David Seaton's News Links One of the seed ideas left over from the 1990s that is keeping us from seeing our own era clearly is the idea that business trumps politics. Everything then was free trade and 'bottom line'. 9-11 didn't "change everything": failing in Iraq has. We have moved quickly into an era where, as Churchill said about the Balkans, we produce "more history than we can digest." The article from the Financial Times looks at the present fall of the dollar from the point of view of fundamentals, but it would be unwise to neglect the political/symbolic angle. All our system runs on oil, the main source of oil is the Middle East, in Iraq, the United States has shown that it cannot control the Middle East. The dollar is the symbol of American power.... As the FT says, "Currency switches are likely to be progressive, subtle and discreet, as untoward attention could hit the dollar, lowering the value of depositors’ remaining dollar-denominated assets." Whistling and shuffling their feet with their eyes on the door. DS
Oil producers shun dollar - Financial Times
Abstract: Oil producing countries have reduced their exposure to the dollar to the lowest level in two years and shifted oil income into euros, yen and sterling, according to new data from the Bank for International Settlements. The revelation in the latest BIS quarterly review, published on Monday, confirms market speculation about a move out of dollars and could put new pressure on the ailing US currency. Market liquidity is traditionally low in December, and many traders have locked in profits, potentially reinforcing volatility. Russia and the members of the Organisation of the Petroleum Exporting Countries, the oil cartel, cut their dollar holdings from 67 per cent in the first quarter to 65 per cent in the second. Meanwhile, they increased their holdings of euros from 20 to 22 per cent, the BIS said. The speed of the shift may help to explain the weakness of the dollar, which recently fell to a 20-month low against the euro and a 14-year low against sterling.(...) Such shifts may be modest compared with the total assets held, but they provide a crucial indication on future thinking. Currency switches are likely to be progressive, subtle and discreet, as untoward attention could hit the dollar, lowering the value of depositors’ remaining dollar-denominated assets.(...) The dollar has suffered weakness because of concerns about global imbalances and the future course of the Federal Reserve’s interest rate policy. READ IT ALL
Oil producers shun dollar - Financial Times
Abstract: Oil producing countries have reduced their exposure to the dollar to the lowest level in two years and shifted oil income into euros, yen and sterling, according to new data from the Bank for International Settlements. The revelation in the latest BIS quarterly review, published on Monday, confirms market speculation about a move out of dollars and could put new pressure on the ailing US currency. Market liquidity is traditionally low in December, and many traders have locked in profits, potentially reinforcing volatility. Russia and the members of the Organisation of the Petroleum Exporting Countries, the oil cartel, cut their dollar holdings from 67 per cent in the first quarter to 65 per cent in the second. Meanwhile, they increased their holdings of euros from 20 to 22 per cent, the BIS said. The speed of the shift may help to explain the weakness of the dollar, which recently fell to a 20-month low against the euro and a 14-year low against sterling.(...) Such shifts may be modest compared with the total assets held, but they provide a crucial indication on future thinking. Currency switches are likely to be progressive, subtle and discreet, as untoward attention could hit the dollar, lowering the value of depositors’ remaining dollar-denominated assets.(...) The dollar has suffered weakness because of concerns about global imbalances and the future course of the Federal Reserve’s interest rate policy. READ IT ALL
1 comment:
You can, of course, read way too much into this. Central banks are extremely conservative institutions.
In the last few years, the Euro has come into being, and gained a certain amount of credibility as a "hard" currency. Before that, central banks may have trusted the DM, but certainly not the Italian lira or Portuguse Escudo; even the French franc was somewhat suspect.
The dollar has essentially gone from being the only game in town, to one of many, with a somewhat problematical political system.
Secondly, the US economy, while steadily growing, is not growing as fast as some other economies. This means that US output as a percentage of world output is declining, which would lead any portfolio manager to redistribute his or her holdings.
Thirdly, the US has been going all out to try and prevent the Iranians from doing business with the US, and so far as to punish companies that do business with Iran. They recently goaded some major European banks into declining all business with Iranian institutions or individuals, and froze Iranian funds in the US in 1979. This is all but tantamount to an invitation to dump the Greenback.
This may not even be detrimental to the US; it will probably concentrate some minds in NY quite wonderfully.
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