{"id":94734,"date":"2016-08-24T07:14:16","date_gmt":"2016-08-24T11:14:16","guid":{"rendered":"http:\/\/countingpips.com\/?p=94734"},"modified":"2016-08-24T07:14:16","modified_gmt":"2016-08-24T11:14:16","slug":"china-announces-new-loan-in-international-reserve-asset-which-may-affect-gold-price","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2016\/08\/china-announces-new-loan-in-international-reserve-asset-which-may-affect-gold-price\/","title":{"rendered":"China announces new loan in International Reserve Asset…which may affect gold price"},"content":{"rendered":"
August 24, 2016<\/div>
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By\u00a0Chris Vermeulen \u2013\u00a0www.TheGoldAndOilGuy.com<\/a><\/strong><\/p>\n

The People\u2019s Bank of China (PBOC) has received approval from the World Bank allowing its\u2019 issuance of bonds which are denominated in Special Drawing Rights (SDRs). The World Bank is the first entity to approve of it and consequently marks the launch of the SDR bond market of the worlds\u2019 second-largest economy.<\/p>\n

Jim\u00a0Yong\u00a0Kim, The World Bank Group President, said \u201cthis is a\u00a0landmark development for China\u2019s bond market and for the SDR as an international reserve asset. We are very pleased to support China\u2019s growing role in global financial markets. World Bank issuance of\u00a0SDR bonds in China\u00a0will support\u00a0the G-20\u2019s objective of expanding the use of SDRs and help promote the development of China\u2019s domestic capital market. It will also increase Chinese investors\u2019 access to foreign currencies in the domestic bond market, while opening\u00a0up new\u00a0opportunities for international investors seeking high-quality investment products in\u00a0the country.\u201d<\/p>\n

This new bond issuance is 2 billion SDRs which is equivalent to $2.8 billion. The bonds will be denominated in SDRs and payable in Chinese renminbi (RMB).\u00a0The precise timing of issue and individual bond\u00a0terms will be based on favorable market conditions,\u00a0at the time of issuance.<\/p>\n

The World Bank approval of China, as being the\u00a0first issuer of SDR-denominated bonds, is a further step in the \u201cinternationalization\u201d of the Chinese capital markets. It shows the vital role of the World Bank and how it assists in opening new markets as well as developing local capital markets. The World Bank\u00a0SDR-denominated bonds in the Chinese\u00a0market are a\u00a0fantastic opportunity\u00a0for Chinese investors\u00a0to support the World Bank\u2019s sustainable\u00a0development activities via a new product. These bonds will also be attractive to international investors who are seeking SDR products to hedge SDR liabilities.<\/p>\n

The World Bank raises $50-$60 billion, in the international capital markets, each year. The new SDR program in China is part of the World Banks\u2019 strategy to open and support the development of new markets and will therefore expand World Banks\u2019 product offerings which attract new domestic and international investors to World Bank bonds.<\/p>

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Officially, as of October 1st, 2016, the new mix of the SDR will include the Yuan. It now joins the dollar, euro, pound and yen in an exclusive club of currencies that have special drawing rights. The yuan will be weighted at 10.92%. This is the first change in the SDR basket since 1999. \u00a0\u00a0In the past, the IMF rejected the yuan in 2010.<\/p>\n

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For many in the markets, this has been the year of the yuan. When China suddenly devalued its\u2019 currency, earlier this year, it sent the global markets into a tailspin.\u00a0 Currently, the yuan is depreciating even further since traders believe that the Chinese government will step down from its\u2019 intervention in the currency. Being included in the exclusive club is a sign that the currency has \u2018grown up\u2019,<\/em> in a manner of speaking.<\/p>\n

This story began in 2009 with the global financial crisis. The People\u2019s Bank of China said that the economic shocks were due to the financial system being overly reliant on a single currency \u2013 the US dollar. It has been pushing for inclusion, ever since.<\/p>\n

But what effect will this have on both the Chinese economy and other currencies in the basket? The Euro, for example, will surely be affected by this decision. The currency shared by 19 nations within the Eurozone has had a terrible decade and now it appears that things could get worse.<\/p>\n

Check this out:<\/strong> This One Bank Could Take Down Entire Countries Overnight<\/a><\/p>\n

When it comes to this special basket, the weighting of the currency is the most important aspect. If a new currency is introduced, then all of the others have to give up their share. Therefore, the yuan will be weighted at 10.97%, which means that the share of the euro will drop from 37.4% to 30.93%.<\/p>\n

As for China, this announcement is nothing but good news. This move by the IMF is more than just \u2018symbolic\u2019. Being counted as a reserve currency mainly means that the government has taken the right steps to free up its\u2019 economy. It has reined in intervention and has allowed the currency to be more \u2018free\u2019 within the international markets.<\/p>\n

Central Banks, around the world, which hold SDRs in reserve, have this new currency as an option to convert into. This means that a lot more Chinese bonds (maybe a trillion dollars\u2019 worth) will now be able to find their way into the market.<\/p>\n

Additionally, there is no indication that Central Banks have a lot of demand for the Yuan. This decision gives them the option to convert into the currency, but whether or not they will is a question yet to be answered. The US dollar is still the<\/em> worlds\u2019 reserve currency.<\/p>\n

I question how the SDR will maintain any value if all of its\u2019 underlying currencies, that it has been composed of,\u00a0have become worthless.<\/p>\n

If this is what does occur, then they will be forced to back these fiat currencies with a tangible asset in order to accept this standard. The only money that has lasted for over 5,000 years is gold.\u00a0I would not be surprised to see a new gold standard set in some way, but that is still a long way away and some serious catastrophes have to happen first.<\/p>\n

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With that said, the markets tend to move before major events happen, so as things worsen globally, it only makes sense for precious metals<\/a> (physical currency) to strengthen over time.<\/p>\n

There are several big moves likely to happen in the coming month from indices, commodities, currencies and bonds. If you want to be positioned to profit from these next major moves be sure you join my premium newsletter at By\u00a0Chris Vermeulen \u2013\u00a0www.TheGoldAndOilGuy.com<\/a><\/strong><\/p>\n

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 <\/p>\n","protected":false},"excerpt":{"rendered":"

By\u00a0Chris Vermeulen \u2013\u00a0www.TheGoldAndOilGuy.com The People\u2019s Bank of China (PBOC) has received approval from the World Bank allowing its\u2019 issuance of bonds which are denominated in Special Drawing Rights (SDRs). The World Bank is the first entity to approve of it and consequently marks the launch of the SDR bond market of the worlds\u2019 second-largest economy. […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-94734","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/94734","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=94734"}],"version-history":[{"count":1,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/94734\/revisions"}],"predecessor-version":[{"id":94735,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/94734\/revisions\/94735"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=94734"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=94734"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=94734"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}