Bad news for the greenback: China, Russia, Japan, France and the Gulf States are planning to trade oil denominated in a basket of currencies instead of the US dollar. The transition is scheduled for 2018 and the currency basket would include the Japanese yen, Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar. Meetings have apparently already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil. (The move signals a loss of confidence in the dollar but not necessarily a loss of value.)
Good news for Brazil. In addition to winning the 2016 Olympic bid, the country has been upgraded to investment grade by Moody’s, and will lend the IMF $10bn, reversing previous cashflow. Perhaps Brazil should no longer be called an emerging market: the country has stronger macro-economic fundamentals and policy credentials than Italy and a lower default risk, yet Brazil is an ‘emerging market’ and Italy is an ‘industrialised country’ and a member of the G7.
Brazil probably does not call itself an emerging market, however: its focus lies in increasing voting power at the IMF rather than updating outdated Western nomenclature. Brazil, Russia, India and China share fewer than 10 per cent of IMF votes, and the G20 agreement to increase developing nations’ voting power by five percentage points does not seem enough. Leading bankers, economists and policymakers agree the reforms agreed at the G20 did not go far enough: the self-styled “group of 30” leading financial figures has called for an end to the US veto, a regular adjustment of voting powers to reflect shifting economic weight and a cut in the number of European directors on the board from eight to no more than four.
There has been some push back from developed countries as the IMF’s sister organisation, the World Bank, has requested an additional $5bn in equity to help with lending to middle-income countries. Britain and France questioned whether it was required, while Japan said new shareholding reforms should take into account the cumulative contributions of current major donors.
Consumer confidence rose in Asia and Brazil between March and June, while remaining below the global average for the US, UK, Germany and France. Indonesia, India, the Philippines, Brazil, Australia and China showed the biggest index gains, with China particularly strong. The increase in confidence need not lead to more asset bubbles, however: Singapore and South Korea have tightened lending rules in the property sector, and India may soon follow; China and Hong Kong are also aware of the risks, warning banks to avoid imprudent lending to homebuyers.
Meanwhile, more apartments in the US are empty: the rate of rental vacancies has risen to 7.8 per cent and is expected to rise further as unemployment climbs. US retail sales are set to fall during the holiday season (November-December), although some sectors are faring better than others: sales of alcohol are up since 2003, as are sales from warehouses (i.e. bulk purchases). And there is some good news on US employment – from an Asian bank: Nomura plans to almost double its US workforce to 1,200 by March 2010, in spite of a record Y708bn net loss in the US in the year to March 2009. Service sectors are lifting in the US, UK and Eurozone.
Australia has raised its official cash rate from 3 to 3.25 per cent following quicker-than-expected signs of recovery. This follows a rise by the Bank of Israel in August. But the Fed won’t be joining that club any time soon.
Latvia might not receive further IMF loans as the country’s proposed spending cuts of 225m lats fall well short of the IMF’s stipulated 500m lats. Latvia has so far withstood pressure to devalue the lat, which could cause inflation and scupper the country’s chance of joining the euro. Meanwhile Iceland is still waiting for its IMF review, without which the country cannot access more of its $5.1bn rescue package. Jóhanna Sigurdardóttir, the prime minister, criticised the IMF and Dutch and British governments for the delay, also singling out British prime minister, Gordon Brown, for using anti-terror laws to freeze Icelandic assets. “To stamp a friend and a long-time ally as a terrorist is an act we will hardly forget,” she told the Financial Times. “It hurts.”