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February 24, 2005
Dollar, FT Obs
Worth noting for the record, such as it is:
Dollar scare reveals fragile support
Published: February 24 2005 02:00 | Last updated: February 24 2005 02:00
http://news.ft.com/cms/s/7468d91e-860b-11d9-b506-00000e2511c8.html
Crisis over? Not really. For sure, the market overreacted to reports that the Bank of Korea wanted to reduce the share of dollars in its portfolio. What the Koreans actually said was that they want to diversify out of low-yielding US Treasuries into higher yielding securities, which could include riskier US assets as well as non-US government bonds. And they intend to do so by diversifying the flow of reserves, not the $200bn (£105bn) stock. But while Tuesday's sell-off was founded on error, it nonetheless exposed the underlying weakness of the US currency. If the mighty dollar can be rocked by a single paragraph in a report to the Korean parliament something is amiss.
That something is the dependence of the dollar on a handful of Asian central banks, which between them control $2,400bn reserves. These reserves are already large relative to the size of the Asian economies, and getting bigger by the day. As they grow so does the incentive to guard against capital loss from further dollar depreciation.
More in the editorial. Useful for reminding us of the instability.
Posted by The Lounsbury at February 24, 2005 07:10 PM
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Jan-July 2005
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