CHINA TO CONSIDER ISSUING BONDS DENOMINATED IN SDR

According to the WSJ, the PBOC may consider issuing bonds denominated in the IMF's SDR, to curb the reliance on US$ denominated bonds.

Should this happen, it could impact upon the US$ value.

It is interesting that this coincides with reports coming out from China that up to 30 countries are waiting to join the AIIB (Asia Infrastructure Investment Bank) adding to its list of 57 founding members (Source: Reuters). As part of China's push to promote the Yuan, China will also encourage the AIIB to issue Yuan denominated loans.

Various news are also reporting that China will implement a Yuan fix on gold on April 19.

Even Russia has agreed to settle its oil trade with China in Yuan.

All the above point to a reduced dependence on the role of US$ to settle international trades and loans. What are the implications?

The value US$ could fall, the result of which will drive the price of commodities higher. This could benefit gold, silver and other commodities in the energy, agriculture and mining sectors and related stocks, although I believe energy stocks are best to be avoided until the weak companies default or go into bankruptcy.

Should the value of the US$ falls further it could push investors into the safe haven assets such as gold and silver. In a low interest environment, such a fall could also affect the demand for US Treasuries, and increasingly put the US at risk as investors park their money elsewhere. The US government debt has reached US$19T and much depends on the successful sale of US Treasuries to finance the government.

A falling dollar could also mean more expensive goods to the consumers as the cost of imports rises. Consumers drive the US economy, and should consumption fall due to rising prices, it could have a very negative effect on the economy.

Import of raw materials too will become costly, and companies could see their bottom lines being affected by the rising costs. As a result earnings could fall.

In the ensuing months, we could see major shifts in currencies. The immediate focus is on the Fed, the ECB, BOJ, PBOC and yes, even the IMF- what they say or do.