According to reports carried by the Associated Press, Reuters and Bloomberg, Brazilian beauty and world’s richest model Gisele Bündchen had insisted she be paid in euros for representing products produced by Proctor & Gamble and Dolce & Gabbana.

Bündchen allegedly feared that the fall in the greenback, down in US trade-weighted terms to a record low, would eat into her not inconsiderable annual fees of US$33 million.

A denial was issued by Bündchen’s US agent and published in the New York Times but a story like that is going to have a run no matter who denies it. Double sexy looking model and the US dollar under attack. It would have the back bench on any newspaper in the world drooling. All you need is some way of working in the Royal family and you have a world beater of a story.

On a more serious note, it does highlight the massive problem of the weak US dollar. Far more serious than the rejection of the greenback by the glorious Gisele Bündchen is the attitude of the Chinese government.

Although it was more an individual view than stated government policy, when the People’s Bank of China vice-director Xu Jian declared the dollar was ‘losing its status as the world currency’ it was serious news.

As China is sitting on the world’s largest foreign-exchange reserves — $US1.4 trillion, most of it denominated in US securities — its views hold immense sway.

A switch by China and other countries carrying US dollar reserves would lead to a boom in the euro and the yen and serious damage to the dollar.

Economist and market strategist Marc Faber believes such a scenario is already unfolding and referred to what he saw as the terminal decline of the US dollar.

There could be benefits to the United States. As the US is a big exporter of commodities exports could rise. But this is far from a sure bet.

All this from an excellent article by Richard Inder who is an investment advisor at Macquarie Private Wealth. Click on source to read the full article.
Source: National Business Review

The People’s Bank of China has said on its web site China will raise the reserve requirement ratio by half a percentage point for commercial banks in an effort to cool the booming economy.

The move, which will take effect from November 26, will push the ratio to a ten-year high of 13.5%.

It is the ninth hike this year aimed at ’strengthening liquidity management in the banking system and checking excessive credit growth.’ This according to the central bank on its Web site.

The move came shortly after the central bank announced earlier this week its prediction that China’s economy would expand more than 11% for the whole of 2007, with inflation rising 4.5%.

To ensure rational credit growth, the central bank also said it would continue to implement a tightened monetary policy and take a variety of measures to strengthen the macro-control.

By the end of September, the M2, which covers cash in circulation plus all deposits, grew by 18.45% from a year ago to RMB39.3 trillion (US$5.2 trillion.)

China’s commercial banks lent out RMB3.36 trillion in the first nine months of this year, surpassing the full-year figure of 2006.

A long article in The Times that you should read. Click on Source at the end of the article.

Funds backed by foreign states could have $12,000 billion to invest by 2012. The financial muscle of these vehicles, are now causing alarm in the West. To put a block on it would suggest the West does not have an open economy.

These sovereign funds have been around since 1953. But it is only recently the power of sovereign funds has mushroomed. Now China has been boosted by income from huge trade surpluses.

Stephen Jen, chief currency economist at Morgan Stanley, estimates that even if China tries to rein in its current-account surplus, the country’s sovereign fund could grow by $200 billion a year, becoming the world’s largest within a few years.

Gerard Lyons, chief economist at Standard Chartered, said: ‘There is a serious likelihood of western governments and sovereign wealth funds clashing over what they can buy and where. A protectionist backlash against strategic investments is real and threatens global trade.’

China is putting $1 billion into Bear Stearns. This has made many Americans uneasy.
Industrial and Commercial Bank of China is putting $5.5 billion into Standard Bank, Africa’s biggest lender.
The China Development Bank bought a 3.1% stake in Barclays in July.
China Construction Bank in August agreed to buy Bank of America’s Hong Kong and Macao operations for $1.2 billion.
China is promising up to $8.5 billion of investment in the Democratic Republic of Congo in exchange for a slice of its mineral assets.
Last year, China signed a $1.6 billion deal with Angola to develop an oilfield in the African state. Read the full article. Well worth the time.

Source: Times Online

China has its own problems with an over-heating economy. But it is also concerned on a global scale.

Wu Xiaoling, deputy governor of People’s Bank of China said at the 16th meeting of the International Monetary and Financial Committee, said ‘Activities in the major advanced economies slowed in the second quarter of 2007, posing significant downside risks to global growth.’

She warned that credit market retrenchment in the United States may further dampen the housing market, suppressing consumption and investment, giving rise to potential risks of recession with a spillover effect on other countries.

Wu Xiaoling said, ‘It is all the more urgent a priority to strengthen surveillance of the systematically important advanced economies in order to safeguard global financial stability and economic prosperity.

‘This round of adjustment has not yet come to an end. Despite the major central banks’liquidity injection, credit conditions are unlikely to be restored within a short period of time.’

