Central banks shift reserves away from US

Financial Times ^ | January 24 2005 00:03 | By Chris Giles

[JFK_Lib]

Central banks are shifting reserves away from the US and towards the eurozone in a move that looks set to deepen the Bush administration's difficulties in financing its ballooning current account deficit.

In actions likely to undermine the dollar's value on currency markets, 70 per cent of central bank reserve managers said they had increased their exposure to the euro over the past two years. The majority thought eurozone money and debt markets were as attractive a destination for investment as the US.

The findings emerge from a survey of central bank reserve managers published today and conducted between September and December of last year. About 65 central banks, controlling assets worth $1,700bn, took part and the results showed a marked change in attitude over the past two years.

Any rebalancing of central bank reserve portfolios has serious implications for the global financial system as the US has become increasingly dependent on official flows of funds to finance its current account deficit, estimated at $650bn in 2004.

At the end of 2003, central banks held 70 per cent of their official reserves in dollar- denominated assets and central bank purchases of US securities had financed more than 80 per cent of the the US current account deficit in 2003.

[Elsie]

And this affects me how???

[JFK_Lib]

Well, it obviously inflates your fonts.....

:/

[expatpat]

You mistook my statement --perhaps because I used the word 'float down' in its everyday non-technical sense, and you read the word 'float' as he technical term. I should have instead used the term 'gently go down', as opposed to 'drop rapidly'.

The point is we need the yuan to revalue upwards against other currencies, not the dollar devalue (down) against other currencies as well as the yuan.

[John Lenin]

Good, it will force the morons in congress to start thinking about cutting government.

[expatpat]

Do you think there is any reasonable chance that they will do this?

I'm not sure whether this is a rhetorical, derisive question or an honest one. If the latter, I think they will eventually have to, but it won't be soon.

[RinaseaofDs]

We live in an interdependent world. At the end of the day, the banks are going to do what the politicians tell them to.

Nobody is going to want to scuttle their economies just to spite the US. They won't go out of their way to help the Americans, but they won't risk their own necks.

The cheaper dollar is going to help exports. It's already having that effect in Europe. It'll also help tourism too.

We are still the big trading partner on the block.

[redgolum]

Hope you are right. I am not an economist, but history is a hobby of mine. Debtor nations do not fair well in the long term. Eventually the bills come do, or they default. The US has had one heck of a run, but it can't go forever.

With good growth and sound management, we can out grow the deficit. The problem is the Gov and the people are outspending their income at an increasing rate.

[JoeV1]

Hate to tell ya, but it was bound to happen. Going off the gold standard was just the beginning. It just took longer than expected. The banks will grow flusher with all the coming foreclosures? Just wait until China and Japan pull the rug out from under us!p

So you believe Japan and China will sell the billions and billions of dollars they are holding, at a loss to them, and by doing so cause the dollar to collapse and bring on a world wide recession? You believe they would knowingly trash their own economies (The result of their 'bailing out of the dollar)and you believe the reason they would do this is....?

[CasearianDaoist]

But we cannot devalue in anyway with respect to the yuan. The Chinese government forces the conversion rate, that is what this "pegging" business is about. A dollar will cost x amount of yuan no matter what we do. WE can devalue it to the point that they Chinese cannot buy oil, but then OPEC will just switch currencies and we will still be pegged. What has to happen is that the yuan behaves like every other major currency in the world.

[A Ruckus of Dogs]

Many people do not understand the huge power we have by importing other countries product and consume it. If we stop importing their products they will go into starvation. The power of the consumer is the most important factor to have a strong economy, and the consumer is always right.

COnsumer debt is at an all time high. Has been for the past few years. We have one of the lowest savings rate in the developed world.

[JoeV1]

Hehehe look at france and what our boycott did.

What did it do? I hadn't heard that it was effective at all. What did I miss?

[A Ruckus of Dogs]

and our standard of living are getting better and better and better, and our economy is growing and growing, and growing

and so is our consumer debt.

[JoeV1]

We have one of the lowest savings rate in the developed world.

Correct me if I am wrong but I don't believe that the savings rate calculations takes into consideration retirement plans or the equity in ones home. These are savings as much as a savings account or a CD are.

[jveritas]

Who told you that? Do you think the Europeans have more saving than us? I doubt it very much. They get payed less than us, they pay more taxes than and everything in Europe is more expensive than in the US.

[jveritas]

O.K stop spending and save your money and watch it grow in the bank. Let everyone follow do this, and in five years will have 10% unepmloyemnt rate because people are not spending their money and hence the corporations are not making any profit and hence they have to lay off more people.

[jveritas]

Great point JoeV1.

[A Ruckus of Dogs]

I didn't say stop spending completely, but Americans do have to save more than they currently are.

[Paul_Denton]

Lets see frog unemployment at 10+% wine exports at an all time low. Damage which has been multiplied by the EU's own sluggish economy.

[JoeV1]

Lets see frog unemployment at 10+% wine exports at an all time low. Damage which has been multiplied by the EU's own sluggish economy.

I did see that about their unemployment but I heard it was 9.7 (close enough, I suppose) and their GDP growth last year was an anemic .5% but I hadn't realized it was the boycott.

[The Duke]

Do you mean to tell me that right here in this new milleneum that water continues to seek its own level?

Will wonders never cease!