I have long heard the conspiracy theory on central banks trying to depress gold price so to promote their fiat-currency, reserve banking system. It was all talks and hypotheses, but I was shocked today to see that RSF (Required Stable Funding) factor for gold is 50% in BIS's consultant paper on liquidity management. What does it mean? RSF is basically the haircut to asset value at one-year liquidation horizon.
As a reference, RSF for cash is 0%, for HG corporate bonds is 20%. It is however as high as 50% for equities and gold. Wouldn't gold be more valuable and easier to sell at times of stress?
The message: should this be adopted by worldwide regulators, from a liquidity perspective, banks will be severely penalized for hoarding gold instead of cash. I am very intrigued and I hope someone can enlighten me why this is not a conspiracy.
Thursday, September 30, 2010
Wednesday, September 29, 2010
The Chinese version of Monroe Doctrine
Western media have mostly portrayed recent assertiveness of the Chinese government on a range of territorial disputes as some sort of power play and a threat to the regional security. Not so regarded by the Chinese government or people themselves, who felt that China had been very consistent and it was the other side, be it Japan, Vietnam or the US that up-ed the ante.
Not an expert on the pending issues, I want to point out a few similarities to history one to two centuries back.
As China grows stronger, it is only natural that it want to enhance its edge to become a regional hegemon and ensure that its neighbors not in a position to contest its ascendancy, be it economy or military. On the other hand, US, historically having played the role of a regional hegemon of the American continents and a powerful offshore balancer on a global scale, is strongly disturbed by the idea that another regional hegemon could emerge. It has to go all out to contain China - but with the Pacific Ocean in between, it cannot achieve this militarily, at least not without the help from other regional players. To counter this possibility, China has kept playing the card of asserting bilateral talks (with its neighbors) and deflecting US influence. By claiming that South China Sea is a "core interest" China effectively stated its own Monroe Doctrine.
The crucial difference, however, is the responses from the regional players. Unlike Spain, US is not trying to colonize the region - in fact, US is very welcome in the area. To a degree ASEAN was set up because its members feared a power vacuum after US started gradually exiting Asia. Consequently, should China look to enforces its Monroe Doctrine, it would almost certainly face unanimous animosity among its neighbors, which will definitely and easily be exploited by its biggest rival, the United States.
Another comparison would be the depiction of Germany by US propaganda in the years leading to the First World War. First regarded as the beacon for economic development, then as a military threat (which turned out to be true).
While it can be argued that Chinese show of power was a bit premature, it is not necessarily an unwise move. First, it is quite probable that US has been behind the hard balls played by regionals, and China's national interest would be severely hurt if China chose not to fight back. Second, the power balance between China and US is significantly skewed toward China compared to even five years ago, with US in a lackluster "recovery" and two wars to fight. Third, aggression has not always been countered in history (not a good comparison, but US had been consistently trying to distant itself from WW1 and WW2), and it would serve China's long-term interest if it plays hard balls soon rather than being successfully contained.
Who will benefit most from this power play and emerge as the winner? It all depends on the next steps of various parties. And it probably will benefit nobody. An arms race in Asia or between US and China will do nobody any good, not to mention a modern warfare that involves China. One possible (and best) scenario is that if China will grow at its current pace for another ten or fifteen years, and no major armed conflict happened in the region, the presence of US in Asia will be gone by itself. Can China continue to grow without being disrupted or disruptive? I can only hope for the best.
Not an expert on the pending issues, I want to point out a few similarities to history one to two centuries back.
As China grows stronger, it is only natural that it want to enhance its edge to become a regional hegemon and ensure that its neighbors not in a position to contest its ascendancy, be it economy or military. On the other hand, US, historically having played the role of a regional hegemon of the American continents and a powerful offshore balancer on a global scale, is strongly disturbed by the idea that another regional hegemon could emerge. It has to go all out to contain China - but with the Pacific Ocean in between, it cannot achieve this militarily, at least not without the help from other regional players. To counter this possibility, China has kept playing the card of asserting bilateral talks (with its neighbors) and deflecting US influence. By claiming that South China Sea is a "core interest" China effectively stated its own Monroe Doctrine.
The crucial difference, however, is the responses from the regional players. Unlike Spain, US is not trying to colonize the region - in fact, US is very welcome in the area. To a degree ASEAN was set up because its members feared a power vacuum after US started gradually exiting Asia. Consequently, should China look to enforces its Monroe Doctrine, it would almost certainly face unanimous animosity among its neighbors, which will definitely and easily be exploited by its biggest rival, the United States.
Another comparison would be the depiction of Germany by US propaganda in the years leading to the First World War. First regarded as the beacon for economic development, then as a military threat (which turned out to be true).
While it can be argued that Chinese show of power was a bit premature, it is not necessarily an unwise move. First, it is quite probable that US has been behind the hard balls played by regionals, and China's national interest would be severely hurt if China chose not to fight back. Second, the power balance between China and US is significantly skewed toward China compared to even five years ago, with US in a lackluster "recovery" and two wars to fight. Third, aggression has not always been countered in history (not a good comparison, but US had been consistently trying to distant itself from WW1 and WW2), and it would serve China's long-term interest if it plays hard balls soon rather than being successfully contained.
Who will benefit most from this power play and emerge as the winner? It all depends on the next steps of various parties. And it probably will benefit nobody. An arms race in Asia or between US and China will do nobody any good, not to mention a modern warfare that involves China. One possible (and best) scenario is that if China will grow at its current pace for another ten or fifteen years, and no major armed conflict happened in the region, the presence of US in Asia will be gone by itself. Can China continue to grow without being disrupted or disruptive? I can only hope for the best.
