Comptroller of the Currency sitting on the Board.”

With regards to this sentence, I’ve asked him: Where does the “private ownership” come from?

Prof. Wray replied by stating that I was “barking up the wrong tree” and pointing to a paper he co-authored. He added: “The Fed is a creature of congress. The ownership by member banks amts to getting a 6% return and some delegated fairly insignificant duties, which can be changed at any time by congress. The shares cannot be sold.”

Chris Powell, the press secretary of the Gold Anti-Trust Action Committee (GATA) in the US wrote me:

“While the share structure of the Federal Reserve System is peculiar, this issue has always seemed to me to be of no point. The system was created by federal law and is a creature of government. OF COURSE the system, like the rest of government, contrives reasons not to be accountable to the public, and OF COURSE the system, like all other government agencies, is captured by the private interests it is supposed to regulate, and OF COURSE as a result it tends not to serve the public interest. But it remains a creature of government and the public, through its elected representatives, could take control of it any time the public could mobilize itself to do so.

“If the Federal Reserve Board was not a government agency, GATA could not have sued it under the Freedom of Information Act and won a federal court order for disclosure against it (and a court award for legal costs) a few years ago. And didn’t Bloomberg win its similar case against the New York Fed for the QE records?”

I’ve told Powell about the court ruling from March 19, 2010 by the United States Court of Appeals, Second Circuit – see here. It said:

“As the records of the Federal Reserve Bank of New York had not been searched, we need not decide here whether what may be found must be produced.”

Chris Powell replied: “Thanks for the resolution of the Bloomberg case. I think that settles the issue. The FOI Act applies only to government agencies.”

“All in all, nothing to see here, I guess…”, I thought.

I also saw then two more significant statements:

1) The Board and the Clearing House appeal only on the ground that a proper interpretation of FOIA Exemption 4 covers the requested material. No contest is made as to Exemption 5, or as to the scope of the Board’s (disputed) obligation to conduct a search of records at the Federal Reserve Bank of New York. Any argument that the Board had as to Exemption 5, or either side had as to the scope of the ordered search at the Federal Reserve Bank of New York is therefore deemed waived. Norton v. Sam’s Club, 145 F.3d 114, 117 (2d Cir.1998). Whether certain records of the twelve Federal Reserve Banks are records of the Board is an issue that is decided in an opinion-filed simultaneously with this opinion-in the appeal (heard in tandem with this appeal) from the Southern District’s decision in Fox News Network, LLC v. Board of Governors of the Fed. Reserve Sys., 639 F.Supp.2d 384 (S.D.N.Y.2009). See Fox News Network, LLC v. Bd. of Governors of the Fed. Reserve Sys, —F.3d —-, 2010 WL 986665 (2d Cir.2010).

2) The requests sought (in relevant part) detail about loans that the twelve Federal Reserve Banks made to private banks in April and May 2008 at the Discount Window and pursuant to ad hoc emergency lending programs (described in the margin )… The Board denied these requests (in relevant part) in December 2008. The Board conceded possession of records showing the loan information Bloomberg sought, with the exception of the collateral; collateral information is held by the lending Federal Reserve Banks. But the Board advised that the responsive information in its possession—contained in “Remaining Term Reports”–was exempt from disclosure under FOIA Exemptions 4 and 5. The Board did not search the lending records of the twelve Federal Reserve Banks, explaining that a request to the Board does not constitute a request for information held by those institutions.

Chris Powell then replied: “Yes. They can claim that the law exempts certain records from disclosure but they can’t claim that they are not a government agency or that they are not covered by the law.”

I asked Powell in a provocative manner: “Why not file a FOIA request re the NY Fed and the German gold? Perhaps, one could solve two issues at once…”

Powell: “That WOULD be an interesting one. One must remember that while GATA won its case against the Fed in a technical sense, the court still ruled that the Fed could keep all of its gold records except one. Among the records the Fed was allowed to keep secret were records of gold swaps with foreign banks.”

I asked: “Have you specifically asked for something re the NY Fed?”

“Yes”, he wrote back. “A few months ago I asked the New York Fed whether, as its former vice president said in a speech, the bank provided gold accounts to banks. Couldn’t get the publicist to answer and so wrote to Dudley, the NYFed president. Couldn’t get an answer there either and so wrote to my congressman and senators to ask them to bludgeon an answer out of the NYFed.

“Maybe a month after that I got a letter from an underling to Dudley contradicting the speech of the former NYFed vice president. See the middle of the speech here. And then this.”

If the NY Fed responds to my questions, I will let you know, although I wouldn’t expect anything; they’re not very good at answering my questions – as you can see for yourself here, for instance.

