Energy sector can rely on local banks, agency funds

The drying up of international bank liquidity as a result of the global financial crisis will make it more difficult for local energy and mining firms to seek funding resources from the international financial market, forcing them to turn to domestic and multilateral agency resources.

Director for multilateral financing at the National Development Planning Board (Bapenas) Dewo Broto Joko Putranto said recently that Indonesia would face tougher competition to get funding from international money markets.

"As the liquidity dries up, the local firms have to compete with banks and other firms in developed countries to secure capital from the international money market."

"Moreover, the high interest rate will make the funding more costly for us. That is why we should focus on other sources, such as local banks and international agencies," said Dewo.

Energy and mining companies prefer to seek loans overseas because their revenue and spending are regularly dollar-denominated, as their product prices tail the movements in the international market.

Local energy projects actually have the potential to be financed by domestic banks, according to Wimboh Santoso, head of the central bank's monetary system stability bureau.

He believes that the domestic banks are in good condition despite the global crisis as they are not as exposed to the troubled equity markets, compared to those in other countries.

Wimboh was upbeat that the energy sector would be an interesting sector for domestic banks because it was deemed less risky.

Data from Bank Indonesia (BI) showed that as of August 2008, the average ratio of bad loans, technically known as non-performing loans (NPL) were only 0.84 percent for oil, gas, and the coal sector and only 0.03 percent for electricity projects.

"This shows the default probability in these sectors is small. If the channeling of loans to the energy sector remains low, I think this is simply because of lack of communication between the banks and the sector," Wimbo said.

As of August 2008, outstanding loans for the sector were only Rp 41.6 trillion (US$ 4.2 billion) or about 3.5 percent of the total credit disbursed from domestic banks, Wimbo said.

Tony Prasetiantono, chief economist of Bank Negara Indonesia, said while the NPL for the sector remained small at 0.11 percent in June 2008 and that loan channeling was also limited at Rp. 3.5 trillion during the month, still the sector was considered risky.

He said the perceived high risk stemmed from the exploration stage, and the longer period of time needed to gain returns on investment.

"Our banks are less exposed to investment in this kind of sector. Our funding structures do not prefer long-standing periods like this," he said.

For oil and gas, Tony said, operators were usually foreign companies which did not need loans from domestic banks as they already had financial support from the international financial market.

In anticipation of rejections from local banks, Dewo said the development of energy projects would remain on the government's top priority list.

The government, he said, would carry out several measures to support the sector, including the issuance of Islamic bonds to help attract Middle East investors, who were overflowing with funds following previously higher oil prices.

The government would also seek funding from international donor agencies, including the World Bank which recently agreed to reserve up to US$2 billion as a standby loan for Indonesia next year, Dewo added.

Dewo said the government was looking at another potential fund from the World Bank, which recently had secured $6.1 billion for a climate investment fund.

"Clean energy projects are among the priorities for this fund. The government will definitely try to tap it," he said.

Dewo added Indonesia must also work harder to utilize potential funds from the clean development mechanism (CDM), stipulated in the Kyoto Protocol, which would expire in 2012.

Under the protocol, developing nations can host projects to slash carbon output through clean development mechanisms (CDM) and forestry projects. In return, developed nations will provide money based on the amount of emissions reduced in developing countries.

Dewo said Indonesia was still lagging behind in taking advantage of the CDM mechanism, with only 17 projects concluded, far lower than China and India which had implemented 271 and 358 projects respectively.

Minggu, 26 Oktober 2008

Top things to know

Top things to know ::

1. All policies fall into one of two camps.

There are term policies, or pure insurance coverage. And there are the many variants of whole life, which combine an investment product with pure term insurance and build cash value.

2. Insurance is sold, not bought.

Agents sell the vast majority of life policies written in the U.S. because the life insurance industry has a vested interest in pushing high-commission (and high-profit) whole-life policies.

3. Whole life is expensive.

Policies with an investment component cost many times more than term policies. As a result, many people who buy whole life often can't afford an adequate face value, leaving themselves underinsured.

4. Whole-life policies are built on assumptions.

The returns quoted by the agent are simply guesses - not reality. And some companies keep these guesses of future returns on the high side to attract more buyers.

5. Keep your investing and insurance strictly separate.

There are better places to invest - and without the high commissions of whole-life policies.

Jumat, 10 Oktober 2008

Consider life insurance as an off-farm investment

It's a trick getting them lined up, but in the end the numbers never lie. And one of the truths that the financial numbers point to, which doesn't get a lot of attention in the number-crunching process, is that off-farm investments can pay.

It seems counter-intuitive that farms, capital intensive and always scraping to put enough together for the next down payment, should be looking to place hard-earned cash somewhere else. It's not an easy pitch to make to producers, but chartered accountant Mario Dumas considers that there's value to be discovered. “It's a big job to convince farmers to off-farm invest,” he says, “but we preach off-farm investments.”

Dumas, located southwest of Montreal in Ormstown, Que., advises a lot of capital-hungry farmers, either dairy farmers needing to buy more quota or cash croppers facing land at $5,000 per acre and up. He tries to demonstrate that with a few strategic adjustments, producers can profit from off-farm investments, especially life insurance.

“I sometimes feel like a life insurance salesman when talking with farmers,” Dumas quips. He notes that life insurance is important not only for preventing financial catastrophe should the unthinkable happen, but also in terms of succession planning. It can be an advantageous strategy in taking care of non-farming children.

It's difficult enough trying to sell the farm to one child at a price that's both affordable to buy yet profitable enough for the farmer to retire on, without having to think about the other siblings in the family. Life insurance can take care of that worry by leaving the policy benefits to the remaining children. This can help avoid buyouts when one or all of them want a financial share of the family's farming legacy.

This is where the numbers come in. When producers counter that they need any available cash for on-farm investments, Dumas advises longer-term loans (lower payments) while putting the savings from monthly payments into life insurance and other personal investments such as RSPs. He crunches the numbers to show that cash flow is not affected, and equity is the same or better through compound interest.

It may be a better overall investment strategy, according to Dumas, because the proceeds from life insurance are not taxed, leaving more money to the estate and less pressure on the retiring farmer to set aside money for the other children. The proceeds from life insurance are liquid (as opposed to land or other farm assets) so it's easier to divide to accommodate any “fairness” desires.

And if the numbers are not convincing enough, Dumas also explains that life insurance can relieve liquidity concerns when the family is going through a difficult period from the loss of a key person in both the family and the farming operation.

By Hugh Maynard

Minggu, 28 September 2008

The Trick Is Not Minding

From time to time, we introduce investment vehicles that don’t get a lot of attention from either the pros on Wall Street or the pop market press that so adoringly elevates them in the public consciousness. And when the cool kids do take notice, it’s to point out how “volatile,” “little understood” or “complex” such investments are.

If you’ve followed the Personal finance investment path for the long haul, you’re well aware that one way to growth is to declare independence from Wall Street and the fawning financial media.

