BACKDOC: WITH THE DOLLAR AS THE NEW FEAR GAUGE OR MEASURING TOOL, IT'S CLEARLY APPARENT THAT A WEAKER DOLLAR WOULD BE BETTER FOR ANY COUNTRY HOLDING DOLLAR DENOMINATED DEBT.
REMEMBER VIETNAM DID A CLEVER MOVE BY PUTTING 80% OF THEIR DEBT IN DOLLARS!
WHY IF THE DOLLAR WOULD RISE AND CREATE A FINANCIAL DEFAULT?
WELL, CLEARLY THE SHORT TERM PLAN IS FOR A LOWER DOLLAR. COULD THIS BE WHY TRUMP IS DOING A TRILLION DOLLAR INFRASTRUCTURE PLAN? MMMM
ONCE THE DOLLAR DECLINES TO AN ACCEPTABLE TARGET LEVEL, DEBT COULD BE RESTRUCTURED AND THEN A STRONG ASSET-BACKED DIGITAL DOLLAR COULD EMERGE. DOC IMO
Thunderhawk: Dollar Is New Fear Index as Easing Renders VIX Useless, BIS Says
The world’s most-traded currency is becoming a fear gauge.
That’s the opinion of Hyun Song Shin, head of research at the Bank for International Settlements. A stronger dollar can depress demand for credit while reflecting reduced investor appetite for the riskiest assets, Shin wrote in a report released Tuesday by the BIS.
The research signals that the dollar’s surge after Donald Trump’s U.S. electoral victory shouldn’t be interpreted as a clear sign of confidence across markets. In fact the dollar has become a new fear gauge, replacing the Chicago Board Options Exchange VIX volatility index, Shin wrote.
“The mantle of the barometer of risk appetite and leverage has slipped from the VIX and has passed to the dollar,” he said. “Given the dollar’s role as barometer of global appetite for leverage, there may be no winners from a stronger dollar.”
Years of monetary easing by global central banks has kept volatility low for stocks while compressing credit spreads. That has stripped predictive power from the VIX. At the same time it has pushed more international borrowers and investors toward the dollar.
Given the global increase in dollar-denominated liabilities, a stronger currency may lead to lower appetite for investment risk and reduced demand for dollar-lending to acquire relatively volatile assets, according to the report published by the Basel, Switzerland-based institution that represents central banks.
The VIX is a measure of implied volatility calculated from what investors pay for options on the S&P 500 stocks index. Before the financial crisis in 2008, there was a close relationship between leverage and the index, according to the research. When the VIX was low, borrowing appetite increased and vice versa.
The crisis, however, forced policy makers to cut borrowing costs to record lows, quelling price swings. The gauge, which has averaged about 16 this year, was a far cry from record 80.9 almost eight years ago.
Negative Interest Rates
As interest rates fell, in some cases to negative levels, investors searched for higher-yielding assets. Given the global role of the dollar as a borrowing currency of choice, most of those assets are denominated in U.S. currency. Long-term yields for dollar securities, for example, have been higher than similar-maturity bonds in Japan, the euro area and Switzerland.
For institutional investors with global portfolios of assets, they need to mitigate the risk of currency mismatches between assets they hold and domestic liabilities. This involved hedging, which is mostly done through banks. These banks also lay off their own risk by borrowing dollars. This demand implied a dollar “shortage” that made the financial sector more vulnerable to the strength in U.S. currency, BIS researchers said.
“The risk-taking channel of exchange rates turns on the impact of dollar appreciation in a world where many balance sheets have dollar liabilities,” they said. “When so many borrowers have borrowed so much in dollars, whether for hedging or speculative purposes, dollar appreciation exposes borrowers and lenders to valuation changes and, in turn, impacts their balance sheets.”
BACKDOC: PULLING CURRENCY IS CAUSING TROUBLE FOR INDIA. DRIVERS ARE HEADED FOR A STANDSTILL. 86% OF INDIAS MONEY SUPPLY IS IN THE 1000 AND 500 RUPEE CURRENCY!