I will also let you know whether Yvonne Mizusawa, the Senior Council of the Board of Governors of the Federal Reserve System, has anything to add to her remarks that were brought forward in the Second Circuit Court of Appeals related to the FOIA cases “Fox News Network LLC v. Board of Governors of the Federal Reserve System” and “Bloomberg LP v. Board of Governors of the Federal Reserve System”. Today I sent a press inquiry to Michelle A. Smith, press secretary of the Washington-based Board of Governors, in order to ask her to forward it to Ms. Mizusawa, whom I made familiar with my e-mail to the NY Fed – and then added the following:

May I ask you on the record:

Why are the regional banks of the Federal Reserve System “private banks“?

How do they differ from other private banks?

Thank you for your attention!

Kind regards,
Lars Schall.

To be continued, I guess…

Update – July 11, 2014:

Thank You For Filling Out This Form

Shown below is your submission to NYC.gov on Friday, July 11, 2014 at 11:09:48

This form resides at http://www.nyc.gov/html/dof/html/contact/contact_emailcorrespondence.shtml

NAME of FIELDS
DATA
NAME: Lars Schall
YOUR POSITION: Financial Journalist
QUESTION TYPE: OTHER
QUESTION: Press Inquiry Dear Ladies and Gentlemen, I haven’t been able to contact directly your press office. Related to a current research of mine, I would like to know whether the NY Fed pays local property tax, and if it doesn’t, on what ground does it claim exemption? Is this public information? Kind regards, Lars Schall.

What you’ve just read is an inquiry that I sent today to the tax department of the City of New York, after I had tried for 45 minutes to get in touch with its press office via phone.

I think, a Title Insurance Company could tell you the answer within 5 minutes. But, you would have to hire them and pay about $500 for the search. All they would need is the street address of the building.

In addition, pull this up, and then go to page 25, #12: Federal Reserve Bank of New York / 33 Liberty Street / Block 35 / Lot 1.

This is a register of all public buildings in NYC – hospitals; jails; fire halls; schools; etc. Public Buildings are exempt from real estate taxes. See here. All exemptions are listed there. Check out the specific exemption for: Federal property (see United States, property owned by). Other exemptions may apply. You would have to ask someone to research the building – the value (assessment) for real estate tax purposes is a matter of public record. If there is an exemption, the particular exemption will be stated on the “card” for that particular property: 33 Liberty Street / Block 35 / Lot 1.

The foregoing does not answer my questions, but provides a good guess that: This property is exempt from real estate taxes because it is classified as “Federal property”.

After he saw my inquiry re the NYC Department of Finance, Chris Powell wrote me:

“I’m sure that the New York Fed pays no local property taxes. But to resolve the issue of the government nature of the Fed and the regional Federal Reserve banks, it is necessary only to look at a dollar bill.

“On the front the bill says ’Federal Reserve Note’ on the top and then, just underneath, ’The United States of America.’ It is signed by the treasurer of the United States and the secretary of the treasury, both U.S. government officials. It carries the seal of a regional Federal Reserve bank; all the regional banks issue such notes. And it says: ’This note is legal tender for all debts, public and private.’ That is, the law — made by the government — is what gives value to Federal Reserve notes.

“On the back the bill carries the Great Seal of the United States.

“If the Fed and its regional banks were not government agencies, the dollar bill would look very different.”

And yet, we still have Yvonne Mizusawa saying officially on behalf of the Board of Governors of the Federal Reserve System: The regional banks of the Fed are not agencies, they are private banks.

I haven’t made this up.

After I had not seen any response from Ms. Smith coming my way with regards to my inquiry, I looked for Ms. Mizusawa’s e-mail address at the Fed – and I was successful. Therefore, I have been able to write her directly:

Dear Ms. Mizusawa,

my name is Lars Schall. I’ve tried yesterday to get in touch with you via Michelle A. Smith, press secretary of the Board of Governors of the FRS. I copy my inquiry below.

I hope this e-mail address that I just found in the web works.

I would appreciate a response from you very much!

Kind regards,

Lars Schall.

Then followed a copy of my original inquiry that I sent to Ms. Smith.

To be continued, I guess…

Notes:

(1) “Federal Reserve Bank Governance and Independence during Financial Crisis”, published at Levy Economics Institute of Bard College, April 2014, here. You may also want to read an interview that I did with Randall Wray in the past: “Truths and Myths of the Federal Reserve”, published on May 6, 2010 here.