Well, we’re at it again. publicly traded partnerships (PTPs) now represent a significant chunk of the Growth portfolio—Enterprise Products Partners, Linn Energy, Tortoise Energy Infrastructure and Tortoise Capital Resources—and TEPPCO Partners brings its high yield to the Income Portfolio.

You’ve probably heard them referred to by a few different names—partnership, limited partnership, LP. And you’ve probably heard the nonsense about how difficult they are come tax time.

You’re not doing your job if you don’t consider the tax ramifications of an investment decision. Nor do you advance your long-term financial goals if you pass up an opportunity because the tax reporting process is a little different or a few steps longer than what you’re used to.

Managing your portfolio is a time-consuming process. You’ve got to do research to find the right mix of investments, you’ve got to find a broker or trading platform to reliably execute your trades, and you’ve got to seek out sources of unvarnished economic and financial news.

If you’ve made it to the back page, and you’re still reading, chances are you’ve identified Personal Finance as a multifaceted resource capable of satisfying some of that. At any rate, you’ve already taken many steps down a long road.

Let’s do it again on the PTP/K-1 issue. It’s not that hard. You’ve put in a lot of work already. And you want to make a decent return.

Because a PTP doesn’t pay tax, it’s able to pass along more of its earnings to its investors than it could if it were in corporate form. It does this through quarterly cash distributions.

Although they resemble corporate dividends, PTP distributions are treated differently—and better—for tax purposes. Rather than taxable investment income, they’re treated as a return of capital and reduce the partner’s basis in his/her partnership units. (The investor’s original basis is the price paid for the units. The basis is adjusted downward with each distribution and allocation of losses and deductions, such as depreciation, and upward with each allocation of income.)

When the units are sold, the difference between the sales price and the adjusted basis equals taxable gain (or loss). Partners won’t be taxed on distributions until: they sell their PTP units and pay tax on their gain, which includes the distributions; or their basis reaches zero.

Some of the tax on the capital gain from selling the interest will be paid at the capital gains rate. That portion of the gain that results from a downward adjustment of the basis after allocation of depreciation or other deductions will be taxed at the ordinary income rate.

Each March, investors receive K-1 tax packages that summarize their allocated share of reportable tax items. In general, cash distributions received during the year shouldn’t be reported as taxable income even though those distributions may appear on your brokerage statement. Only the amounts shown on the K-1 should be entered on your tax return.

Tax consequences to a particular unitholder will depend on the circumstances of the unitholder. Consult your tax professional or financial advisors to determine the federal, state and local tax consequences of ownership of our limited partner units.

You’re not taxed on the distributions you received but rather on your share of the partnership’s taxable income. The excess—the return of capital, if any—will reduce your cost basis in your shares, increasing the capital gain (or reducing the loss) you’ll realize when you sell your partnership units.

The K-1 you’ll receive from your publicly traded partnership is a one-page document setting forth income, gains, losses, deductions and credits of the partnership. Only the amounts shown on the K-1 need to be reported on your tax return.

You don’t file your K-1. That’s the responsibility of the partnership, which generates and distributes them to unitholders. (“Unitholders” are also “partners” within the meaning of the Internal Revenue Code.)

It’s not a lot of information. Many of you probably outsource your tax preparation to a professional, an attorney or accountant specifically trained—and well compensated—to sift through the forms and schedules the IRS and similar state agencies use to track down and extract the lifeblood of government. A tax professional can handle PTP issues easily, and a committed investor can get the job done, too.

But there’s nothing really “easy” about tax forms; there may be more pages, more entries, more signatures, but at the end of the document, you still have to give it up to Uncle Sam. And there’s something uncomfortable about the unfamiliar, but exploration is the story of man.

Neil George and Elliott Gue have prepared a special report on PTPs, which includes a detailed discussion of tax ramifications for individual investors. The report is available at www.pfnewsletter.com/MLP.

The bottom line: Don’t avoid publicly traded partnerships just because you’ll receive a K-1 instead of a 1099.

(by David Dittman is Managing Editor of Personal Finance)

Kamis, 25 September 2008

10 Killer Tips for Property Investment

If you really want the best deals in investment properties, you have to increase your odds by finding more deals. Who is more likely to get a cheap apartment building, an investor that looks through the MLS listings and calls it a day, or the one that uses ten resources? Here are the ten:

1. Talk. Let people know you are looking and sometimes the properties will come to you. There are a lot of owners out there who want to sell, but haven't yet listed their property.

2. Use the internet. Go to a search engine and enter the type of real estate you are looking for, along with the city you want to invest in. You never know what you might find.

3. Drive around looking for "For Sale By Owner" signs. Owners often don't want to pay to keep the ad in the paper every week, so you won't see all properties there.

4. Find abandoned properties. That's a pretty clear sign that the owner doesn't want to deal with the property. He might sell cheap.

5. Find old "For Rent" ads. Call if they are a few weeks old. Landlords are often ready to sell, especially if the haven't yet rented the units out.

6. Talk to bankers. You might get a foreclosed-on investment property cheaper if you buy it before they list it with a real estate agent.

7. Offer someone a finder's fee. There are people that always seem to hear about the good deals. Have such people coming to you.

8. Eviction notices. If your local papers publish eviction notices, or if you can get the information at the courthouse, it can be useful. A landlord who just went through the procees of evicting tenants is a likely seller.

9. Old FSBO ads. If you call on two-month-old "For sale By Owner" ads, and they haven't sold, they may be ready to deal. Owners often give up the effort, but still would love to sell. Help them out!

10. Put an ad in the paper. "Looking for investment properties to buy," might be sufficient to generate a few calls.

Writer by. Dave Simpson

Minggu, 14 September 2008

Obama effect on oil

In early July I published a note discussing how expectations of an Obama win could knock $40 off the oil price. The note is below. One piece of the puzzle was put in place today with Obama mentioning that he might tap the Strategic Petroleum Reserve (SPR). He said as much in a speech he delivered on energy today in Michigan. Obama said "we should sell 70 million barrels of oil from our Strategic Petroleum Reserve for less expensive crude, which in the past has lowered gas prices within two weeks." Obama said many other things, such as investing in energy infrastructure, changes in the tax code to encourage energy conservation, and other ideas.

Additional impetus I believe for today's and the recent oil drop is coming from China's cutbacks on energy use amid efforts to cut pollution for the upcoming Olympic games. There were also likely bad longs betting on greater impact of the storm currently in the U.S. gulf than has thus far been the case.

