Russia FinMin Calls For Shift Away From US Treasurys Into BRIC Bonds, Settlement In Non-Dollar Currencies

It is no secret that Russia has had enough of the Petrodollar, and in light of ongoing western sanctions - which many view not so much as a reaction to events in Ukraine bur merely as an attempt to halt the Russian revolution against the Petrodollar status quo, crushing its economy before the momentum grows and more countries join Moscow - is constantly thinking of ways it can ditch the dollar as a medium of exchange as fast as possible. The problem is that when it comes to retaliating against the West, Russia - short of declaring an embargo on USD payments for its commodities - has little control over what currency its western trading partners will pay in. So instead it is focusing on its net exporting peers, aka the BRICS, with whom as previously reported, Russia had launched a "bank" alternative to the IMF when it comes to backstop and bailout funding, one that avoids reliance on the SDR, the USD, and on Western empathy.

It is the same BRICs that, Russia's Prime Minister Dmitry Medvedev, told Rossiya TV in an interview earlier today, should conduct transactions in national currencies, bypassing cross-rates with the US Dollar, adding that "we can easily make mutual settlements directly," and the mechanism should be beneficial to both sides of transactions.

And if it wasn't clear by now, Russia pivot away from the west and toward China is pretty much complete. Medvedev also said that "our collaboration with China is of strategic importance. We have great, brilliant political contacts, we have excellent economic relations. [China] is our strategic partner, and we are interested in expanding the volume of cooperation. We are not afraid of collaborating because we are confident that this is equal, friendly and mutually beneficial collaboration in all areas."

Meanwhile, regarding escalating Western tensions, the PM said that sanctions have created a bad situation for Russian banks on financial markets, all sources of liquidity are frozen. "We regard this as a senseless and ugly decision toward Russia, but we’ll manage without it." So does that mean that China will step in to provide the required FX reserves as Russia minimizes its USD exposure? Perhaps, but not entirely: Medvedev did add that "Asia, other markets “unlikely fully” to compensate for frozen European financing."

The PM also said that Russia passed through similar squeeze in 2008-2009 and can manage with central bank resources, adding that Europe is still important market for Russia, if EU members "make no absurd decisions to squeeze us out of this market, we’ll stay there, it’s interesting for us."

But while Medvedev was the good cop today, it was Russia's finance minister Anton Siluanov who was the designated "bad guy", and as the WSJ reported, Russia is considering diversifying its debt portfolio away from countries that have imposed sanctions on Moscow and into the papers of its BRICS partners.

Speaking on the sidelines of an annual investment forum in the Black Sea town of Sochi, Mr. Siluanov said the Finance Ministry wants to diversify its investment basket, and is looking for higher yields without too much risks. He said the ministry will consider buying papers issued by Brazil, India, China and South Africa, which along with Russia are known collectively as the Brics countries.

"[We would like to] walk away from investing in papers of the countries that impose sanctions against us," Mr. Siluanov said, adding that the reshuffle would be carried out gradually. He didn't elaborate on when the first purchases of Brics debt may take place.

The good news for the US, now that Russia appears set on either rapidly or slowly selling off its US Treasury exposure, is that Kremlin has possession of only $115 billion in US paper, which happens to be more than the $100 billion it reported in May when the first shock of a Russian bond sell off hit the market, and both of which happen to be amounts the Fed can easily monetize into its record big balance sheet (which, taper or no taper, just grew by $28 billion in the past week alone) in just over a month.

But at the end of the day it is not what Russia does, but what its other BRIC peers and US Treasury holders do. Because while Moscow may be in possession of just over $114.5 billion in US paper, China, Brazil and India share among them some $1.6 trillion in US Treasurys, better known as "leverage" in every sense of the word, or an amount that not even the Fed could monetize on short notice without sending a massive shockwave through the global capital markets.

In other words, while the US pushes Russia hard, it may be careful not to push it too hard, and in the process start an avalanche that leads to a BRIC bond avalanche, which may well be one possible endgame as the world is forced to transition from the US Dollar as a reserve currency in the coming years.

Never gonna happen?

Considering that none other than Obama's own former chief economic advisor, Jared Bernstein, is advocating dropping the USD as the global reserve currency, we would be careful with using the word "never" in this specific case...

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iScotland would be forced to create its own currency, says top economist

A YES vote in tomorrow's ­referendum would force a newly independent Scotland to create its own currency, one of the country's leading economists has warned, after a damning report concluded Alex Salmond's fallback plan to keep the pound would collapse within a year.

In a separate study yesterday a major European bank raised fears of a stock market slump and a scramble to withdraw savings from Scottish bank branches on Friday morning if there is a Yes vote.