(2) The court ruling can be found here. “The Federal Reserve System–the central bank of the United States–is composed of twelve regional Federal Reserve Banks and the defendant-appellee Board of Governors of the Federal Reserve System (“Board”) in Washington, D.C. The Board is a federal agency that (among other things) supervises the operations of the twelve Federal Reserve Banks. (…) As the district court concluded, not all lending records of the twelve Federal Reserve Banks necessarily become records of the Board. However, Board regulations provide that some records at the Federal Reserve Banks– those kept at the Federal Reserve Banks under certain conditions for “administrative reasons”–are records of the Board; these must be searched. We remand to the district court to order further searches and to determine if the fruits of those searches must be disclosed. The district court did not reach the question of whether the Board misconstrued the scope of the Fox News FOIA requests (the district court having ruled these documents would be [**6] exempt from disclosure in any instance); we remand for further consideration of that question as well.”

http://www.zerohedge.com/news/2014-07-12/guest-post-are-12-regional-banks-fed-private-entities 

Mike Maloney: The Dollar As We Know It Will Be Gone Within 6 Years

Submitted by Adam Taggart via Peak Prosperity,

This week's podcast sees the return of Mike Maloney, monetary historian and founder of precious metals broker GoldSilver.com.
Based on historical patterns and the alarming state of our current monetary system, Mike believes the fiat US dollar is in its last years as a viable currency. He sees its replacement as inevitable in the near term -- as in by or before the end of the decade:

All of this is converging with the crazy experiments the Federal Reserve has done.

I absolutely believe that there are economic consequences to this that are inescapable. The Fed is not just in a box; a trap has been set. And before the end of this decade, if there is still a US Dollar around it will not be this US Dollar. It will be a dollar that is tied to a very different monetary system.

The last three shifts in our monetary system were little baby steps off of the classical gold standard where it was fully backed. We went down to a 40% reserve ratio with the Federal Reserve in the United States during the Gold Exchange Standard. Then the Bretton Woods system didn't have a reserve ratio specified, but I believe the dollar was about 8% backed by gold by the time Nixon took us off of gold in '71. Now, the only backing that the US Dollar has is the promise to tax us all in the future: it is US Treasury bonds, or the Fed doing its quantitative easing and buying mortgage-backed securities.

And how corrupt is the notion that you can give some entity the power to have a check book that has a $0 balance and they can go out and buy anything they want with that and it just creates currency? That is corrupt in itself.

Think about how immoral this is. First of all, the Fed whipped up that currency not out of thin air but by indebting the public. They buy a Treasury bond or a mortgage-backed security, and now they own the mortgage on your house or they own a Treasury bond that you are going to work for in the future and pay taxes to pay off. And so they give all of this currency to the banks, and then they pay them interest to not loan it out or otherwise stimulate the economy. So they are giving them the gift of interest.

By the way, any profits that the Fed has at the end of the year are supposed to get turned over to the Treasury. Well, they are paying the banks interest that reduces the amount that they give to the Treasury by exactly that amount. So in other words, the public is paying those banks interest. That's where all of the interest comes from. We're not seeing those profits passed on to the Treasury anymore.

Anyway, I do think that this system is coming to an end before the decade is out. The other shifts in our monetary system were baby steps off of gold. Now we have to go from nothing most likely back to something. And it's going to be a financial, economic convulsion the likes of which the world has never seen. It is going to affect everybody on the planet. During the last three monetary shifts, it was only the world's central banks and big international banks that were affected and were worried. The common man didn't even know what was going on. With this one, everybody is going to feel it. Everybody is going to know it. You will either be a winner or a loser, but everybody is playing this game. 

Click here to listen to Chris' interview with Mike Maloney 

Full Transcript

Chris Martenson:    Welcome to this Peak Prosperity Podcast. I'm your host, Chris Martenson and today we are talking with the host of The Hidden Secrets of Money, noted speaker, best-selling author on monetary history and gold and silver investing, the CEO of GoldSilver.com—we are talking with Mike Maloney. Somebody who I consider to be both a fellow educator and a friend in this business. Welcome, Mike.

 

Mike Maloney:          It's great to be here, Chris.

 

Chris Martenson:    I don't have many regrets but one of them …

 

read more

http://www.zerohedge.com/news/2014-07-06/mike-maloney-dollar-we-know-it-will-be-gone-within-6-years 

By "Punishing" France, The US Just Accelerated The Demise Of The Dollar

Not even we anticipated this particular "unintended consequence" as a result of the US multi-billion dollar fine on BNP (which France took very much to heart). Moments ago, in a lengthy interview given to French magazine Investir, none other than the governor of the French National Bank Christian Noyer and member of the ECB's governing board, said this stunner at the very end, via Bloomberg:

• NOYER: BNP CASE WILL ENCOURAGE ‘DIVERSIFICATION’ FROM DOLLAR

Here is the full google translated segment:

Q. Doesn't the role of the dollar as an international currency create systemic risk?

Noyer: Beyond [the BNP] case, increased legal risks from the application of U.S. rules to all dollar transactions around the world will encourage a diversification from the dollar. BNP Paribas was the occasion for many observers to remember that there has been a number of sanctions and that there would certainly be others in the future. A movement to diversify the currencies used in international trade is inevitable. Trade between Europe and China does not need to use the dollar and may be read and fully paid in euros or renminbi. Walking towards a multipolar world is the natural monetary policy, since there are several major economic and monetary powerful ensembles. China has decided to develop the renminbi as a settlement currency. The Bank of France was behind the popular ECB-PBOC swap and we have just concluded a memorandum on the creation of a system of offshore renminbi clearing in Paris. We have very strong cooperation with the PBOC in this field. But these changes take time. We must not forget that it took decades after the United States became the world's largest economy for the dollar to replace the British pound as the first international currency. But the phenomenon of U.S. rules expanding to all USD-denominated transactions around the world can have an accelerating effect.