Here is my the note I sent a number of weeks ago:

If Barrack Obama wins the presidency, the price of oil could fall $40 per barrel. The financial markets will discount the possibility before hand, at least partially

Kamis, 11 September 2008

New evidence has emerged that Democratic presidential candidate Barack Obama was closely associated as early as age 25 to a key adviser to a Saudi billionaire who had mentored the founding members of the Black Panthers.
In a videotaped interview this year on New York’s all news cable channel NY1, a prominent African-American businessman and political figure made the curious disclosures about Obama. (See Video Clip Below)
Percy Sutton, the former borough president of Manhattan, off-handedly revealed the unusual circumstances about his first encounter with the young Obama.
“I was introduced to (Obama) by a friend who was raising money for him,” Sutton told NY1 city hall reporter Dominic Carter.
“The friend’s name is Dr. Khalid al-Mansour, from Texas,” Sutton said. “He is the principal adviser to one of the world’s richest men. He told me about Obama.”
Sutton, the founder of Inner City Broadcasting, said al-Mansour contacted him to ask a favor: Would Sutton write a letter in support of Obama’s application to Harvard Law School?
“He wrote to me about him,” Sutton recalled. “And his introduction was there is a young man that has applied to Harvard. I know that you have a few friends up there because you used to go up there to speak. Would you please write a letter in support of him?”
Sutton said he acted on his friend al-Mansour’s advice.
“I wrote a letter of support of him to my friends at Harvard, saying to them I thought there was a genius that was going to be available and I certainly hoped they would treat him kindly,” Sutton told NY1.
Sutton did not say why al-Mansour was helping Obama, how he discovered him, or from whom he was raising money on Obama’s behalf.
A Sutton aide told Newsmax that Sutton, 88, is ailing and is unlikely to do additional TV interviews in the near future. The aide could not provide additional comment for this story.
As it turned out, Obama did attend Harvard Law School after graduating from Columbia University in New York and doing a stint as a community organizer in Chicago.
The New York Times described how transformative his Harvard experience became for the young Obama: “He arrived there as an unknown, Afro-wearing community organizer who had spent years searching for his identity; by the time he left, he had his first national news media exposure, a book contract and a shot of confidence from running the most powerful legal journal in the country.”
The details of Obama’s academic performance are well known: At Harvard, Obama rose to academic distinction becoming the editor of the Harvard Law Review and graduating magna cum laude.
Less known are the reasons al-Mansour, an activist African-American Muslim, would be a key backer for a young man from Hawaii seeking to attend the most Ivy of the Ivy League law schools.
Khalid al-Mansour a.k.a. Don Warden
In an exclusive interview with Newsmax from his home in San Antonio, Texas, al-Mansour said he would not comment specifically on the statement by Percy Sutton because he was afraid anything he said would get “distorted.”
“I was determined I was never going to be in that situation,” he said. “Bloggers are saying this is the new Rev. Wright — in drag! — and he is a nationalist, racist, and worse than Rev. Wright. So any statement that I made would only further this activity which is not in the interest of Barack.”
But in the lengthy interview, al-Mansour confirmed that he frequently spoke on university campuses, including Columbia, where Percy Sutton suggested he met Obama in the late 1980s, and confirmed his close relationship with Prince Alwaleed.
“I am not surprised to learn about this,” said Niger Innis, spokesman of the Congress of Racial Equality (CORE). “It is clear that Barack Obama’s ties to the left are familial, generational, and have lasted for several years.”
Although many Americans have never heard of Khalid Abdullah Tariq al-Mansour (his full name), he is well known within the black community as a lawyer, an orthodox Muslim, a black nationalist, an author, an international deal-maker, an educator, and an outspoken enemy of Israel.
A graduate of Howard University with a law degree from the University of California, al-Mansour sits on numerous corporate boards, including the Saudi African Bank and Chicago-based LaGray Chemical Co. LaGray, which was formed to do business in Africa, counts former Nigerian President General Abdusalam Abubakar on its advisory board.
He also sits on the board of the non-profit African Leadership Academy, along with top McCain for President adviser Carly Fiorina, and organized a tribute to the President of Ghana at the Clinton White House in 1995, along with pop star Michael Jackson.
But his writings and books are packed with anti-American rhetoric reminiscent of the Rev. Jeremiah Wright, Obama’s disgraced former pastor.
In a 1995 book, “The Lost Books of Africa Rediscovered,” he alleged that the United States was plotting genocide against black Americans.
The first "genocide against the black man began 300 years ago," he told an audience in Harlem at a book-signing, while a second "genocide" was on the way “to remove 15 million Black people, considered disposable, of no relevance, value or benefit to the American society.”
In the 1960s, when he founded the African American Association in the San Francisco Bay area, he was known as Donald Warden.
According to the Social Activism Project at the University of California at Berkley, Warden, a.k.a. Khalid al-Mansour, was the mentor of Black Panther Party founder Huey Newton and his cohort, Bobby Seale.
Newton later had a falling out with Warden, who was described in a 1994 book as “the most articulate spokesperson for black nationalism” at the time.
The falling out wasn’t purely political, according to author Hugh Pearson.
“Sometimes Newton and the other members of (Warden’s) security detail got into fights with young whites who didn’t like what Warden had to say about whites. Rather than ‘throw down’ along with the security detail, Warden refused to fight,” Pearson wrote in “Shadow of the Panther: Huey Newton and the Price of Black Power in America.”
U.S. Rep. Barbara Lee of California entered an official statement of appreciation of Warden and his Black Panther colleagues in the African-American Association in the Congressional Record on April 23, 2007.
“Among the founding members (of the Association) were community leaders such as Khalid Al-Mansour (known then as Don Warden); future Judges Henry Ramsey and Thelton Henderson; future Congressman and Oakland Mayor Ron Dellums, and future Black Panthers Huey Newton and Bobby Seale,” the Democratic representative’s statement said.
Al-Mansour’s more recent videotaped speeches focus on Muslim themes, and abound with anti-Semitic theories and anti-Israel vitriol.
“Today, the Palestinians are being brutalized like savages,” he told an audience in South Africa. “If you protest you will go to jail, and you may be killed. And they say they are the only democratic country in the Middle East. ... They are lying on God.”
He accused the Jews of “stealing the land the same way the Christians stole the land from the Indians in America.”
The Saudi Connection
But al-Mansour’s sponsorship of Obama as a prospective Harvard law student is important for another reason beyond his Islamic and anti-American rhetoric and early Black Panther ties.
At the time Percy Sutton, a former lawyer for Malcolm X and a former business partner of al-Mansour, says he was raising money for Obama’s graduate school education, al-Mansour was representing top members of the Saudi Royal family seeking to do business and exert influence in the United States.
In 1989, for example — just one year after Obama entered Harvard Law School — The Los Angeles Times revealed that al-Mansour had been advising Saudi billionaires Abdul Aziz and Khalid al-Ibrahim in their secret effort to acquire a major stake in prime oceanfront property in Marina del Rey, Calif., through “an elaborate network of corporate shells in California, the Caribbean and Europe.”
At the same time, he was also advising Prince Alwaleed bin Talal in his U.S. investments, and sits on the board of his premier investment vehicle, Kingdom Holdings.
Prince Alwaleed, 53, is the nephew if King Abdallah of Saudi Arabia. Forbes magazine ranked him this year as the 19th richest person on the planet, with a fortune in excess of $23 billion. He owns large chunks of Citigroup and News Corp., the holding company that controls Fox News.
He is best known in the United States for his offer to donate $10 million to help rebuild downtown Manhattan after the 9/11 attacks. But after the prince made a public comment suggesting that U.S. policies had contributed to causing the attacks, Mayor Rudy Giuliani handed back his check.
"I entirely reject that statement," Giuliani said. "There is no moral equivalent for this (terrorist) act. There is no justification for it. The people who did it lost any right to ask for justification for it when they slaughtered 4,000 or 5,000 innocent people.”
Since then, Prince Alwaleed’s Kingdom Foundation has given millions of dollars to Muslim charities in the United States, including several whose leaders have been indicted on terrorism-related charges in federal courts.
He also has given tens of millions of dollars to Harvard and other major U.S. universities, to establish programs in Islamic studies.
The casual statement by Percy Sutton to NY1 is the first time anyone has hinted at a relationship between Obama and the Saudi royal family.
Although al-Mansour glosses over his ties to the Saudi mega-billionaire in some of his public talks, he has represented the Saudi’s interests in the United States, in Britain, and in Africa for more than a quarter century, according to public records.
He told Newsmax that he has personally introduced Prince Alwaleed to “51 of the 53 leaders of Africa,” traveling from country to country on the Saudi prince’s private jet.
He knows virtually every black leader in America, from the business community, to community activists, to the worlds of politics and entertainment.
When Michael Jackson was on the ropes in the mid-1990s following a series of lawsuits by the parents of children accusing him of sexual abuse, al-Mansour introduced him to Prince Alwaleed, whose Kingdom Entertainment signed a joint venture with Jackson in 1996.
“Jackson and Alwaleed became pals in 1994, when a mutual friend from Alwaleed's college days in California arranged a lunch meeting aboard the prince's yacht in Cannes,” Time magazine reported about the new partnership in 1997.
The mutual friend was al-Mansour.
“As a black American, I am exceedingly proud at the American people’s response to Barack Obama’s candidacy,” said CORE’s Niger Innis. “But to deny that he has long-standing ties to left-wing elements in our polity is to deny reality. If you want to be president of the United States, it is not racism if you ask these kind of questions, and he has to come up with an answer, hopefully the truth.”
Sutton gives no clues as to why al-Mansour would be raising money to help Obama go to law school. Obama has said during his campaign that he paid his way through Harvard with student loans.
For Jesse Lee Peterson, founder of the Los Angeles-based Brotherhood Organization of a New Destiny (BOND), these latest revelations about Obama’s ties to Saudi financiers were an important wake-up call.
“To me, this opened up more questions about Barack Obama and his relationship to the Muslim world,” Peterson told Newsmax.
“A lot of people are caught up with the emotional aspect of Barack Obama, the movie star aspect, the false promises that he’s going to take care of everyone and their Mama.”
But when the full story of Obama’s ties to radical preachers such as Wright and to black Muslim leader Louis Farrakhan comes out, Peterson believes that Obama’s star power will fade.
“I think there’s more to this story and to Barack Obama than we realize,” Peterson said. “As all the truth comes out before the election, I don’t think he has a chance. I can’t see American’s taking that kind of risk.”
The Obama campaign did not respond to requests for comment.
Percy Sutton Reveals Association Between Khalid al-Mansour and Obama at Age 25