Dr Angus Armstrong, of the National Institute for Social and Economic Research (NIESR), said "a Yes vote is a vote for Scotland's own currency," after the think-tank published a scathing assessment of the First Minister's apparent "Plan B" in the event the UK rejected his preferred option of sharing the pound in a formal currency union.

Mr Salmond insists a currency union would be agreed but, if not, has suggested an independent Scotland would use the pound informally, a process known as "sterlingisation," while refusing to pay its share of the UK's ­ £1.4 trillion national debt.

The NIESR has previously argued that sterlingisation would be unstable and damage the Scottish economy as financial institutions moved their headquarters south of the Border.

In a report yesterday, it argued that refusing to pay a share of the UK's debt would cause serious additional problems.

Walking away from the debt, argued Dr Armstrong and the report's co-author Monique Ebell, would be "seen as a default" by the money markets, leaving an independent Scotland struggling to borrow and facing "unprecedented austerity" in the form of spending cuts.

The move would also be likely to leave Scotland out the EU, as Germany sought to protect its interests and blocked the newly independent state's membership, the report warned. It argued Europe's biggest ­creditor would fear a default by Spain, whose finances would come under pressure if Catalonia also became independent without paying its debts.

Dr Armstrong said: "A Yes vote is a vote for Scotland's own currency. It seems to be the only option that makes sense.

"If Scotland votes for independence I think it would end up with its own currency. There's a question of how it gets there, but it gets there."

He said the transition to a new currency could be managed stably within the 18-month negotiation period that would follow a Yes vote.

Meanwhile Swiss bank UBS, which predicts a No vote, warned yesterday of a three per cent slump in the FTSE 100 index and a three per cent drop in the pound against the dollar on Friday if Scots choose instead to leave the UK.

Paul Donovan, global economist at UBS, said bank accounts could be moved from Scottish branches, despite assurances savers would continue to be protected by the Bank of England as independence negotiations took place.

"I wouldn't like to predict it, but we may get Friday off," he said, suggesting a bank holiday may have to be called.

Dr Armstrong played down speculation that a Yes vote would trigger panic on Friday morning if Scots vote to leave the UK.

He said a clear statement from the Prime Minister, stressing Scotland's continued place in the UK until 2016, would limit the pound's losses on the currency markets and prevent a run on the banks.

The UK Government and Labour opposition have ruled out Mr Salmond's proposal for a currency union, arguing it would be too risky for the UK and impose too many constraints on an independent Scotland's economic policy-making.

Mr Salmond has claimed they are "bluffing". He has said the prospect of Scotland walking away from its share of the debts, worth about £5 billion per year in repayments to the Treasury, and the loss of exports such as oil and whisky from the UK's balance sheet, would force a currency union to be agreed.

iScotland would be forced to create its own currency, says top economist | Herald Scotland

Russia Central Bank Responds To Domestic Dollar Shortage, Starts Currency Swaps

With the Ruble hitting record lows once again today against the USDollar, it appearsconcerns over USD liquidity are growing in Russia. The Russian central bank has unveiled an FX swap operation, allowing firms to borrow dollars in exchange for Rubles for a duration of 1 day (at a cost of 7%p.a.). Of course, this squeeze on USD funding - driven by Western sanctions - will, instead of isolating Russia, force Russian companies (finding USD transactions prohibitively expensive) into the CNY-axis, thus further strengthening the Yuanification of world trade and the ultimate demise of the USD as reserve currency.

USDRUB at record lows...

And funding sanctions appear to have driven the Central Bank to supply USDollar liquidity into an apparently squeezed market...

As Bloomberg reports,

"Sanctions and closed access to foreign-exchange liquidity from the West” is feeding demand for dollars, Dmitry Polevoy, chief economist ING.

Foreign-exchange liquidity has “virtually dried out,” with volumes sinking to about $100 million per day, compared with $1 billion to $2 billion previously, according to Natalia Orlova, the chief economist for OAO Alfa Bank in Moscow.

...

Companies have $22 billion in dollar-denominated payments to make in September and local banks are “anticipating demand for hard currencyfrom retailers and accumulating additional dollar liquidity,” Abdullaev said.

And as WSJ reports, the central bank has responded...

The Bank of Russia said Tuesday it introduced one-day currency swaps to aid banks "better management of the their short-term liquidity".

Russian banks, unable to borrow abroad, are experiencing a shortage of currency liquidity.

"We see, naturally, some distortion on the (currency) swap market, which shows a structural deficit of dollars," Russia's Deputy Finance Minister Alexei Moiseev said Tuesday.

