Foreign wealth, in U.S. billions, parked at the Federal Reserve. (Brown Brothers Harriman)

By Laura Conaway

China's President Hu Jintao and U.S. President Obama are meeting today and tomorrow for another Strategic and Economic Dialogue. In his opening remarks to the press this morning, Obama addressed the trade gap between the two nations, saying, "[A]s Americans save more and Chinese are able to spend more, we can put growth on a more sustainable foundation -- because just as China has benefited from substantial investment and profitable exports, China can also be an enormous market for American goods."

What Obama didn't get into just then is Washington's continued charge that Beijing manipulates its currency, letting the yuan stay weaker than the dollar so Americans will continue to buy Chinese goods.

Much has been made of China's lending to the U.S. -- the poor nation lends the richer one money by buying its U.S. Treasury bonds and agency bonds from Fannie Mae and Freddie Mac. China funded the American consumer boom, and it's using the proceeds to industrialize its own economy. At the current pace, economist Brad Setser estimates that China's holdings of U.S. Treasurys should top $1 trillion in about a year.

After the jump, charts!

Continue reading "China Keeps Piling Up U.S. Dollars" >

There's been another development in the love-hate relationship between the four BRIC countries (Brazil, Russia, India, and China) and the U.S. dollar. Yesterday, Russia's finance minister said his country had full confidence in the American dollar as the world's main reserve currency.

Now, leaders of each country, at a summit in Russia, are considering buying each other's bonds and swapping currencies so they don't have to depend as heavily on the greenback. Russian President Dmitry Medvedev also called for a "supranational currency" to dethrone the dollar.

And the BRIC countries didn't even mention the dollar in their official statement. Needless to say, it didn't take the snub very well.

Russian Finance Minister Alexei Kudrin and President Dmitry Medvedev in London in April. London Summit/flickr

 

The dollar rose more than every other major currency (except the yen) this afternoon, to a three-week high. And who's behind the greenback's rising?

Russia. Earlier today, Russian Finance Minister Alexei Kudrin helped to quell fears about the specter of weakening dollar falling out of favor as the world's main reserve currency, saying that his nation has full confidence in the U.S. dollar.

Earlier this month, Russian President Dmitry Medvedev cast doubt on the greenback's reliability.

Kudrin's comments come at the start of the first BRIC Summit, a meeting of Brazil, China, Russia, and India. Those four nations control 42 percent of global currency reserves.

Japan's economy has been hit badly by the recession, partly because the yen, Japan's currency, has risen steeply since the start of the financial crisis. A stronger yen makes Japanese exports more expensive, which is bad news for that country's economic growth.

To get the economy moving again, there is some talk that the government could try to depress the yen's value by encouraging a return of the carry trade.

Continue reading "A Comeback For The Carry Trade? " >

In today's podcast we try to answer the question: Where is all the U.S. currency?

In it we mention that the U.S. government profits from the fact that people all over the world love our green pieces of paper.

How does the government actually profit? Through something called seigniorage, which is as hard to explain as it is to spell.

Continue reading "What Is Seigniorage?" >

We've been answering questions all week from people who want to know whether they'll be able to get their money back out of the bank.

Customers of the Reserve Primary fund are waking up to a (temporary) version of the bad-news outcome. They've been locked out of making major withdrawals for seven days.

Continue reading "Money Market Fund Blocks Big Withdrawals" >

The wicked helpful Currency Strategy newsletter from Brown Brothers Harriman landed this morning with a bit I cannot understand:

In the UK, where the BoE left rates unchanged as expected, sterling is being bolstered by upbeat comments from the London Time's Kaletsky. Adjustments in the crosses are also contributing to today's moves. The Japanese yen is steady, pulled by activity in the crosses. The Australian and Canadian dollars are firmer. Weak Australian trade data had little impact.

Anyone get that part about "adjustments in the crosses?" I know it means something -- maybe this? Later today, I'll call the wicked helpful Marc Chandler and ask him. Stay tuned.

UPDATE: Just called Chandler. He was out, but I got his colleague Win Thin, and he said . . .

Continue reading "'Adjustments In The Crosses' -- 09.04.08" >

A column of Russian tanks leaves South Ossetian capital Tskhinvali on Aug. 21.

Kazbek Basaev/AFP/Getty Images

 

If you're watching the Russian tanks moving around in Georgia and the NATO ships sailing into the Black Sea, you're maybe thinking, hey, this has got to be bad news for the world economy.

And maybe it will turn out to be.

But if you're Marc Chandler, the global head of currency strategy at Brown Brothers Harriman, the picture's not looking so bad. "I'd say there's two impacts," he tells us. "Slim and none."

Over the past week, the Russian ruble has fallen .75% against the dollar -- no big deal, Chandler says. For a better measure, he says you should consider other currencies in the region, like the Hungarian forint and the Czech koruna. Over the same period, the forint's down 2% against the dollar, the koruna 1.3%.

That's largely because the ruble isn't well-integrated in the global economy. Compared to the dollar and the euro, Chandler says, Russia tends to stand alone. For now, he calls the conflict between Russia and Georgia a political story, not an economic one.