Kamis, 04 September 2008

Wall Street bailout aid questioned at Fed event

Fed conference speakers say US central bank too responsive to Wall Street on bailout issues JACKSON, Wyo. (AP) -- Do Washington policymakers listen too much to Wall Street? A possible bailout of Fannie Mae and Freddie Mac, on the heels of similar action involving investment firm Bear Stearns, seems to send a loud signal to financial companies that the government will clean up their messes.

economics conference. The Federal Reserve's handling of the worst financial crisis to hit the country in decades spurred much debate.

"The Fed listens to Wall Street," said Willem Buiter, professor of European political economy at the London School of Economics and Political Science. "Throughout the 12 months of the crisis, it is difficult to avoid the impression that the Fed is too close to the financial markets and leading financial institutions, and too responsive to their special pleadings, to make the right decisions for the economy as a whole," he wrote in a paper presented to the conference.

Critics like Buiter worry that the Fed's unprecedented actions -- including financial backing for JPMorgan Chase & Co.'s takeover of Bear Stearns Cos. -- are putting taxpayers on the hook for billions of dollars of potential losses. They also say it encourages "moral hazard," that is, allowing financial companies to gamble more recklessly in the future.

Fed Chairman Ben Bernanke, who spoke to the conference on Friday, defended the Fed's actions, saying they were "necessary and justified" to avert a meltdown of the entire financial system, which would have devastated the U.S. economy.

Yet, Bernanke also acknowledged that mitigating moral hazard is one of the critical challenges policymakers face as they weigh steps -- including strengthening regulation -- to make the financial system better able to withstand shocks down the road.

"If no countervailing actions are taken, what would be perceived as an implicit expansion of the safety net could exacerbate the problem of `too big to fail,' possibly resulting in excessive risk-taking and yet greater systemic risk in the future," Bernanke said.

At the start of the conference, on Thursday night, Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, which sponsored the forum, gave Bernanke a white hard hat -- like those worn by construction workers -- in case he needed protection from critics during the sessions.

Even as Bernanke and others discussed these thorny issues, concern on Wall Street grew about the financial health of Fannie Mae and Freddie Mac. Investors are becoming increasingly convinced that a government bailout of the mortgage giants will be inevitable. Those fears hammered the companies stocks again this week.

The Treasury Department, under a new law enacted last month, has the power to inject the companies with huge amounts of cash -- through loans or buying stock in them.

"It creates a troubling perception when Washington policymakers appear to be hitting the fast-forward button when major institutions are on the line but are between the pause and the slow-motion button when massive home foreclosures are on the line," said Gene Sperling, a former official in the Clinton administration and now a senior fellow for economic studies at the Council on Foreign Relations.

The roots of the current crisis can be traced to lax lending for home mortgages -- especially subprime loans given to borrowers with tarnished credit -- during the housing boom. Lenders and borrowers were counting on home prices to keep rising. But when the housing market went bust, home prices plummeted in many areas of the country. Foreclosures spiked as people were left owing more on their mortgage than their home was worth. Rising rates on adjustable mortgages also clobbered some homeowners.

"Market participants failed to soundly manage, measure and disclose risks, with ignorance, greed or hubris playing their customary roles," said Mario Draghi, the governor of the Bank of Italy, who is involved in international efforts to deal with the worldwide financial crisis.

As U.S. financial companies racked up multibillion-dollar losses on soured mortgage investments, and credit problems spread globally, firms hoarded cash and clamped down on lending. That has crimped consumer and business spending, dragging down the national economy -- a vicious cycle the Fed has been trying to break.

To brace the wobbly economy, the Fed has slashed its key interest rate by a whopping 3.25 percentage points, the most aggressive rate-cutting campaign in decades. Yet, those cuts also aggravated inflation. Some wonder whether the Fed made money too cheap, something that could feed into other bubbles in the future.

