CENTRAL BANKS OF CHINA AND SWITZERLAND ENACT CURRENCY SWAP DEALJuly 27, 2014
...yes, you read that correctly, and this "little" bit of news comes from a regular reader here, Mr. G.B. And, like me, I'm sure you'll be thankful when you read this little "teaser" of an article:
Ok, so as the article states, a mere $23,000,000,000 deal isn't all that big of a deal in a world where Western banks have run amok on credit default swaps and derivatives that are now into the quadrillions of dollars. And as you have probably gathered, the article has a bit of its own agenda that becomes evident, though not obtrusively so, in reading. Consider the remarks about how Russia (implying Mr. Putin), doesn't "get it," i.e.,, doesn't get the modern measures of power:
"This is nothing major, but it demonstrates the further distinction between RUssia and China whereas the former is still functioning old world idea of empire and the latter comprehends its the economy stupid."
"Russia still thinks that its power is determined by territory – a very old 17th century idea by the Physiocrats."
But actually, those are admissions that Russia does get it. Land and its resources are tangible assets. Or to put the point "country simple," would you rather have a few houndred thousand hectacres of land in Russia with the mineral rights, or would you rather have a US Treasury bond? or a "credit default bundle" guaranteed by BNP Paribas or Deutsche Bank? (I'll take the land, thank you). And Russia, for good or ill, with its vast sprawl and extent, has that good old fashioned measure of power called "strategic depth." So does China. So does Brazil, Canada, the USA, Australia, but few else. And the article's author seems to be ignoring Russia's own deals in the economic sphere.
However, all this doesn't really speak to the significance of what just happened between Switzerland and China, and from my "hack from South Dakota's" perspective, there would seem to be two major, if not huge implications, both of which flow from these simple statements:
"The deal will also allow the Swiss central bank to invest some of its huge accumulation of foreign exchange reserves in the Chinese bond market. The Zurich-based SNB said the agreement will further strengthen collaboration between it and its Chinese counterpart and is a “key requisite for the development of a renminbi market in Switzerland.”" (Emphasis in the original)
In other words, implication one: the agreement is a first step toward the bi-lateral currency swaps that China his been instituting elsewhere and with other countries, and hence the agreement with the Swiss central bank will eventually open the entire Swiss system to this arrangement, and this will be an important strategic step to similar arrangements throughout the rest of Europe, or as the article states, it is a major step in the creation of a reminbi market in Switzerland. The second huge implication here is the first statement: "The deal will also allow the Swiss central bank to invest some of its huge accumulation of foreign exchange reserves in the Chinese bond market." Reserves of US dollars and treasury bonds perhaps? Or again, to put it country simple: I wonder whose securities the Swiss will be selling, what currencies they will buy (besides using their own), and how many Chinese bonds they'll buy?
Yea...you guessed it...
See you on the flip side...