You are here
Russia pushes again for new reserve currencies
By William Mauldin
The Wall Street Journal
Saturday, June 19, 2010
http://online.wsj.com/article/SB1000142405274870412290457531499037419691...
ST. PETERSBURG, Russia -- Russian President Dmitry Medvedev on Friday said he hosted talks with Chinese leaders about turning the yuan into a convertible reserve currency, part of a broader goal to move international reserves assets into emerging-markets currencies and away from the dollar.
Mr. Medvedev, speaking with Wall Street chiefs at an economic forum here, also outlined steps to boost foreign investment, including a cut in the capital-gains tax and overdue financial reforms, but investors said numerous barriers still obstruct Russian investment.
Mr. Medvedev said that a year ago at a meeting of the Shanghai Cooperation Union in the Urals Mountains city of Ekaterinburg, he discussed plans for boosting the international status of the Chinese currency, which is currently tightly controlled by the government. On Friday, the president also named the Indian rupee and Russia's ruble among the potential new reserve currencies. China and Russia have two of the three biggest stores of international reserves.
... Dispatch continues below ...
Prophecy to Become Coal Producer This Year
with 1.5 Billion Tonnes of Resource
Prophecy Resource Corp. (TSX.V: PCY) announced on May 11 that it has entered into a mine services agreement with Leighton Asia Ltd. to begin coal production this year. Production will begin with a 250,000-tonne starter pit as planned in August, with production advancing to 2 million tonnes per year in 2011. Prophecy is fully funded to production and its management team includes John Morganti, Arnold Armstrong, and Rob McEwen.
For Prophecy's complete press release about its production plans, please visit:
http://www.prophecyresource.com/news_2010_may11.php
"The future will show the correctness of our predictions, and I think the future of the world financial system is in the use of different reserve currencies and the creation of a multicurrency portfolio," Mr. Medvedev said.
"Three to five years ago any discussion of this seemed like a fantasy that may never come true," he said. "Now we're discussing it in absolute seriousness with a number of countries, including our American partners, who are perhaps least interested in other currencies replacing the dollar."
The growing economic clout of Russia, China, and India means it makes some sense for their currencies to form a greater share of global reserves, said Neil Mellor, currencies analyst at the Bank of New York Mellon in London, adding that it will be a "very, very long-term shift."
China will probably move cautiously toward making its currency convertible because doing so completely would allow unrestricted access to domestic securities.
In recent years Russia opened its ruble and bond markets only to see the currency face a painful devaluation in late 2008 and early 2009 after commodity prices fell. The central bank still acts to control the ruble's volatility as Russia faces alternate bouts of speculative capital, attracted by relatively high interest rates and oil-price gains, and sharp selloffs amid global risk aversion.
Besides boosting Russia's clout abroad, Mr. Medvedev said he will eliminate taxes on certain long-term direct investments in Russia and clear the way by the end of the year for a central securities depository, which would allow large investors concerned about trading and holding stocks and bonds to invest locally in Moscow for the first time. The depository would also serve as a public registry for shares. On Friday the lower level of parliament gave preliminary approval to legislation that would allow authorities for the first time to pursue prosecution of insider trading.
"Russia needs a real investment boom," Mr. Medvedev said. His chief economic aide has said that in the absence of rising commodity prices, Russia requires foreign investment to boost annual economic growth above 5% annually, a level other major emerging-markets including Brazil, India, and China are seeing this year.
Still, some investors are inured to the influence of friendly rhetoric repeated by the Kremlin this week against the backdrop of the annual St. Petersburg International Economic Forum, attended this year by Citigroup Inc.'s Vikram Pandit, J.P. Morgan Chase & Co.'s James Dimon, and Morgan Stanley's John Mack.
"Russia has been toying around with the idea of a central depository for about 20 years," said John T. Connor, portfolio manager of the Third Millennium Russia Fund. "They have a theoretical grasp of what they'd like to do, but the rubber hasn't hit the road."
Mr. Medvedev, widely seen as more investor friendly than his Kremlin predecessor, Prime Minister Vladimir Putin, is probably seeking to "improve market infrastructure after its failings in 2008," said Mattias Westman, chief executive of Prosperity Capital, which manages Norway's oil investments in Russia. "The timing is uncertain, but they usually keep explicit promises."
In fact, the tax cuts Mr. Medvedev mentioned may not even be needed, said Renaissance Capital founder Stephen Jennings, who expects to see renewed foreign investment in emerging markets this year "anyway."
Russia attracted only $5.8 billion in foreign direct investment in the first quarter of 2010, the slowest start to a year since 2006. Last year's $38.7 billion of foreign direct investment was only about half of that in 2008, according to central-bank data.
Yet the number of direct-investment projects climbed to 170 last year from 143 in 2008, according to Ernst & Young. Meanwhile, Russia-focused investment funds saw $1.9 billion of inflows -- more than Brazil, India, or China -- in the first half of 2010, according to Emerging Portfolio Fund Research.
* * *
Support GATA by purchasing a colorful GATA T-shirt:
Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009:
http://gata.org/node/wallstreetjournal
Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon:
* * *
Help keep GATA going
GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:
To contribute to GATA, please visit:
http://www.gata.org/node/16