"The alarms of the financial sector have been overstated. The real economy has slowed down but is not yet in severe difficulty," said C. Fred Bergsten, director of the Peterson Institute for International Economics.

Anil Kashyap, professor of economics and finance at the University of Chicago's Graduate School of Business, however, said the Fed did the right thing. "It headed off disaster. The history of financial crises tells you the economy doesn't get sick the next week. It takes a while."

In fact, a growing number of analysts believe the economy could hit a deep pothole later this year as the bracing impact of the government's tax rebate checks wears off.

The Fed also has taken a number of unconventional -- and some controversial -- actions to shore up the shaky financial system and to get credit, the economy's lifeblood, flowing more freely. It agreed in March to let investment houses draw emergency loans directly from the central bank. And, in July, the Fed said Fannie Mae and Freddie Mac also could tap the program. For years, such lending privileges were extended only to commercial banks, which are subject to stricter regulatory supervision.

In providing financial backing to JP Morgan's takeover of Bear Stearns, the Fed worried that the investment house's collapse could cascade, taking down others. But some were skeptical.

"In the case of Bear Stearns it is not clear from publicly available information how much contagion there would have been had it been allowed to fail," according to a paper presented at the conference by Franklin Allen, professor at the University of Pennsylvania, and Elena Carletti, professor at the University of Frankfurt.

Minggu, 24 Agustus 2008

Kuwait kicks sand on the dollar

Kuwait recently waved goodbye and stopped pegging its currency to the U.S. dollar. Here's why Kuwait pulled out and what the weakening dollar means to your wallet.
The U.S. dollar took a big hit last week. From Kuwait. On May 20, Kuwait stopped pegging its currency, the dinar, to the U.S. dollar.
You know your currency has become a 98-pound weakling when Kuwait can kick sand on it.
Even worse, Kuwait wasn't acting out of any animus toward the United States. The tiny kingdom wedged between Iraq and Saudi Arabia remains a U.S. ally. So the country wasn't trying to make any political point. It had simply become too expensive for Kuwait to keep the dinar linked to the dollar. I expect other countries, not tomorrow but soon, to take the same action. And that will be just one more milestone in the decline of the dollar.
You should care about that in the short run because a dollar declining in both price and prestige makes everything from imported goods to home mortgages more expensive in the United States.
In the long run, Kuwait's action is just one more piece of evidence that the world is increasingly working with an ad hoc monetary system where each country attempts to extract momentary advantage from exchange rates.
A careful decision Here are the bare-bone facts. On May 20, Sheikh Salem Abdulaziz Al-Sabah, governor of the Central Bank of Kuwait, announced that his country would end the peg that linked the Kuwaiti dinar to the U.S. dollar. Up until that point, the central bank had managed the dinar, intervening in the currency markets as required, to keep its price within 3.5% of the price of the U.S. dollar. Going forward, the bank will use a basket of currencies to set the price of the dinar. According to the bank, the U.S. dollar is likely to make up about 75% of that new currency basket. In effect, the move reduces the country's exposure to the U.S. dollar by about 25%.
Kuwait's central bank didn't make this decision lightly. A small country -- even a small, rich country such as Kuwait -- faces a daunting task if it decides to go it alone in the global currency markets. Currency speculators have access to so much capital these days that they can easily overwhelm the efforts of a central bank like that of Kuwait and run the value of a currency massively higher or lower. Actually, that can happen to not-so-small countries, too. In 1992, currency traders drove the English pound down and out of the European Exchange Rate Mechanism, creating billions in profits for traders such as George Soros, who had shorted the pound.

Jumat, 15 Agustus 2008

Indonesian rupiah

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Indonesian rupiah rupiah Indonesia (Indonesian)
Rupiah banknotes, only the Rp 1000 and Rp 5000 notes are current
ISO 4217 Code	IDR
User(s)	Indonesia
Inflation	10.38 %
Source	Bank Indonesia, May 2008
Subunit
1/100	sen
Symbol	Rp
Coins
Freq. used	Rp 100, 200, 500
Rarely used	Rp 25, 50, 1000
Banknotes
Freq. used	Rp 1000, Rp 5000, Rp 10 000, Rp 20 000 Rp 50 000, Rp 100 000
Central bank	Bank Indonesia
Website	www.bi.go.id

The rupiah (Rp) is the official currency of Indonesia. Issued and controlled by the Bank of Indonesia, the ISO 4217 currency code for the Indonesian rupiah is IDR. The symbol used on all banknotes and coins are Rp. The name derives from the Indian monetary unit rupee. Informally, Indonesians also use the word "perak" ('silver' in Indonesian) in referring to rupiah. The rupiah is subdivided into 100 sen, although inflation has rendered all coins and banknotes denominated in sen obsolete.

The Riau islands and the Indonesian half of New Guinea (Irian Barat) had their own variants of the rupiah, but these were subsumed into the national rupiah in 1964 and 1971 respectively (see Riau rupiah and West New Guinea rupiah).

Contents [hide] 1 Current legal tender 1.1 Coins 1.2 Banknotes 1.2.1 Security features 2 History of the Indonesian Rupiah 2.1 1600-1942 - Dutch Colonial Money 2.2 1942 - 1949 Japanese Invasion, and Indonesian independence - the dawn of hyperinflation in Indonesia 2.2.1 The Japanese Invasion 2.2.2 Dutch/Allied re-occupation 2.2.3 First notes of the Republic of Indonesia 2.2.4 Dutch money of 1947-1949 2.2.5 Local banknotes of Republic of Indonesia, 1947-1949 2.2.6 Banknote series of the Republic of Indonesia, 1945-1949 2.2.6.1 Republic of Indonesia banknotes - series 1, '1945' 2.2.6.2 Republic of Indonesia banknotes, Series 2, '1 January 1947' 2.2.6.3 Republic of Indonesia banknotes, Series 3, '26 July 1947' 2.2.6.4 Republic of Indonesia banknotes, Series 4, '23 August 1948' 2.3 1950-1952 Indonesian independence recognised. Central bank: De Javasche Bank 2.3.1 The Sjafruddin cut 2.3.1.1 Indonesia De Javasche Bank notes 2.3.2 Republik Indonesia Serikat money 2.3.3 Nationalisation of De Javasche Bank - transformation to Bank Indonesia 2.4 Sen coinage: 1951-1961 2.5 1953-1958: Bank Indonesia born 2.5.1 1953-1954: First notes of Bank Indonesia 2.5.2 1958-1959 Animals series - Second Series of Banknotes of Bank Indonesia 2.6 1959-1965: currency devaluation and spiralling inflation 2.6.1 1959: First Indonesian-designed notes, the 'handicrafts' series 2.6.2 1960: Thomas De La Rue flowers and birds banknotes 2.6.3 1960-1961: Government banknotes 2.6.4 1961-1964: Complete handicrafts series 2.6.5 1965: Updates to the crafts notes 2.7 1965 onwards - 'new rupiah': the 1000 to 1 revaluation of the rupiah 2.7.1 1965-1968: First series of banknotes ('Soekarno') of the 'new rupiah' 2.7.2 1968-1970: Second series of banknotes ('Sudirman') of the 'new rupiah' 2.7.3 1971-1973: reintroduction of coins to Indonesia 2.7.4 Diponegoro series '1975' 2.7.5 1976-1978: Banknote series 3 of the new rupiah 2.7.6 1978-1979: Updated coinage 2.7.7 1979-1982: Banknote Series 4 of the new rupiah 2.7.8 1985-1988: Banknote series 5 of the new rupiah 2.7.9 1991-1993: Updated coinage 2.7.10 1992: series six banknotes of the new rupiah 2.7.11 1993: Soeharto commemorative 50,000 rupiah 2.7.12 1995: addition of security thread to top 1992/1993 banknotes 2.7.13 1997-1998: Coin revisions 2.7.14 1998-1999: post financial crisis banknotes 2.7.15 2000-2005: redesigns to all of Indonesia's denominations of banknotes 2.7.16 2003: Coin revisions 3 Exchange Rate and inflation 3.1 1946-1949 revolutionary period 3.2 1949-1965 foreign exchange restrictions 3.3 1966-1971 stabilization and growth 3.4 Fixed rate period 1971-1978 3.5 Managed Float period 1978-1997 3.5.1 1978-1986 devaluations 3.5.2 October 1986-June 1997: US$ real exchange parity 3.6 Asian Financial Crisis (and response) 1997-1999 3.6.1 First stage of the crisis - limited initial falls 3.6.2 Response to the falls - crisis 3.7 Rupiah since 1999: relative stability 4 Commemorative coins 5 See also 6 References 7 External links

