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Posted Nov 5th 2009 4:30PM by Connie Madon
The US dollar is down 20% since 2002 on a trade weighted basis. Other world economies like China are dynamic, with growth rates of 8 and 9%. With that kind of clout, countries like China, India and Brazil, can choose where to place their reserves.
Slowly, developing countries are shifting their reserves away from the dollar into the euro and yen. Neil Mellor, strategist at Bank of New York Mellon Corp (NYSE: BK), which has some $20 trillion dollars in assets under custody said: “I don’t think there will be an imminent move, but it is quite clear there’s a plan to shift reserves to a more balanced portfolio.”
Barclays Capital Research reported that central banks placed 63% of new cash in non US currencies between April and July.
More disturbing is that the Barclays, which removes valuation effects, shows that central banks accumulated more that $100 billion in reserves, and put only 40% into dollars, down from 70% quarterly average back to 2006.
IMF data show that the euro’s share of known reserves hit 27.5% in the second quarter, from 18% in 2000.
Russia, the biggest reserve hold with $419 billion holds 47 in dollars and 40% in euros, but wants to buy other currencies.
Now to gold. India just bout 200 tons of gold from the IMF. Taiwan, the fourth largest reserve holder wants to buy more gold. China said it had increased gold holdings by 75% since 2003.
Even in light of all of this shifting by central banks into other currencies, the dollar still comprises 2/3 of global reserves and attempts to shift away from the dollar would destroy the value of central banks’ portfolios.
Do you believe that the Fed’s loose money policy will be able to support the dollar?