- All eyes are on the USD now! As the USD index heads towards the all time low 71.10 – 71.80, fear and trepidation will become palpable. Practically all countries hold USD (for oil purchase and international trade settlement). What will the central bankers do? It is a foregone conclusion: they will dump the USD. Are you willing to bet that China will hang on to its US$1.5 – 2.0T of USD denominated reserves? Many countries with huge reserves have been buying gold. Notable ones: Russia, China, Mexico, Iran … and many more. Better hard assets than toilet paper USD!
Asia Seeks to Diversify Record Foreign-Exchange Reserves as Dollar Falls
By Shamim Adam, Bloomberg
Asian nations are pooling funds to strengthen regional investment, in a step toward diversifying record foreign-exchange holdings as the U.S. dollar declines. Ten Southeast Asian nations, along with China, Japan and South Korea, plan to discuss an infrastructure fund to boost investment in roads, ports and utilities at a meeting of finance officials that started today in Hanoi. Policy makers have agreed to look for “new avenues” for reserves, the Philippine central bank chief said last month, urging greater use of China’s yuan.
More than a decade after the 1997-98 Asian crisis depleted reserves and forced countries from Indonesia to South Korea to seek bailouts, the region’s holdings have risen to about $6 trillion, half held by China. With the dollar remaining the dominant reserve asset, the currency’s decline threatens to erode returns on Asia’s stockpile.
“Asia needs to use its reserves more productively regardless of whether it is to set up financial safety nets or to invest more,” said Rajat Nag, managing director of the Asian Development Bank, which holds its annual meeting May 3-6 in Hanoi. “We are long gone past that situation in the late ‘90s, and Asian countries need to make more aggressive investments with their reserves, including in infrastructure.”
The Dollar Index had a fifth monthly loss in April. The gauge, which tracks the dollar against the currencies of six major U.S. trading partners, fell 3.9 percent last month and is down 7.4 percent this year. It was little changed today at 73.18 as of 3:50 p.m. in Singapore.
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