Current legal tender

The current rupiah consists of coins from 25 rupiah up to 1,000 rupiah, and from banknotes of 1,000 rupiah up to 100,000 rupiah. With US$1 generally worth 9-10,000 rupiah, the largest Indonesian banknote is therefore worth around US$10.

As the smallest current note is worth approximately US$0.10, even small transactions such as bus fares are typically conducted with notes, and the 1,000 rupiah note is far more common than the 1,000 rupiah coin. The government has however announced a change to this, with a new 2000 rupiah note to be issued in Q2 2008, and the 1000 rupiah note withdrawn, to be replaced with a coin.[1] The measure is intended to cut the cost of issuing money. Hence denominations up to 1000 (~$0.10) would be handled in coin, and from 2000 (~$0.20) and up in notes.

Pre-1997 notes are no longer legal tender, due to the lack of security features and association with the Suharto regime, but can be exchanged in Bank Indonesia offices until 2010.[2] Due to the low value of the notes below 1000 rupiah, although they are no longer being circulated, some remain in use in increasingly poor condition, as low denomination 'uang pasar', outside the banking system for use in informal transactions.

The 10,000 rupiah notes and above all exist in two legal tender designs. However, the 2004 and 2005 series are gradually replacing the 1998 and 1999 series.

The central bank plans to issue a 2,000 rupiah banknote in a near term.

Coins

From 1991, a new coinage was introduced consisting of 25, 50, 100, 500 and 1000 rupiah coins. 200 rupiah pieces were introduced in 2003.

There are presently two series of coins in circulation: aluminium bronze and bi-metallic coins from 1991-1998 and light-weight aluminium coins from 1999 onwards. Due to the low value and general shortage of small denomination coins (below 100 rupiah), it is common to receive sweets in lieu of the last few rupiah of change in supermarkets and stores^{[citation needed]}.

Indonesian rupiah coins [3]
Value	Series	Diameter	Thickness	Weight	Material	Obverse	Reverse	Availability
Rp 1	1970	22 mm	1.4 mm	1.42 g	Aluminium	Sikatan Bird	Nominal "1"	None (Worth ~$0.0001)
Rp 25	1991	18 mm	1.98 mm	1.22 g		Garuda Pancasila	Nutmeg Fruit and nominal "25"	Low
Rp 50	1999	20 mm	2 mm	1.36 g			Nominal "50" and Kepodang Bird	High
Rp 100	1999	23 mm	2 mm	1.79 g			Nominal "100" and Palm Cockatoo Bird
Rp 200	2003	25 mm	2.3 mm	2.38 g			Nominal "200" and Bali Starling Bird
Rp 500	1991	24 mm	1.8 mm	5.29 g	Aluminium Bronze		Nominal "500" and Jasmine Flower	Low
	1997		1.83 mm	5.34 g				Medium
	2003	27 mm	2.5 mm	3.1 g	Aluminium			High
Rp 1,000	1993	26 mm	2 mm	8.6 g	Bi-metal, Nickel and Aluminium Bronze		Palm Tree and nominal "1000"	Low

Banknotes

There are two legal tender series of Indonesian banknotes, the 1998-2001 series, which consists of the full range of denominations: 1000, 5000, 10000, 50000 and 100000 rupiah, and the 2004, 2005 updates of the higher denominations (10000 and above), with better anti-forgery devices.

Rupiah notes '1998', '1999', '2000', '2001' series

Image

Value

Dimensions

Main Colour

Description

Date of

Remarks

Obverse

Reverse

Obverse

Reverse

Watermark

Signatures

Printer

Serial

issue

note series

first of denomination

replacement

1000 rupiah

141 × 65 mm

Blue and green

Captain Pattimura

Mutiara and Tidore Islands, with fisherman

Tjut Njak Meutia

Anwar Nasution (Deputy Governor Senior), Aulia Pohan (Deputy Governor)

Perum Peruri

3 letters, 6 numbers

29th November 2000

'2000'

20th February 1967

Still being issued

Carries imprint date 2000-2008

5000 rupiah

143 × 65 mm

Brown and green

Tuanku Imam Bonjol

Songket weaver, Tanah Datar

Syahril Sabirin (Governor), Miranda S. Goeltom (Deputy Governor)

6th November 2001

'2001'

2nd April 1970

Carries imprint date 2001-2008

10000 rupiah

148 × 72 mm

Brown

Tjut Njak Dhien

Segara Anak Lake

Wage Rudolf Soepratman; security thread

J. Soedradjad Djiwandono (Governor), Mukhlis Rasyid (Director)

18th February 1998

'1998'

Carries imprint date 1998-2004

20000 rupiah

152 × 72 mm

Green

Ki Hadjar Dewantara

Children in classroom

Ki Hadjar Dewantara; security thread

J. Soedradjad Djiwandono (Governor) Mukhlis Rasyid (Director)

23rd January 1998

10th February 1992

Carries imprint date 1998-2003

50000 rupiah

Green and violet

WF Soepratman

Indonesian flag being raised

Omar Said Tjokroaminoto; security thread

Syahril Sabirin (Governor), Dono Iskandar Djojo (Deputy Governor)

1st June 1999

'1999'

1st March 1993

Carries imprint dates 1999-2004

100000 rupiah

151 × 65 mm

Red, yellow, green and blue

Sukarno and Hatta, proclamation of independence

Indonesian Parliament building, Jakrta

Garuda Pancasila and the logo of Bank Indonesia ; security thread

Syahril Sabirin (Governor), Iwan R. Prawiranata (Deputy Governor)

Note Printing Australia; Note Printing Works Bank of Thailand

1st November 1999

First of denomination

No imprint date; phosphorus number for security

These images are to scale at 0.7 pixels per millimetre, a Wikipedia standard for world banknotes. For table standards, see the banknote specification table.