Here are the details...

In addition, Russia is creating an emergency fund to deal with Western sanctions...

Russia will create a multi-billion dollar anti-crisis fund in 2015 of money destined for the Pension Fund and some left over in this year's budget to help companies hit by sanctions, Finance Minister Anton Siluanov was quoted as saying on Monday.

...

Siluanov was quoted as saying by Russian news agencies that the decision to stop transferring money to the Pension Fund would hand the budget an extra 309 billion roubles ($8.18 billion US).

He said not all of that sum would go into the anti-crisis fund, but that it would also receive at least 100 billion roubles of money left over in this year's budget.

"This 100 billion roubles will be added to the [anti-crisis] reserve next year, which will allow us to help our companies," RIA news agency citied Siluanov as saying.

"We are planning to create a reserve of a significant size."

It was not clear how big the fund would be.

...

"When a series of our partners, if they can be called that, test Russia's strength through sanctions and all kinds of threats, it is important not to succumb to the temptation of so-called easy solutions and to preserve and continue the development of democratic processes in our society, our state," Medvedev said in a televised speech.

*  *  *
Increasingly making it prohibitively expensive for Russian firms to transact in USDollars...

Which will merely serves to drive those firms to look for Chinese counterparts and further into the CNY-axis of de-dollarization (as UK Chancellor Osborne recently confirmed).

http://www.zerohedge.com/news/2014-09-16/russia-central-bank-responds-domestic-dollar-shortage-starts-currency-swaps

4 C’s That Could Change The Financial World As We Know It, Again

Those 4 C’s are: Confirmation, Crisis, Contagion, Catastrophe.

What type of confirmation could send the financial markets into such turmoil it could rock the very bastions of finance as we now know it?

First: Scotland votes yes to leave the U.K. If this turns out to be so, it could send shock-waves throughout the markets that run the world. i.e., Forex or World currencies.

No one with any financial acumen can look seriously at the markets as they stand at the time of this writing, and seriously argue the markets are prepared for such a resolution happening this Thursday.

If Scotland truly does vote Yes and confirms independence from the U.K. the initial shock-waves in my opinion that will hit the markets will be akin to the video we’ve all seen 1000 times when a nuclear device is unleashed with a house being obliterated. Or, the one where trees are bent over near flat to then reverse back the same.

In my humble opinion this could be a metaphor of what could take place. The reason is simple: By proof of the markets as they stand today, it is proof prima facie that everyone (especially so-called “smart crowd”) thinks it won’t happen. And the odds via polling alone show it to be the equivalent of a coin toss!

If this happens it will also confirm something just as real, and quite possibly far more instructive: With both a Federal Reserve meeting being held just days prior to such an event, the language out of this meeting could not be more important.

If it’s some revised boilerplate “till conditions improve, extended period, blah, blah, blah” based press release and conference, it will again confirm what many believed from the start, The Fed is both deaf, blind, and ill prepared to handle what might be an event such as this. An event that has the potential to make the crisis of 2008 the equivalent of a firecracker as opposed to what might be unleashed if Scotland does indeed secede.

The ramifications are truly unknown, unquantifiable, and what might be worse – unmanageable.

Then we move to crisis.

Just how does the Federal Reserve handle such a dilemma of this scale? I use the word “scale” for good reason. As many may know the Forex markets dwarf what the lovingly referred to as “mom and pop investor” believe it to be.

The saving of the “stock market” (aka the Equity Markets) in 2008 vs a Forex market crisis is the equivalent of bailing out a local bingo hall as compared to dealing with such a crisis on the scale of Las Vegas casino.

If the Forex market suddenly gets rocked with a clear fundamental breakdown and breakup of everything now known as the E.U. Along with all the tentacle entangled carry trades? Crisis might be an understatement.

Contagion across the Forex exchanges will not only wreak havoc from within it will also spread directly to the Bond markets. (which many don’t realize is also considerably larger themselves than the equity markets)

Such sweeping turmoil will most assuredly plunge the equity markets themselves into complete and utter chaos as money managers, market makers, margin executives and more decree: “Sell Everything, Close Everything, Now!”

What chaos might also be unleashed as the High Frequency Trading (HFT) algos are set loose selling anything and everything into a market where it’s suddenly revealed via news reading computers that the jig is up?

Or, what no one (and I mean no one!) thought possible till this week. What if this was the week HFT decides to not skirt the laws, but to now – obey them?! i.e., CME Rule 575 as explained by ZeroHedge: These Kinds Of Market-Rigging “Practices” Will No Longer Be Allowed On The CME

This could make the current Ebola crisis and concerns about the speed and severity of contagion look like the sniffles in a kindergarten class.

