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Yuan Revaluation - Euro's Big Moment?
...As China moves towards pegging the CNY to a basket of currencies or floating the Yuan, there could be a notable impact on the Euro. China is the world's second largest holder of US Treasury debt, approximately $191 billion second only to Japan and the Eurozone. A revaluation of the Yuan will force Chinese policy makers to sell a least part of their US dollar holdings and buy euros and/or yen. With the growing shift by different countries to diversify their foreign exchange reserves away from dollar to include an increasing amount of euros, this could be the single currency's big moment. So far we know that Russia will be readjusting their dollar denominated reserve holdings, South Africa and India are also suspected of dumping US treasuries while South Korea and Japan seem to be considering reserve diversification behind the scenes.
...Furthermore, a free float is not necessarily good for the US. China is a large owner of US treasuries. They have accumulated foreign exchange reserves in excess of $500 billion. They are currently the second largest purchasers of US treasuries, next to Japan. Hence, they play a pivotal role in keeping US interest rates low, supporting the US recovery. If China floats their currency, they will no longer need to accumulate foreign exchange reserves at such an aggressive pace. In fact, their demand for US Treasuries will fall significantly, which could lead to a back-up in long-term US interest rates and hence, cause a collapse in the bond market, jeopardizing the US recovery.
http://www.dailyfx.com/index.php?option=com_content&task=view&id=293&Itemid=46
and this from Asia Times about Russia becoming the world's largest oil exporter.
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...In 2005 Russia is likely to surpass Saudi Arabia as the world's largest oil exporter. This, combined with continued contraction of global oil stocks, gives Moscow enormous leverage over international oil prices. Russia could easily push the price of crude oil above US$100 per barrel by reducing oil production. No other oil-producing country, including Saudi Arabia, has sufficient spare production capacity to counter a production cut by Russia.
By effectively controlling international oil prices, Russia could undermine US economic growth.
More importantly, Russia could encourage the devaluation of the dollar by redenominating its substantial energy trade with Europe from dollars into euros. Redenomination, which is supported by both Russia and the European Union, would force Europe's central banks to rebalance their foreign exchange reserves in favor of the euro.
Rather than establishing economic and geopolitical hegemony around the world, the "war on terrorism" is making the US increasingly vulnerable to a sharp economic recession delivered to Washington by Moscow. The Bush administration should consider this when formulating plans to expand US power into Russia's traditional sphere of influence or to undermine Iran's government. Without this consideration, Washington risks an economic war.
http://www.atimes.com/atimes/Central_Asia/GC18Ag01.html