Rupiah notes '2004', '2005' series, Printed Perum Peruri

Image

Value

Dimensions

Main Colour

Description

Date of

Remarks

Obverse

Reverse

Obverse

Reverse

Watermark

Signatures

Serial

note series

issue

10000 rupiah

145 × 65 mm

Purple

Sultan Mahmud Badaruddin II

The traditional Limas House of Palembang, South Sumatra

Sultan Mahmud Badaruddin II

Burhanuddin Abdullah (Governor) Bun Bunan E.J. Hutapea (Deputy Governor)

3 letters, 6 numbers

'2005'

18th October 2005

Imprint 2005-2008

20000 rupiah

147 × 65 mm

Green

Otto Iskandar Di Nata

Tea plantation, West Java

Otto Iskandar Di Nata

Burhanuddin Abdullah (Governor), Maulana Ibrahim (Deputy Governor)

'2004'

29th December 2004

Imprint 2004-2008

50000 rupiah

149 × 65 mm

Blue

I Gusti Ngurah Rai

Beratan Lake in Bali

I Gusti Ngurah Rai

Burhanuddin Abdullah (Governor), Maman H. Soemantri (Deputy Governor)

'2005'

18th October 2005

Imprint 2005-2008

100000 rupiah

151 × 65 mm

Red

As 1999

WR Supratman

Burhanuddin Abdullah (Governor), Aulia Pohan (Deputy Governor)

'2004'

29th December 2004

Imprint 2004-2008

These images are to scale at 0.7 pixels per millimetre, a Wikipedia standard for world banknotes. For table standards, see the banknote specification table.

Security features

Collection of 50,000 rupiah bills clearly displaying the security threads.

• The materials of the banknotes basically are long fibres from any kind of wood, or a mix of different types of wood. However, the preferable material is the Abaca fibre, which is naturally plentiful in Indonesia and is believe to increase the durability of the banknotes. The banknotes are made with the process of heating, to create a unique type of pulp.

• The minimum security features for naked eyes are watermarks, electrotypes and security threads with color fibres. In addition to this, extra features may be included, such as holograms, Irisafe, iridescent stripes, clear windows, metameric windows and gold patches.
  • Watermark and Electrotype are made by controlling the gap of density of the fibres which create certain images for the banknotes. This is done to raise the quality of the notes from the aesthetic view.
  • Security threads are put in the middle of the note's materials so horizontal and vertical lines are shown from top to bottom. The threads also can be made with many variations such as the materials, size, color and design.

Selasa, 12 Agustus 2008

EURODOLLAR

Eurodollar Futures Contract

The Eurodollar futures contract refers to the financial futures contract based upon these deposits, traded at the Chicago Mercantile Exchange (CME) in Chicago. Each CME Eurodollar futures contract has a notional or "face value" of $1,000,000, though the leverage used in futures allows one contract to be traded with a margin of just hundreds of dollars. Trading in Eurodollar futures is extensive, thus offering uniquely deep liquidity. Prices are quite responsive to Fed policy, inflation, and other economic indicators.

CME Eurodollar futures prices are determined by the market’s forecast for the delivery month of the 3-month USD LIBOR interest rate. The futures prices are derived by subtracting that implied interest rate (yield) from 100.00. For instance, an anticipated interest rate of 5.00 percent will translate to a futures price of 95.00. However, the price in practice, the settlement price, is higher than the quoted price to reflect a lower return for 3 months instead of one year. This 95 dollar future, is actually traded at 98.75 (100-5.00/4). And one future contract is traded at $987,500. On the expiry day of a contract, the contract is valued using the current fixing of 3-month LIBOR.

[edit] How the Eurodollar futures contract works

For example: If you are a buyer of a single 95.00 quoted contract(anticipated future interest rate is 5%), if

at expiration - the interest rate has risen to 6.00%

  contract will be quoted at 94.00
     the buyer compensates the seller 25¢ on each $100 in the $1,000,000 valued contract.
     You pay $2,500.

at expiration - the interest rate has fallen to 4.00%

  contract will be quoted at 96.00
     the seller compensates the buyer 25¢ on each $100 in the $1,000,000 valued contract.
     You receive $2,500.

The buyer of one Eurodollar future contract agrees to buy 1 million dollar for the price determined now (the price in practice) 3 months prior to get back the 1 million. In other words, the buyer agrees to be the lender in the future with a predesignated discount rate today. At expiration, usually the buyer chooses not to deliver the loan, and instead accept a differential cash flow - either positive or negative- to compensate the seller for selling/borrowing it on the spot market. For example, the 95 dollar contract at expiration comes to $94, settlement price $98.5, the buyer compensates the seller 25c per $100, $2,500 per contract so that the seller can now sell/borrow 100 dollar in 3 months at market price/market available loan $98.50/$100 with 25c/$100 at hand as if selling/borrowing it at the predesignated $98.75. On the other hand, the buyer can now buy $100 in 3 months at the market but still pays $98.75/$100=$98.50/$100+$.25/$100. If Eurodollar rises to $96, the opposite cash flow with occur to transfer current market price to predetermined price. In both cases, one percent interest rate change brings both parties $2,500 either win or loss per contract. Hence .01 percent (called 1 basis point) interest rate change generates $25 win or loss per contract. As we often see in economic news, interest rate always comes in two decimal percentages like 3.75% or 3.50%. And the size of one Eurodollar contract ensures settlement in an integer of dollars.

As with other fixed rate instruments, if the yield rises, the price of the futures contract falls, and vice versa. If you believe that interest rates will fall, you would then buy a CME Eurodollar futures contract because you expect the contract price to rise (and vice versa; if you believe rates will rise, you would sell or short-sell a CME Eurodollar futures contract because you expect the contract price to fall). This retains the normal inverse relationship between the price and the yield of interest rate securities. However, the bond convexity is not maintained due to the pricing of the Eurodollar contracts in yield terms.

40 quarterly expirations and 4 serial expirations are listed in the Eurodollar contract. ^[3] This means that on January 1, 2008, the exchange will list 40 quarterly expirations (March, June, September, December for 2008 through 2017), the exchange will also list another four serial (monthly) expirations (January, February, April, May 2008). This extends tradeable contracts over ten years, which provides an excellent picture of the shape of the yield curve. The front month contracts are among the most liquid futures contracts in the world, with liquidity decreasing for the further out contracts. Total open interest for all contracts is typically over 10 million.

The CME Eurodollar futures contract is used to hedge interest rate swaps. There is an arbitrage relationship between the interest rate swap market, the Forward Rate Agreement market and the Eurodollar contract. CME Eurodollar futures can be traded by implementing a spread strategy among multiple contracts to take advantage of movements in the forward curve for future pricing of interest rates.