The panic, fear, mistrust, alienation, ___________(fill in the blank) that holders of what once believed were liquid assets on their books will find out rather quickly nothing runs quicker down the drain than paper gains and wealth.

If all this plays out, what will follow will be a blow to the IPO market and all it has morphed into these last few years with “free money.” So much so that one will think they actually saw Thor’s Hammer. Alibaba™ stands to be “the” poster child for top ticking headlines like never before.

Friday their stock hits the market in what has been touted as one of the most sought after and highly demanded offerings. So much so that they were able to wrap their road show early.

All this in an era of low if not non-existent GDP figures of recent memory. Along with real unemployment, and other metrics screaming recession, however these are adjusted, tweaked or adulterated so much so – it would make a vocal harmonizer jealous.

If Alibaba finds itself trying to release an IPO in this potential melee it will have ramification not only for its own offering, but for every single current high flyer in the markets from now until who knows when. The issue is not just if this happens, but what happens for everything else -if?

A catastrophe is quite possibly in the making. But it is still all in the hands of nothing more than the odds in a flip of a coin. We’ll know more Thursday when Scotland votes. Until then what we truly know is less about what if, and more about – if not.

However we do know a couple of things today that we didn’t know just 5 years ago.

First is, we understand the markets are not what people think they are. Second, the Fed is not as omnipotent as most believe. Third, 70% to 80% of what the “mom and pop” 401K holders think are trades in the markets, is an illusion. Fourth: Everyone, including many of the very professionals that work and breathe Wall Street have learned absolutely nothing since the Lehman crisis.

And what’s maybe more important than all of those combined?

They believe the chances of it repeating are not only nil, they’re betting it wont. Besides they still believe: “The Fed’s got their back!”

Problem is – will the Fed be able to save its own rear end if it does happen? Let alone theirs.

We’ll know soon enough.

http://www.zerohedge.com/news/2014-09-16/4-c%E2%80%99s-could-change-financial-world-we-know-it-again

Moscow warns against panic as ruble plunges to historic lows

The national currency fell to 38.82 rubles per dollar after weakening on Monday to below 38 against the dollar for the first time.

It also broke through the symbolic level of 50 rubles per euro for the first time in several months.

The ruble has slumped as investors fret about the impact of ever more stringent Western sanctions on the economy, which is already teetering on the verge of recession.

Ordinary Russians said they were concerned that a weaker ruble would drive up inflation and make foreign trips and foreign currency-denominated purchases an increasingly unaffordable luxury.

Deputy Finance Minister Alexei Moiseyev sought to put on a brave face, saying authorities were taking steps to curb inflation.

"Don't panic," he said.

http://news.yahoo.com/ruble-plunges-sharply-against-euro-dollar-110647010.html

China Launches CNY500 Billion In "Stealth QE"

It has been a while since the PBOC engaged in some "targeted" QE. So clearly following the biggest drop in the Shanghai Composite in 6 months after some abysmal Chinese economic and flow data in the past several days, it's time for some more. From Bloomberg:

• CHINA’S PBOC STARTS 500B YUAN SLF TODAY, SINA.COM SAYS
• PBOC PROVIDES 500B YUAN LIQUIDITY TO CHINA’S TOP 5 BANKS: SINA
• PBOC PROVIDES 100B YUAN TO EACH BANK TODAY, TOMORROW WITH DURATION OF 3 MONTHS: SINA

Just as expected, the Chinese "derivative" currency, the AUD, goes vertical on the news, and the S&P 500 goes vertical alongside:

For those confused what the SLF is, here is a reminder, from our February coverage of this "stealth QE" instrument.

* * *

The topic of China's inevitable financial crisis, and the open question of how it will subsequently bail out its banks is quite pertinent in a world in which Moral Hazard is the only play left. Conveniently, in his latest letter to clients, 13D's Kiril Sokoloff has this to say:

Will the PBOC’s Short-term Lending Facility (SLF) evolve into China’s version of QE? While investor attention has been fixated on China’s deteriorating PMI reports and fears of a widening credit crisis, China’s central bank is operating behind the scenes to prevent a wide-scale financial panic. On Monday, January 20th, 2014, when the Shanghai Composite Index (SHCOMP, CNY 2,033) fell below 2,000 on its way to a six-month low and interest rates jumped, the central bank intervened by adding over 255 billion yuan ($42 billion) to the financial system. In addition to a regular 75 billion yuan of 7-day reverse repos, the central bank  provided supplemental liquidity amounting to 180 billion yuan of 21-day reverse repos, which was seen as an obvious attempt to alleviate liquidity shortages during the Chinese New Year. However, it is worth noting that this was the PBOC’s first use of 21-day contracts since 2005, according to Bloomberg. Small and medium-sized banks were major beneficiaries of this SLF, as the PBOC allowed such institutions in ten provinces to tap its SLF for the first time on a trial basis. A 120 billion yuan quota has been set aside for the trial SLF, according to two local traders.