In other words, the head of the French central bank, and ECB member, Christian Noyer, just issued a direct threat to the world's reserve currency (for now), the US Dollar.

Putting this whole episode in context: in an attempt to punish France for proceeding with the delivery of the Mistral amphibious warship to Russia, the US "punishes" BNP with a failed attempt at blackmail (recall that as Putin revealed, the BNP penalty was a used as a carrot to disincenticize France from concluding the Mistral transaction: had Hollande scrapped the deal, BNP would likely be slammed with a far lower fine, if any). Said blackmail attempt backfires horribly when as a result, the head of the French central bank makes it clear that not only is the US Dollar's reserve currency status not sacrosanct, but "the world" will now actively seek to avoid USD-transactions in order to escape the tentacle of global "pax Americana."

And, the biggest irony of all is that in "punishing" France for dealing with Russia, that core country of the Eurasian alliance of Russia and China, the US merely accelerated the gravitation of France (and all of Europe) precisely toward Eurasia, toward a multi-polar (sorry fanatic believers in a one world SDR-based currency) and away from the greenback.

Or shown visually (as we have ever since 20120).

Meanwhile, somewhere Putin is still laughing.

http://www.zerohedge.com/news/2014-07-04/punishing-france-us-just-accelerated-demise-dollar-0

"Wealth" Accomplished - Dow 17,000 Breached

"Do You Feel Wealthy, Punk?"

http://www.zerohedge.com/news/2014-07-03/wealth-accomplished-dow-17000-breached

China’s currency: the RMB, CNY, CNH…

China’s currency is officially called the renminbi. The yuan is the unit of account. The renminbi, denoted RMB, is thus the name for the currency traded onshore and offshore. There exists a separation between these two markets, as China institutes capital controls that prevent the currency from flowing abroad and vice versa.

If the RMB is traded onshore (in mainland China), it is referred to as CNY, whereas if the RMB is traded offshore (mainly in Hong Kong) it trades at the rate of USD/CNH, deliverable RMB located in Hong Kong. Thus, while the RMB is just one currency, it trades at two different exchange rates, depending on where it is traded.

As China is seeking to increase the role of its currency on the world stage (referred to as currency internationalization), foreign exchange reforms have led to the formation of the CNH currency. The CNH market is still relatively small and illiquid, especially to the USD and EUR market, but it is growing rapidly as restrictions on this market are gradually lifted. During 2010, reforms made it possible for RMB to leave the China mainland and move to Hong Kong for trade purposes. For example, a Chinese exporter receiving USD could convert USD to CNH in Hong Kong. Once moved to Hong Kong, the RMB is reclassified as CNH and (at the time of writing, as reforms proceed rapidly) it cannot easily flow back to China mainland, only under strict rules and for trade purposes.

Drivers of CNY vs. CNH dynamics

Currently, the onshore CNY and the offshore CNH are two separate markets. Apart from the technical differences, the main feature of CNY is that its exchange rate with the dollar is fixed by the Chinese central bank. Players on the CNY-market are among others onshore exporters, who demand CNY and sell US dollars. Onshore importers pay for US dollars with CNY. The PBoC also typically buys US dollars in line with its monetary policy the USD/CNY exchange rate fixing (see alsoChina’s exchange rate policy).

The CNH exchange rate is driven by private demand and supply for CNH, although the supply of CNH is suppressed by government regulation. The result is that demand for CNH (for example by speculators anticipating on an increase in the value of the Chinese currency) generally exceeds supply. Therefore, the CNH is usually trading above the value of CNY.

Premium vs. discount CNH vs. CNY

However, at two moments in time, CHN was trading below the value of CNY (equivalently, USD/CHN was trading above USD/CNY). The first time was prior to the collapse of Lehman Brothers in August 2008. Tensions in the CNH market (a sudden decline in demand) led to a higher USD/CNH, which has been perceived as an indication that USD/CNY would be fixed higher by the PBoC in a response to financial market unrest.

The second moment has been during the escalating European debt crisis, as fears for a large adverse impact on Chinese exporters due to a sudden drop in demand from Europe led to comments by Chinese officials that the USD/CNY-rate would be kept relatively stable. In anticipation of a higher fixing for USD/CNY, and as a result lower demand for CNH, USD/CNH traded higher.