WITH THEM HAVING A DEADLINE TO PULL IN THOSE NOTES ITS OBVIOUS THEY MUST BE EXPECTING SOMETHING SPECIAL TO HAPPEN AFTER NOVEMBER 24TH!
MMMM THAT TAKES US INTO OUR THANKSGIVING HOLIDAY DOESN'T IT? HEE HEE VERY INTERESTING TO SAY THE LEAST! DOC IMO
Thunderhawk: PULLING CURRENCY IS CAUSING TROUBLE. Bloomberg: Truck Drivers Walk Off the Job, ATMs Run Dry After India Pulls Bills From Circulation
Truck Drivers Walk Off the Job, ATMs Run Dry After India Pulls Bills From Circulation
The crisis sparked by the shortage of cash in India following Prime Minister Narendra Modi’s anti-graft measure to ban high-value currency bills has hit the movement of goods in Asia’s third-largest economy.
More than half of an estimated 9.3 million trucks under the All India Motor Transport Congress have been affected as drivers abandon vehicles mid-way into their trip after running out of cash, according to Naveen Gupta, secretary general of the group. India’s roads carry about 65 percent of the country’s freight.
That adds to the worries of a government battling to keep cash dispensing machines running after efforts to ease withdrawals failed to keep pace for the fifth straight day. After a teary-eyed emotional appeal to citizens to bear some pain and back the fight against corruption, Modi on Monday defended his move to withdraw 500-rupee and 1,000-rupee notes, which accounted for 86 percent of money in circulation.
“The situation is still grim and now we are getting information from various parts that drivers have started abandoning vehicles," said Gupta of AIMTC, the country’s largest association of truckers. “Their basic needs like food are not being met because they can’t use the cash to buy food and there is not enough cash with them anyway.”
To understand why India banned high-denomination notes, click here
Just under a week after the government’s shock announcement, the Reserve Bank of India on Monday constituted a task force to provide guidance for the re-calibration and reactivation of the cash dispensing machines. Earlier the government said it’s stepping up efforts to ensure banknotes of all denominations are available as banks come under pressure with millions of people lining up for transactions.
The nation’s lenders have received 3 trillion rupees ($44.4 billion) in deposits and disbursed or exchanged about 500 billion rupees in the first four days, “Supply of cash through various networks and channels will be improved,” said Economic Affairs Secretary Shaktikanta Das at a press briefing in New Delhi on Monday. “The situation will ease out in the coming days.”
The State Bank of India’s ATM at the Ministry of Finance’s main office in the heart of the nation’s capital wasn’t dispensing cash as of noon on Monday, while in Mumbai’s Byculla area customers started lining up at a State Bank branch hours before its scheduled opening time on Tuesday. The cash machines across the nation are being reconfigured to dispense the new banknotes as currently they are able to provide only 100-rupee bills from one of the four trays. “The banks are trying their best to replenish those trays,” said Das.
The government on Sunday raised the daily limit on withdrawals from cash dispensing machines to 2,500 rupees, while weekly cap has been increased to 24,000 rupees. The limit of withdrawals from a current account held at banks has been increased to 50,000 rupees per week in a move to help small businesses pay wages, Das said. Old high-denomination bills will be accepted at places such as government hospitals, utilities and fuel stations until Nov. 24, he said.
It has also extended the suspension of tolls on national highways through Nov. 18, the Ministry of Road Transport and Highways said in a statement on Monday. This is the second time that an extension has been granted -- it first ran to Nov. 11, then until Nov. 14.
Modi is seeking to fulfill his election promise of recovering illegal income, locally known as black money. The government will take more steps to curb tax evasion, including action against benami property, he said at an event in Goa on Sunday. Benami is property owned by one person but held in the name of a third party.
“My decision is a bit harsh,” Modi said Monday addressing a rally at Ghazipur in Uttar Pradesh state. “Today, those people are worried because what will they do with those garlands of notes.”
Ministry of Finance’s Das said the government will increase cash supply to post offices and asked people not to panic.
"If this continues for another week, movement of goods will come to a standstill," said Ramesh Kumar Gulati, national secretary of All India Transporters’ Welfare Association. "We have to provide drivers with cash and we are facing severe shortage now."
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