The central bank also said it will inject further cash into the banking system at regularly-scheduled open market operations. This is a very rare occurrence, as it is almost unprecedented for the central bank to openly declare its intention to inject or withdraw funds at regularly-scheduled open market operations. Usually, these operations only come to light after the fact.

The SLF was created as a brand new monetary tool for the central bank in early 2013 and was designed to enable commercial banks to borrow from the central bank for one to three months. Since its creation, however, the SLF program has been used with increasing frequency by the central bank.

The latest SLF is remarkable for two reasons: First, as mentioned earlier, this SLF was expanded to allow provincial-level small- and medium-sized banks, for the first time, to tap liquidity from the central bank.  As local financial institutions are usually both the major issuers and holders of local government debt, the expansion of the SLF to include local financial institutions opens a new channel for liquidity to flow from the central bank to local governments. This may suggest that the central bank, which is now on high alert for systemic risk, is willing to share some of the burden of local government, though on a very selective and non-regular basis.

The second key reason is embodied in the following central bank announcement: “[we will] explore the function of the SLF in setting the upper band of the market interest rates.” In other words, in the event that interest rates spike higher due to a systemic crisis, the central bank can intervene, via the SLF, to bring rates back down if it so desires. In addition, the PBOC did not disclose any set cap on the SLF, implying that unlimited liquidity could be provided as long as the market’s rate spike exceeds the bands set by the PBOC.

...

Most important, the SLF appears to represent the PBOC’s strategy to avert China’s widely-publicized local government debt and banking-system problems. It is  worth noting that even though local government debt amounts to 30% of GDP and is growing at an alarming rate, China’s central government is relatively underleveraged, with a debt-to-GDP ratio of only 23%, which is significantly lower than the emerging-market average. Therefore, Beijing has considerable unused borrowing capacity to share some of the debt burden taken on by local governments, which would have the additional positive impact of lowering borrowing costs for those governments.

http://www.zerohedge.com/news/2014-09-16/china-launches-cny500-billion-stealth-qe

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Will The Swiss Vote to Get Their Gold Back?

On November 30th, voters in Switzerland will head to the polls to vote in a referendum on gold. On the ballot is a measure to prohibit the Swiss National Bank (SNB) from further gold sales, to repatriate Swiss-owned gold to Switzerland, and to mandate that gold make up at least 20 percent of the SNB's assets. Arising from popular sentiment similar to movements in the United States, Germany, and the Netherlands, this referendum is an attempt to bring more oversight and accountability to the SNB, Switzerland's central bank.

The Swiss referendum is driven by an undercurrent of dissatisfaction with the conduct not only of Swiss monetary policy, but also of Swiss banking policy. Switzerland may be a small nation, but it is a nation proud of its independence and its history of standing up to tyranny. The famous legend of William Tell embodies the essence of the Swiss national character. But no tyrannical regime in history has bullied Switzerland as much as the United States government has in recent years.

The Swiss tradition of bank secrecy is legendary. The reality, however, is that Swiss bank secrecy is dead. Countries such as the United States have been unwilling to keep government spending in check, but they are running out of ways to fund that spending. Further taxation of their populations is politically difficult, massive issuance of government debt has saturated bond markets, and so the easy target is smaller countries such as Switzerland which have gained the reputation of being "tax havens." Remember that tax haven is just a term for a country that allows people to keep more of their own money than the US or EU does, and doesn't attempt to plunder either its citizens or its foreign account-holders. But the past several years have seen a concerted attempt by the US and EU to crack down on these smaller countries, using their enormous financial clout to compel them to hand over account details so that they can extract more tax revenue.

The US has used its court system to extort money from Switzerland, fining the US subsidiaries of Swiss banks for allegedly sheltering US taxpayers and allowing them to keep their accounts and earnings hidden from US tax authorities. EU countries such as Germany have even gone so far as to purchase account information stolen from Swiss banks by unscrupulous bank employees. And with the recent implementation of the Foreign Account Tax Compliance Act (FATCA), Swiss banks will now be forced to divulge to the IRS all the information they have about customers liable to pay US taxes.