The future of the CNH market

There are two developments indicating that the CNH market will grow over time and become more important for exporters, importers and investors alike.

• China is aiming to expand the international role of the CNH market by allowing foreign companies to issue bonds denominated in CNH. For example, during the course of 2010, the first ‘Dim Sum’ bonds were issued by McDonalds, Caterpillar, China Development Bank, the Asian Development Bank, some Hong Kong corporates, etc.
• Also, the CNH market will proceed its expansion as current capital controls that impede CNH to flow back onto the mainland are lifted gradually. Thereby, the returns from offshore CNH investments are allowed to be directly invested in fixed capital projects in mainland China. Without possibilities to invest CNH, the CNH accounts in Hong Kong stand basically idle, while the return on such deposits is generally very low. This would prevent significant growth in the CNH market.

Non-Deliverable Forward Market

Before the CNH-market was established, the Non-deliverable forward (NDF) market already existed. This market was generally used to hedge against exchange rate fluctuations of the renminbi against the US dollar. Although the Chinese currency could not be delivered, exchange rate differences against which a player was hedged were paid out in US dollars. Therefore, the NDF CNY markets was actually based on future changes in the USD/CNY exchange rate. Players from mainland China could not participate in this market, although participation of onshore players in the CNH market is allowed.

For as long as the CNH market is relatively small and illiquid, the NDF market will in the short term be the main market in which investors can participate and take positions on China’s exchange rate. As the CNH market develops and restrictions on the offshore renminbi use of the are relaxed, most likely the CNH market will step by step overtake the NDF market.

http://www.ecrresearch.com/chinas-currency-rmb-cny-cnh

EES: Ruble on the up vs. the US Dollar

If the US based anti-Russian policy is working so well - why is the USD down against the Ruble since the crisis peaked in March?  Look at the above USD/RUB daily chart.  

Reports indicate the BRICs are forming an anti-USD alliance which wouldn't be really too difficult for them. 

Since EUR/USD seems to be locked into a perpetual 1.30-1.40 range at least for the time being, traders may want to keep an eye on exotics, and particularly emerging exotics such as the RUB, MXN, TRY, CNH, HUF, etc.

Trade Forex - Open a Forex Trading Account today

The BRICs Are Morphing Into An Anti-Dollar Alliance

While numerous massively indebted administrations around the world hope to divert the attention of what's left of their struggling middle class away from its daily impoverished existence and distract it with flashing lights and glitzy animations showing another all time market high on a daily basis, a significantly more important shift taking place behind the scenes is appreciated by very few: the ongoing de-dollarization of the world. For the latest example of how increasingly more countries are setting the stage for the final currency war, we go again to Russia where VOR's  Valentin Mândr??escu explains that slowly but surely the BRICS - that proud Goldman acronym which was conceived to perpetuate the great American way of life by releasing trillions in US-denominated debt in heretofore untapped markets - are morphing into an anti-dollar alliance.

BRICS is morphing into an anti-dollar alliance, From VOR

Before the crucial visit to Beijing next week, the governor of the Russian Central Bank, Elvira Nabiullina met Vladimir Putin to report on the progress of the upcoming ruble-yuan swap deal with the People's Bank of China and Kremlin used the meeting to let the world know about the technical details of its international anti-dollar alliance.

On June 10th, Sergey Glaziev, Putin's economy advisor published an article outlining the need to establish an international alliance of countries willing to get rid of the dollar in international trade and refrain from using dollars in their currency reserves. The ultimate goal would be to break the Washington's money printing machine that is feeding its military-industrial complex and giving the US ample possibilities to spread chaos across the globe, fueling the civil wars in Libya, Iraq, Syria and Ukraine. Glaziev's critics believe that such an alliance would be difficult to establish and that creating a non-dollar-based global financial system would be extremely challenging from a technical point of view. However, in her discussion with Vladimir Putin, the head of the Russian central bank unveiled an elegant technical solution for this problem and left a clear hint regarding the members of the anti-dollar alliance that is being created by the efforts of Moscow and Beijing:

“We've done a lot of work on the ruble-yuan swap deal in order to facilitate trade financing. I have a meeting next week in Beijing”, she said casually and then dropped the bomb: “We are discussing with China and our BRICS parters the establishment of a system of multilateral swaps that will allow to transfer resources to one or another country, if needed. A part of the currency reserves can be directed to [the new system].” (Prime news agency)

It seems that Kremlin chose the all-in-one approach for establishing its anti-dollar alliance. Currency swaps between the BRICS central banks will facilitate trade financing while completely bypassing the dollar. At the same time, the new system will also act as a de facto replacement of the IMF, because it will allow the members of the alliance to direct resources to finance the weaker countries. As an important bonus, derived from this “quasi-IMF” system, the BRICS will use a part (most likely the “dollar part”) of their currency reserves to support it, thus drastically reducing the amount of dollar-based instruments bought by some of the biggest foreign creditors of the US.

