There are three economic giants in the world US, EU and China. There is no Gold standard to back the currency since 1971 and money value,safety etc tied only to GDP(s). So investments in different assets, including bonds, increases money value and world demand for it. On the other hand most trade in the world involves US$ and Euro while Yuan just enters the world reserve currency status on October 1st. IMF currently has reserve currency basket at 40% US$, 30% Euro, 10% Yuan and remaining 20% Yen and GB Pound. Current nominal GDP: US is#1, Euro is #2 and China is#3. The problem all other currencies may face is that China is already GDP measured by Purchase Power Parity ahead of any other world economy. According to IMF even in Nominal GDP China is set to be equal or ahead of US by 2020. It means that the 10% world reserve currency status will not fit the Yuan / Chinese Government. If Yuan share of trade is going to grow then at what currency expense? If for example unneeded Euro will start going back to EU, it will trigger much higher than normal inflation. In order to avoid it US, EU, GB etc would need to keep their rates higher what not every National Budget can afford. Please correct me if I am wrong.
Why are US bonds paying more than EU
- Thread starter RetireBy90
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RetireBy90
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So,thanks to all that contributed ideas. I learned that the EU and Japan central banks are purchasing a significant portion of sovereign debt, and with not a lot left for those that must buy EU or Japan bonds by charter, they must compete for what is left, thus really distorting the market price or yields.
Others have EU dominated bills so for 1% won't leave EU denominated investments.
I guess to my original question, it seems that faster growth would impact exchange rates.
Others have EU dominated bills so for 1% won't leave EU denominated investments.
I guess to my original question, it seems that faster growth would impact exchange rates.