Eurodollar contracts are extremely popular due to their ability to accurately hedge the mortgage market debt. The correlation with mortgage market debt is extremely high, higher than the CBOTs Treasury Futures contracts.

In the past, the minimum price fluctuation of a Eurodollar futures price was 0.01 (for example, a price change from 96.44 to 96.45). A price change of 0.01 is referred to as a "tick" and represents a change in yield of a basis point. The exchange has reduced over time the minimum price fluctuation of the contract because of increasing liquidity. As of December 2007, these are 0.0025 (a quarter tick) for the nearest expiring month and 0.005 (a half tick) for all other months.^[3] This notation is confusing because strictly one tick is defined as the minimum price fluctuation of a futures contract.

A tick in CME Eurodollar futures is worth $25.00, based on the $1,000,000 notional value of this contract, as calculated below:

$1,000,000 notional value x .0001 (one basis point) x 90/360 (three month) deposit period = $25.00

History

United States one-dollar bill

One New Taiwan dollar

Australian one-dollar coin

500 old Zimbabwean dollars

The German name Thaler came from the Bohemian coin minted from the silver from a rich mine at Joachimsthal - Jáchymov (St. Joachim's Valley) in Bohemia. Not long after issuance, these coins gained the name Joachimsthalers. From there, coins gained the name "thaler" regardless of the issuing authority. The basis of "thaler" comes from Joachimsthaler.^[1] The name is historically related to the tolar, in Germany Reichsthaler, Slovenia (Slovenian tolar) and Bohemia, the daalder in the Netherlands and daler in Sweden, Denmark, and Norway. "Guildiner" can be traced to 1486 when Archduke Sigismund of Tyrol, a small state north of Venice, issued a dollar-sized coin which was referred to as a "guildiner". Silver supplies were small which limited coinage.^[2]

The Dutch lion dollar circulated throughout the Middle East and was imitated in several German and Italian cities. It was also popular in the Dutch East Indies as well as in the Dutch New Netherlands Colony (New York). The lion dollar also has circulated throughout the English colonies during the 17th and early 18th centuries. Examples circulating in the colonies were usually fairly well worn so that the design was not fully distinguishable, thus they were sometimes referred to as "dog dollars."^[3] This Dutch currency made its way to the east coast due to the increased trading by colonial ships with other nations. By the mid-1700s, it was replaced by the Spanish 8 reales.^[4]

The name "Spanish dollar" was used for a Spanish coin, the "real de a ocho" and later peso, worth eight reals (hence the nickname "pieces of eight"), which was widely circulated during the 18th century in the Spanish colonies in the New World and in Spanish territories in Asia, namely in the Philippines.The use of the Spanish dollar and the Maria Theresa thaler as legal tender for the early United States and its fractions were the mainstay of commerce. They are the reasons for the name of the nation's currency.^{[citation needed]} By the American Revolution in 1775, these Spanish currency became even more important. They were backed by paper money authorized by the individual colonies and the Continental Congress.^[4] However, the word dollar was in use in the English language as slang or mis-pronunciation for the thaler for about 200 years before the American Revolution, with many quotes in the plays of Shakespeare referring to dollars as money. Spanish dollars were in circulation in the Thirteen Colonies that became the United States, and were legal tender in Virginia.

Coins known as dollars were also in use in Scotland during the 17th century, and there is a claim that the use of the English word, and perhaps even the use of the coin, began at the University of St Andrews. This explains the sum of 'Ten thousand dollars' mentioned in Macbeth (Act I, Scene II), although the real Macbeth upon whom the play was based lived in the 11th century, making the reference anachronistic; however this is not rare in Shakespeare's work.

In the early 19th century, a British five-shilling piece, or crown, was sometimes called a dollar, probably because its appearance was similar to the Spanish dollar. This expression appeared again in the 1940s, when U.S. troops came to the UK during World War II. At the time a U.S. dollar was worth about 5s., so some of the U.S. soldiers started calling it a dollar. Consequently, they called the half crown "half a dollar", and the expression caught on among some locals and could be heard into the 1960s.

In the early days of the United States, the term "Dollar" was commonly known as a coin minted by Spain called the Spanish Milled Dollar. These coins were the standard money then in use in the country. On April 2, 1792 Alexander Hamilton, then the Secretary of the Treasury, made a report to congress that were the result of his task to scientifically determine the amount of silver in the Spanish Milled Dollar coins that were then in current use by the people. As a result of this report, the Dollar was defined (See the Act of April 2, A.D. 1792 of the Senate and House of Representatives of the United States of America in Congress assembled, Section 9) as a unit of measure of 371 4/16th grains of pure silver or 416 grains of standard silver. (Standard silver being defined as 1,485 parts fine silver to 179 parts alloy; See Section 13 of the Act.). Therefor paper is not the dollar, instead, it is 'worth', not 'is', 1 dollar (U.S Silver certificate.) In section 20 the Act, it is specified that the "money of account" of the United States shall be expressed in those same "dollars" or parts thereof. All of the minor coins were also defined in terms of percentages of the primary coin the dollar such that a half dollar contained 1/2 as much silver as a dollar, quarter dollars, 1/4th etc. In an act passed on January 18, 1837 the alloy was changed to 10% thus having the effect of containing the same amount of silver but being reduced in weight to 412 1/4 grains of standard silver which was changed to 90% pure and 10% alloy. On February 21, 1853 the amount of silver in the fractional coins was reduced so that it was no longer possible to combine the fractional coins to come up with the same amount of silver that was in the dollar. Various acts have been passed over the years that affected the amount and type of metal in the coins minted by the United States such that today, there is no legal definition of the term "Dollar" to be found in any Statute of the United States. [Sources for this paragraph include the United States Statutes at Large, A Guide Book of United States Coins by R.S. Yeoman, MONEY - Ye shall have honest weights and measures by James E. Ewart.]

Today the closest definition to a dollar comes from the United States code Title 31, Section 5116, paragraph b, subsection 2, "The Secretary [of the Treasury] shall sell silver under conditions the Secretary considers appropriate for at least $1.292929292 a fine troy ounce." However Federal Reserve banks are only prejudiced to deliver tax credits instead of money. The silver content of U.S. coinage was mostly removed in 1965 and the dollar essentially became a baseless free-floating fiat currency; though the U.S. Mint continues to make silver $1 bullion coins at this weight. It is believed that the original green color and other specific designs of a paper dollar were introduced by 2 Armenian brothers from Massachusetts who were Near-Eastern immigrants.^{[citation needed]}

Continued Chinese demand for silver led several countries, notably the United Kingdom, United States, and Japan to mint trade dollars in the 19th and early 20th centuries, often of slightly different weights to their domestic coinage. Silver dollars reaching China (whether Spanish, Trade, or other) were often stamped with Chinese characters known as "chop marks" which indicated that that particular coin had been assayed by a well-known merchant and determined genuine.