Skeptics will surely claim that a BRICS-based anti-dollar alliance will not manage to deprive the dollar of its global reserve currency status. Instead of arguing against this line of thought, it is easier to point out that Washington is doing its best to enlarge the ranks of the enemies of the dollar. Asked by the Russia 24 channel to comment on Nabiullina statements, Sergey Kostin, the president of the state-owned VTB bank and one of the staunchest supporters of anti-dollar policies, offered an interesting perspective on the situation in Europe:

“I think the work on ruble-yuan swap line will finalized in the nearest future and the way for ruble-yuan settlement will be open. Moreover, we are not the only ones with such initiatives. We know about the statements made by Mr. Noyer, chairman of the Bank of France. As a retaliation for what Americans have done to BNP Paribas, he opined that the trade with China must be done in yuan or euro.”

If the current trend continues, soon the dollar will be abandoned by most of the significant global economies and it will be kicked out of the global trade finance. Washington's bullying will make even former American allies choose the anti-dollar alliance instead of the existing dollar-based monetary system. The point of no return for the dollar may be much closer than it is generally thought. In fact, the greenback may have already past its point of no return on its way to irrelevance.

The BRICs Are Morphing Into An Anti-Dollar Alliance | Zero Hedge

The USD Is Tumbling; Near 2 Month Lows

Equities have flip-flopped this morning, giving up the new normal opening-squeeze higher gains as USDJPY fades. Bonds are rallying. But it is the USD Index that is the most notable this morning as it tumbles back towards 2-month lows in a hurry... This is the biggest 2-day plunge in 3 months.

Pushing the USD to 2-month lows...

The USD Is Tumbling; Near 2 Month Lows | Zero Hedge

A great time to Open a Forex Account and Buy the USD

BIS: Central banks warned of 'false sense of security'

The Bank for International Settlements (BIS) has warned that ultra-low interest rates have lulled governments and markets "into a false sense of security".

The Basel-based organisation - usually dubbed the "central banks' central bank" - urged policy makers to begin to normalise rates.

"The risk of normalising too late and too gradually should not be underestimated," the BIS said.

Markets have rallied since January.

The FTSE all-world share index is up 5% so far this year, while the Vix, a measure of implied US market volatility known as the "fear index" , is at a seven-year low.

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Growth has disappointed even as financial markets have roared: The transmission chain seems to be badly impaired”

BIS

"Overall, it is hard to avoid the sense of a puzzling disconnect between the markets' buoyancy and underlying economic developments globally," the BIS said in its annual report.

It said that low interest rates had helped increase demand for higher risk investments on stock markets as well as in property and corporate bonds markets.

Disappointing growth

The BIS doesn't set policy but serves as a forum for central bankers to exchange views on relevant topics from the global economy to financial markets.

While global growth has improved, the BIS said it was still below its pre-crisis levels.

"Growth has disappointed even as financial markets have roared: The transmission chain seems to be badly impaired," the BIS said.

It said policy makers should take advantage of the current upturn in the global economy to reduce the emphasis on monetary stimulus.

'Behind the curve'

And it warned that taking too long to do this could have potentially damaging consequences, by encouraging investors to take too much risk.

"Over time, policies lose their effectiveness and may end up fostering the very conditions they seek to prevent," it said.

"The predominant risk is that central banks will find themselves behind the curve, exiting too late or too slowly," it added.

The BIS was founded in 1930 and is the world's oldest international financial institution.

Its 60-strong membership includes the Bank of England, the European Central Bank, the US Federal Reserve, the People's Bank of China and the Bank of Japan.

http://www.bbc.com/news/business-28081771

Gazprom Ready To Drop Dollar, Settle China Contracts In Yuan Or Rubles

A little over a month ago, when Russia announced the much anticipated "Holy Grail" energy deal with China, some were disappointed that despite this symbolic agreement meant to break the petrodollar's stranglehold on the rest of the world, neither Russia nor China announced payment terms to be in anything but dollars. In doing so they admitted that while both nations are eager to move away from a US Dollar reserve currency, neither is yet able to provide an alternative. This changed rather dramatically overnight when in a little noticed statement, Gazprom's CFO Andrey Kruglov uttered the magic words (via Bloomberg):

• GAZPROM READY TO SETTLE CHINA CONTRACTS IN YUAN OR RUBLES: CFO

In other words just as the US may or may not be preparing to export crude - a step which would weaken the dollar's reserve status as traditional US oil trading partners will need to find other import customers who pay in non-USD currencies - the world's two other superpowers are preparing to respond. And once the bilateral trade in Rubles or Renminbi is established, the rest of the energy world will piggyback.