As to Chinese economy, Wu Xiaoling said a major task for the Chinese government is to prevent overheating.

She said, ‘The Chinese government has taken measures to strengthen macroeconomic management, improve investment structure, increase fiscal expenditure in social sectors, boost domestic demand, and speed up reform in the financial sector.’
Source: China Daily

Credit risk is the biggest concern facing China’s domestic banks. This according to China Banking Regulatory Commission chairman Liu Mingkang, seen in our illustration, who said it is essential to solve the biggest concern — credit risk — faced by the banking industry.

Domestic bank loans have reached RMB3.36 trillion in the first three quarters, which is more than total bank lending last year.

The People’s Bank of China has said banks’ reserve requirement ratio will be raised for the eighth time this year, aiming to further reduce liquidity in the market. The rate, effective as of this week, will reach 13% from the current 12.5%.

Liu Mingkang said during the Chinese Communist Party’s 17th National Congress in Beijing, ‘Though banks may lose some customers because of the government’s cooling measures, banks in the long run will benefit.’
Source: Standard

Once again China tries to take the heat out of the economy. The People’s Bank of China (PBOC) announced China will raise the reserve requirement ratio by half a percentage point to 13% for commercial banks from October 25.

This is the eighth such move this year and only one month after the seventh hike of half a percentage point on September 25.

The central bank said in a statement that the move is aimed at ’strengthening liquidity management in the banking system and checking excessive credit growth’. Or taking the heat out of the economy.

After this eighth rise, the reserve requirement ratio has reached a ten-year high.

The move came after the central bank’s announcement that the country’s foreign exchange reserve has exceeded 1.43 trillion U.S. dollars by the end of September, up 45.1% from the same period last year.

By the end of September, the M2 — a broad measure of money supply, which indicates the monetary demand of the whole country — grew by 18.45% from a year ago to RMB39.31 trillion.

China’s commercial banks lent out RMB3.36 trillion in the first nine months, surpassing the full-year figure in 2006.
Source: China View

The People’s Bank of China has raised its economic growth forecast. According to the report published in the China Securities Journal the economy may expand 11.6% this year, faster than the agency’s previous estimate of a 10.8% expansion. Inflation this year will be 5%, up from 3.2% forecast previously, and the trade surplus will widen to about $250 billion this year from $177.5 billion in 2006.

The Government is concerned that a surge in lending is creating a bubble, which would drive up bad loans should it collapse. Investment in real estate development jumped 29% in the first eight months of this year.

On September 12 the World Bank raised its 2007 China growth forecast to 11.3%. One forecast is factory and property spending which it is thought will rise 25 to 26% this year.
Source: Sydney Morning Herald

The Bank of China, one of the country’s biggest lenders, has revealed that it held a $9.6 billion exposure to securities backed by American sub-prime mortgages although all of them are highly rated.

China’s two other large, publicly listed institutions, ICBC and China Construction Bank have each disclosed sub-prime holdings above $1 billion.

In the very unlikely event that the entire investment were to prove worthless the Bank of China would be hit badly: 18% of shareholders’ equity. Not a probable scenario. But neither, according to The Economist, is it likely that the $151m the bank put aside for such a possibility will cover potential losses.

Chinese banks are hugely profitable: among the biggest banks, earnings are growing by more than 40% a year and non-performing loans have shrunk from about a quarter of the total several years ago to less than 4%.

Still it is something of a worry. Bank of China’s investments in iffy American mortgages are almost as much as the amount it raised in a Hong Kong share offering last year.

Moody’s, a ratings agency, reckons that the loan-to-deposit ratio for Chinese banks is a modest 68%. For Bank of China the number is lower still, about 60%.

This poses a huge investment challenge for the banks, because lending should be their most lucrative business. Typically, they earn 7% on a loan, compared with 3% paid to depositors. So the banks went hunting abroad and unfortunately found the American sub-prime mortgage market which is now in a state of confusion and doubt as borrowers default on their mortgages.
Source: The Economist

China’s major lenders apparently suffered no damage or only minor losses from their investment in U.S. mortgage-backed securities.

Yang Kaisheng, president of the country’s biggest lender, said, ‘The Industrial and Commercial Bank of China (ICBC) did have a loss from the investment if calculated at the current market value of the securities. But the loss is not significant and well within ICBC’s capacity to bear.’

Mortgage-backed bonds make up less than 1% of ICBC’s total investment in foreign exchange bonds.

Li Lihui, president of the Bank of China said his bank had no actual losses from the mortgage-backed and related investment, which accounts for less than 4% of the BOC’s total securities investment.

According to the half-year reports released by both lenders, after tax profit of the ICBC soared 61.4% from a year earlier to RMB41.4 billion ($5.45 billion) and that of the BOC rose 52% to RMB29.5 billion ($3.9 billion).
Source: TDC News