LET'S PLAY ECONOMIST

We all know how to do this, right? It's easy, follow me.

On the one hand the actions of the Bank of China yesterday may be nothing more than a recognition on the part of the management of the bank that they are in a unique position to fill a need on behalf of their clients.

On the other hand, like the J-20, it may be a very deliberate signal to the world at large as to the intentions of the Chinese government in regard to their currency and as to their natural place in the financial world.

There, now wasn't that fun? Problem is in the real world somebody has to figure out what the hell is going on and that's not so easy. Now, if you were to ask me (ok, so don't ask, I don't care) I think it's more of the latter than the former based on nothing else than the impending summit between their leader and The Leader. To be sure, the ability to access RMBs is certainly a reason for a U.S. company to consider opening an account with the B of C but the necessity of so doing in order to engage in the China trade is not compelling. The ability to profit through the access to the RMB is not there yet and will not be until the issues of convertability and legal exchange are settled. That is well down the road, but the message is vitally important not only in this country but in other political climes as well.

For we old folks, the comparison that an old friend of mine made today to the development of the Eurodollar market in the 1960ies and 70ies is a spooky one. I don't think anyone really knows how that market began but the best theory I've heard is that is was the brainchild of Moscow Narodny Bank, the international bank of the then U.S.S.R, given birth as a result of the need of the Russians (and their captive states) to make use of the U.S. dollars they held as a result of trade transactions, inasmuch as relations with the U.S. were, to say the least, strained. What we may be witnessing here is the development of the America/Renminby Market which would be a real kick for me to have been around for both developments. What will it be, the New York Renminby Interbank Currency Exchange or "NY-RICE?"(pronounced "NIRICE") The Mind boggles. What a fortune cookie.

Tomorrow, Spain borrows. Back then.