But wait, there's more. Because only now does Gazprom appear to be unveiling all those "tangents" that were expected to hit the tape in May. Among Kruglov's other revelations were that Gazprom is in talks on a Hong Kong listing and is weighing the issuance of Yuan bonds. Gazprom is also considering selling bonds in Singapore dollars, the CFO said at briefing in Moscow. Wait, you mean that by alienating and embargoing Russia from western (USD, EUR-denominated) funding markets, it has pushed the country to turn to its pivoting partner, China and thus further cementing the framework for the next Eurasian strategic alliance?

Unpossible

But wait, there's still more, because it is  not just Gazprom. As the PBOC announced overnight,  PBOC Assistant Governor Jin Qi and Russian central bank Deputy Chairman Dmitry Skobelkin led a meeting held yesterday and today in Shanghai.  The meeting discussed cooperating on project and trade financing using local currencies. The meeting discussed cooperation in bank card, insurance and financial supervision sectors.

In other words, central bankers of China and Russia discussed how to replace the dollar with Rubles and Yuan. From the PBOC:

In retrospect it will be very fitting that the crowning legacy of Obama's disastrous reign, both domestically and certainly internationally, will be to force the world's key ascendent superpowers (we certainly don't envision broke, insolvent Europe among them) to drop the Petrodollar and end the reserve status of the US currency.

http://www.zerohedge.com/news/2014-06-26/gazprom-ready-drop-dollar-settle-china-contracts-yuan-or-rubles

Great reason to trade Forex - Open an Account today!

"We Are In Uncharted Waters" Singapore Central Bank Warns Of "Uneasy Calm"

Submitted by Simon Black of Sovereign Man blog,

Well, at least someone gets it.

While just about every other central bank on the planet is giving everyone two thumbs up on the economy, the deputy chair of the Monetary Authority of Singapore (Lim Hng Kiang) said last night at a dinner that “an uneasy calm seems to have settled in markets” and that “we remain in uncharted waters.”

It was pretty amazing, really, to see such pointed language from a central banking official.

Mr. Lim jabbed at the “obvious” risks and said there would be “bumps on the road” ahead. That’s putting it mildly.

Warren Buffet once said that ‘only when the tide goes out do you discover who’s been swimming naked.’ (In my mind he says it like ‘nekked’ but I seriously doubt he pronounces it that way…)

That’s exactly what happens in severe financial crises. You find out which banks have been playing it safe… and which have so mind-numbingly stupid it’s a miracle they’re still around.

There are a number of ways to judge how safe a bank is. One way is by looking at its liquidity; my preferred metric is to calculate how much cash a bank has on hand as a percentage of customer deposits.

Note- this doesn’t mean physical currency, as in bricks of paper cash stacked up in a vault. Those days went away long ago. I’m talking about electronic currency– typically deposits with central banks.

The more cash a bank has on hand, the safer it is. Because in a financial crisis, people tend to panic (hence the crisis) and want to withdraw their money.

Banks bleed cash. And if they don’t have enough of it on hand, the bleeding turns into a sucking chest wound.

It’s at this point that they’ve been caught red handed swimming naked, and they need to go raise cash from somewhere, anywhere else.

So they start selling assets– loans, securities, and even shares of the bank itself.

But this is not an orderly liquidation in a well-functioning market. It’s a distress sale brought on by a full blown crisis. Asset prices are collapsing, fear has taken hold, and it’s difficult to find a buyer.

You never get full price in a crisis (unless you’re Goldman Sachs and can call up your BFF the Treasury Secretary). So in the process of raising cash, banks end up taking heavy losses on their balance sheets.

Now, banks that have healthy balance sheets will be able to withstand these losses.

But banks with razor thin capital ratios (i.e. a bank’s net equity as a percentage of total assets) will fold. Or go to the taxpayer with their hats in their hand claiming to be too big to fail.

This is precisely what happened to the US financial system back in 2009. Lehman Brothers. Wachovia. Washington Mutual. Etc. They were all swimming naked, with very little liquidity and miniscule capital levels.

Singapore’s monetary authority is obviously concerned about financial markets. They understand that you can’t expect to conjure trillions of dollars out of thin air without creating epic bubbles and even more epic consequences.

Sure, you can shuffle those consequences out a few months… even a few years. But at some point those bubbles must be reckoned with.

Perhaps the greatest concern is how few people seem to care.

Central banks and institutional investors turn a deaf ear to obvious risks and fundamentals that are screaming out in desperation hoping some conservative steward will notice that we are tap dancing on a knife’s edge, where nearly every single financial market is simultaneous at/near an all-time high, and central bankers keep pumping money into economies that they claim to be ‘recovered’.

This is the ‘uneasy calm’ that Mr. Lim discussed– a prevailing attitude that there’s nothing to see here; keep calm and buy the all-time high.