On the monetary policy front, the SNB sold about 60 percent of Switzerland's gold reserves during the 2000s. The SNB has also in recent years established a currency peg, with 1.2 Swiss francs equal to one euro. The peg's effects have already manifested themselves in the form of a growing real estate bubble, as housing prices have risen dangerously. Given the action by the European Central Bank (ECB) to engage in further quantitative easing, the SNB's continuance of this dangerous and foolhardy policy means that it will continue tying its monetary policy to that of the EU and be forced to import more inflation into Switzerland.

Just like the US and the EU, Switzerland at the federal level is ruled by a group of elites who are more concerned with their own status, well-being, and international reputation than with the good of the country. The gold referendum, if it is successful, will be a slap in the face to those elites. The Swiss people appreciate the work their forefathers put into building up large gold reserves, a respected currency, and a strong, independent banking system. They do not want to see centuries of struggle squandered by a central bank. The results of the November referendum may be a bellwether, indicating just how strong popular movements can be in establishing central bank accountability and returning gold to a monetary role.

Dr. Ron Paul 
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Congressman Ron Paul of Texas enjoys a national reputation as the premier advocate for liberty in politics today. Dr. Paul is the leading spokesman in Washington for limited constitutional government, low taxes, free markets, and a return to sound monetary policies based on commodity-backed currency. He is known among both his colleagues in Congress and his constituents for his consistent voting record in the House of Representatives: Dr. Paul never votes for legislation unless the proposed measure is expressly authorized by the Constitution. In the words of former Treasury Secretary William Simon, Dr. Paul is the "one exception to the Gang of 535" on Capitol Hill.

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Inflation infographic - how much $1 will get

EES: Russia and China to impact Forex market dynamics

In response to sanctions, Russia is seeking non-USD trade deals, most notably with China.  How will non-USD transactions impact the Forex market?  Already, US based intellectuals are calling for an end to the Dollar Hegemony:

Note that as long as the dollar is the reserve currency, America’s trade deficit can worsen even when we’re not directly in on the trade. Suppose South Korea runs a surplus with Brazil. By storing its surplus export revenues in Treasury bonds, South Korea nudges up the relative value of the dollar against our competitors’ currencies, and our trade deficit increases, even though the original transaction had nothing to do with the United States.

This isn’t just a matter of one academic writing one article. Mr. Austin’s analysis builds off work by the economist Michael Pettis and, notably, by the former Federal Reserve chairman Ben S. Bernanke.

Russia and China are agreeing to settle more trade in Rubles and Yuan.  From Reuters:

(Reuters) - Russia and China pledged on Tuesday to settle more bilateral trade in rouble and yuan and to enhance cooperation between banks, Russia's First Deputy Prime Minister Igor Shuvalov said, as Moscow seeks to cushion the effects of Western economic sanctions.  Shuvalov told reporters in Beijing that he had agreed an economic cooperation pact with China's Vice Premier Zhang Gaoli that included boosting use of the rouble and yuan for trade transactions.  The pact also lets Russian banks set up accounts with Chinese banks, and makes provisions for Russian companies to seek loans from Chinese firms.  "We are not going to break old contracts, most of which were denominated in dollars," Shuvalov said through an interpreter.  "But, we're going to encourage companies from the two countries to settle more in localcurrencies, to avoid using a currency from a third country."

China has an explosive Forex market, and is negotiating swap arrangements with other central banks.  Retail demand for Forex in China is also exploding.   Although the US Forex market is not developed as in Europe, Asia, and the UK, the USD has been the global reserve currency since World War 2.  How will new players such as Russia and China impact the Forex market, and values of other currencies?  Certainly, they will not take the same view as the US.

The free-floating Forex system we have today was in fact created by the US (Nixon Shock) but since no standards were ever established, now it's an unknown unknown how the BRICs will evolve the Forex market, but certainly it will be changed forever.  And certainly we can expect extreme volatility in the years ahead, even on the majors.

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Interbank FX transfers MT4 accounts to FXCM

Dear valued client,

As you may already have heard, TradeStation has announced an agreement between its IBFX, Inc. and IBFX Australia Pty Ltd subsidiaries, and a subsidiary of FXCM Inc., in which all retail accounts in the “MetaTrader/MT4” division of both IBFX forex subsidiaries will be transferred to FXCM.

Having supported two forex business lines – MT4 and TradeStation – for some time, we have now decided to focus solely on our TradeStation Forex platform offering.

TradeStation’s success over the past 15 years is due in large part to the unique, differentiating features and functions offered by the TradeStation platform, and this move will enable us to focus our resources on continuing that success.

This change will not affect your TradeStation Forex account(s). Should you have any questions, please contact us.

Sincerely yours,

Gary Weiss,
President of IBFX, Inc.

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De-Dollarization Continues: China-Argentina Agree Currency Swap, Will Trade In Yuan

It appears there is another nation on planet Earth that is becoming isolated. One by one, Russia and China appear to be finding allies willing to 'de-dollarize'; and the latest to join this trend is serial-defaulter Argentina. As Reuters reports, China and Argentina's central banks have agreed a multi-billion dollar currency swap operation "to bolster Argentina's foreign reserves" or "pay for Chinese imports with Yuan," as Argentina's USD reserves dwindle. In addition, Argentina claims China supports the nation's plans in the defaulted bondholder dispute.

Having met 'on the sidelines' in Basel, Switzerland in July, Argentine and Chinese central banks agreed to a currency swap equivalent to $11b that Cabinet Chief Jorge Capitanich said could be used to stabilize reserves.. (as Reuters reports)

Argentina, which defaulted on its debt in July, will receive the first tranche of a multi-billion dollar currency swap operation with China's central bank before the end of this year, the South American country's La Nacion newspaper reported on Sunday.

The swap will allow Argentina to bolster its foreign reserves or pay for Chinese imports with the yuan currency at a time weak export revenues and an ailing currency have put the Latin American nation's foreign reserves under intense pressure.

La Nacion said Argentina would receive yuan worth $1 billion by the end of 2014, the first payment of a loan worth a total $11 billion signed by Argentina's President Cristina Fernandez and her Chinese counterpart in July.

In adition, Bloomberg reports

People’s Bank of China Governor Zhou Xiaochuan expressed his support for Argentina in its legal fight against holdout bondholders

http://www.zerohedge.com/news/2014-09-07/de-dollarization-continues-china-argentina-agree-currency-swap-will-trade-yuan  

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In Shocking Move, ECB Cuts By 10 Bps, Sends Deposit Rate Further Into Negative Territory

While everyone was expecting Mario Draghi to announce ABS purchases, few if any had expected the ECB to also cut rates. Which it just did whacking its corridor rates across the board by 10 bps, in the process sending the Deposit Facility rate even further into negative territory, now down at -0.2%.

From the ECB's monetary policy decision:

At today’s meeting the Governing Council of the ECB took the following monetary policy decisions:

• The interest rate on the main refinancing operations of the Eurosystem will be decreased by 10 basis points to 0.05%, starting from the operation to be settled on 10 September 2014.
• The interest rate on the marginal lending facility will be decreased by 10 basis points to 0.30%, with effect from 10 September 2014.
• The interest rate on the deposit facility will be decreased by 10 basis points to -0.20%, with effect from 10 September 2014.

The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 2.30 p.m. CET today.

To be sure, the EURUSD is down nearly 100 pips on the news, and this is even before Draghi has announced his "Private QE" which announcement is due in 45 minutes.

So now that it will cost Europeans even more to deposit money at the bank, here is a snapshot of how delighted, giddy locals from the Old Continent are reacting to this latest ploy to fix "stuff" by the ECB.

http://www.zerohedge.com/news/2014-09-04/shocking-move-ecb-cuts-10-bps-sends-deposit-rate-further-negative-territory

Trade the Euro - Open a Forex Account

The Ultimate Demise Of The Euro Union

The European Union (EU) was created by the Maastricht Treaty on November 1st 1993. It is a political and economic union between European countries which makes its own policies concerning the members’ economies, societies, laws and to some extent security. To some, the EU is an overblown bureaucracy which drains money…and compromises the power of sovereign states. For others, the EU is the best way to meet challenges smaller nations might struggle with – such as economic growth or negotiations with larger nations – and worth surrendering some sovereignty to achieve. Despite many years of integration, opposition remains strong.

ACCORDINGLY, there are signs the EU is teetering on implosion.

Indeed the Euro zone break up is inevitable for numerous reasons.

Unpayable government debts and the massive bailouts in Greece, Portugal, Spain and Ireland logically pave the road to an eventual EU break up.

While it's convenient to have the one currency for 17 different nations, the nature of those national economies and their strength is quite different and problematic. Indeed and fact it favors wealthy countries like Germany and France at the expense of the PIIGS (i.e. Portugal, Italy, Ireland, Greece and Spain).  

Another issue is that while the 17 nations share the same Central Bank, they do not have a central control on government budgets, nor central political control.

Paul Griffiths, Colonial First State chief investment officer does not want to put a time frame on the euro zone being shrunk, but says it will eventually be very different from what it is today.

Source: http://www.news.com.au/finance/business...