And he’s telling banks to get ready for something to happen.

Curiously, Singapore’s banks are already better capitalized and more liquid than most western banking systems. Back in 2008, Singapore demonstrated a lot of resilience as a financial center, sidestepping most of the problems with zero bank failures.

But for a country that went from third world to first world in just a few decades, complacency is not a cultural norm.

According to Mr. Lim, Singapore’s experience with the 2008 crisis “shows how the buildup of risks can severely destabilise even the most developed and sophisticated financial markets.”

So he wants them to increase their capital and liquidity even more.

If a senior official presiding over one of the world’s safer banking jurisdictions wants his banks to become even safer, a rational person would certainly wonder– “What do these guys know about the financial system that I don’t?”

They must be expecting the mother of all busts.

http://www.zerohedge.com/news/2014-06-25/we-are-uncharted-waters-singapore-central-bank-warns-uneasy-calm

The Simple Reason Why Everyone's Wrong On The 'Short Euro' Trade (Including Draghi)

Authored by UBS' Senior Global Economist Paul Donovan, originally posted at The Jakarta Post,

We live in stirring times. The president of the European Central Bank (ECB), Mario Draghi, crossed the monetary policy Rubicon and cut one of the Euro area’s key interest rates into negative territory. This is dramatic stuff, as even the most economically oblivious are likely to recognize that negative interest rates are a radical policy. At the same time the United States Federal Reserve is gracefully gliding out of its quantitative policy position — and by October that money printing process is likely to be effectively at an end.

The question from most investors is therefore “what next for US monetary policy?” The answer is likely to be an increase in US interest rates, and those increases may start earlier and take place faster than many investors currently assume. The Bank of England has been even more explicit in signaling a desire to tighten interest rates sooner than financial investors had expected.

Euro area monetary policy and Anglo-Saxon monetary policy are taking different directions — radically so. It has been a decade since the Fed last embarked on a tightening cycle, and Euro area rates have never gone negative before. The bias in discussions is whether the Fed and the ECB both do more than is currently expected; the difference is that “more” for the Fed means “more tightening”, while “more” for the ECB means “more policy accommodation”. With the expectations and the reality of the direction of interest rates diverging in this manner the instinct of most in financial markets is to assume that the Euro will weaken against the US dollar.

A weaker Euro has been forecast by financial markets for some time — and financial markets have been spectacularly wrong in their forecasts. The Euro weakened a little in the wake of the nudges and hints on policy from ECB President Draghi, but it still remains at a high level. How can this be explained? How is it that the Euro is not behaving the way everyone says it should?

A key part of the explanation for the Euro’s defiance of divergent monetary policy lies in a revolution that has taken place in the world economy. Put simply, globalization has collapsed dramatically since 2007, and that collapse in globalization has profound implications for financial markets.

The collapse in globalization is nothing to do with global trade. Global exports (as a share of the world economy) are at a higher level than they were in 2007 — here there has been a complete recovery. Instead the collapse has taken place in the realm of global capital flows.Global capital flows (again as a share of the world economy) are running at roughly a third of their pre-crisis peak, and around half the levels seen in the decade before the global financial crisis.

The collapse of global capital flows has been brought about by several factors coming together. Investors, in particular banks, are more regulated than before the crisis. With that regulation has come about a bias to investment in domestic markets — in some cases as an unintended consequence of regulation, in some cases as a direct policy objective. In addition the more political nature of several developed financial markets has acted as a deterrent to international investors, who are likely to have less understanding of politics in remote markets.

When capital flows were abundant, an economy with a current account deficit did not have too many problems finding the capital inflows necessary to finance the current account position. Only a tiny proportion of the huge amount of capital sloshing around the world had to be diverted to provide the funding. Now, with capital flows reduced to a thin trickle, a current account deficit country has to work a lot harder to attract the capital that they need. Crudely put, it is three times more difficult to finance a current-account deficit, now that capital flows are one third their pre-crisis levels.

This helps to explain the Euro. The Euro area is a current account surplus area. The United States is a current-account deficit area. The interest rate differential argues for a weaker Euro. The current account position argues for a stronger Euro. These two forces battle it out in the foreign exchange markets, and the result is less Euro weakness than many had expected.

This new model for foreign exchange has implications that reach far beyond the errors of Euro/dollar forecasting. Reduced capital flows means reduced capital inflows into Asian markets — something that has already slowed the pace of foreign exchange reserve accumulation. Reduced capital flow may mean a less efficient global allocation of capital resources. Global capital flows have been hidden from the headlines, but the collapse of globalization may turn out to be one of the most important economic changes of the past decade.

http://www.zerohedge.com/news/2014-06-24/simple-reason-why-everyones-wrong-short-euro-trade-including-draghi 

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