Unacceptable inequities of the EU are reflected in the Stock Market action of Germany vis-à-vis economically inferior members of the EU, commonly referred to as the PIIGS (i.e. Portugal, Italy, Ireland, Greece and Spain).  Unabashedly Germany is living high on the hog (so to speak)…which translates to Germany living high on backs the PIIGS.  To appreciate the gross disparity,  compare the relative stock performances of their national Stock Indices.

PIIGS Stock Performance vs German DAX Index Since 1999

Literally, the PIIGS have been led to financial slaughter…while Germany lives high on the hog (pardon the pun).

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Cracks in the Banking Wall of the Euro Union

In recent years the financial backbone of Europe has been its banking sector. To be sure, a few old name (once) prestigious banks have suffered irresistible dumping of their stock by shareholders.  Most devastated are Portuguese Banco Espirito Santo, German Commerzbank, Deutsche Bank and the National Bank of Greece.

Portuguese Banco Espirito Santo stock has plummeted -98 % from its 2007 high of $6.18…and sells today for a mere 12 cents a share. However, several other EU banks have suffered the same fate of relentlessly tumbling stock prices. The chart below shows the heart wrenching losses of share value since mid-2007, which include Commerzbank (Germany), Deutsche Bank (Germany), Barclays Bank UK), ING (Netherlands) and Lloyds (UK). 

Negative stock performance for leading European Banks since mid-2007:

And then there is the National Bank of Greece, whose stock has plummeted -99.4% during the past seven years (See chart):

The only salvation for investors in the EU is GOLD

When the ultimate and inevitable demise of the EU begins to materialize,  many wealthy Europeans from all member countries will flee to the traditional safe haven of gold. And although the UK is not a member of the EU, its FTSE Stock Index will understandably feel the adverse effects of pervasive stock dumping …ergo the FTSE will also suffer a sharp correction. Moreover, even the affluent Germans will stampede to buy gold…as they realize that gold has soared in value by +345% vs only +89% for the German DAX Stock Index during the past 15 years.

Germans Must Remember the Currency Tragedy of the Weimar Republic from 1918-1924

Students of German history will certainly remember what happened during the Hyper-Inflation of the Weimar Republic from 1918-1924, when German paper Marks became virtually worthLESS (See above chart):

Moreover,  the following will give the reader an idea of the viral currency inflation (monetary debasement)  that plagued Germany from 1918-1924).  Here is a photo of a German bank note for 100 Million Mark.

This near worthLESS bill represents 100 million.  In fact in November 1923 One Billion would only buy 3 pounds of meat, or; 2 glasses of beer, or; one loaf of bread.

Although no one expects a repeat of the nightmarish 1918-1924 Hyper-Inflation, indubitably, the impending bust-up of the Euro Union will surely trash the paper Euro currency…as the heretofore members of the EU rush to re-establish their respective currencies. And as America’s greatest author Mark Twain once observed: “History doesn't repeatitself, but it does rhyme.”

Related Study:  “The Nightmare German Inflation” 

And history is testament that the most devastating result of the Nightmarish Weimar Hyper-Inflation was an open door for Adolph Hitler to publish his infamous book in 1925: Mein Kampf…which ultimately led him to dictatorial power in Germany. And the rest is the nightmarishly dark history leading to World War II, which was the deadliest military conflict in history…when over 60 million people were killed.

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Related Analysis:

Euro Forecast Via Cartoons…Can The PIIGS Fly?

It is painfully obvious the EU is a political concoction designed to further a covert political agenda. Indeed and fact there is no legitimate or logical basis for its existence. Consequently, it will not…and cannot last.

Based upon the above analysis, the Ultimate Demise Of The Euro Union is inevitable. The only unknown is WHEN AND HOW.  Will it be Germany throwing in the towel after years of supporting the PIIGS…or will it be the PIIGS desperately wising to be masters of their own economic fate and sovereignty by abandoning the Euro currency in order to re-establish their old currencies (albeit at substantially lower valuations with a view to stimulate and revitalize their export markets)?  

By I. M. Vronsky 
Editor & Partner - Gold-Eagle 
www.gold-eagle.com

Founder of GOLD-EAGLE in January 1997. Vronsky has over 40 years’ experience in the international investment world, having cut his financial teeth in Wall Street as a Financial Analyst with White Weld.  He believes gold and silver will soon be recognized as legal tender in all 50 US states (Utah and Arizona having already passed laws to that effect). Vronsky speaks three languages with indifference:   English, Spanish and Brazilian Portuguese.  His education includes university degrees in Engineering, Liberal Arts and an MBA in International Business Administration – qualifying as Phi Beta Kappa for high scholastic achievement in all three.

http://www.marketoracle.co.uk/Article47147.html