a.k.a.
12-09-2004, 10:28 AM
"Members of the Organisation of Petroleum Exporting Countries have cut the proportion of deposits held in dollars from 75 per cent in the third quarter of 2001 to 61.5 per cent.
Middle Eastern central banks have reportedly switched reserves from dollars to euros and sterling to avoid incurring losses as the dollar has fallen and prepare for a shift away from pricing oil exports in dollars alone.
Private Middle East investors are believed to be worried about the prospect of US-held assets being frozen as part of the war on terror, leading to accelerated dollar-selling after the re-election of President George W. Bush."
...
"Opec officials say the cartel is trying to protect its purchasing power per barrel, as Europe is its largest trading partner. Opec imports from Europe rose 29 per cent between 2001 and 2003 while those from the US fell by 14 per cent, according to Morgan Stanley, the US investment bank."
http://news.ft.com/cms/s/67f88f7c-47cb-11d9-a0fd-00000e2511c8.html
Meanwhile, the "London Economist" which is usually pro-American (most of its readers being US citizens) recently published this flaming editorial:
"The requirements of a reserve currency are a large economy, open and deep financial markets, low inflation and confidence in the value of the currency. At current exchange rates the euro area's economy is not that much smaller than America's; the euro area is also the world's biggest exporter; and since the creation of the single currency, European financial markets have become deeper and more liquid. It is true that the euro area has had slower real GDP growth than America. But in dollar terms the euro area's economic weight has actually grown relative to America's over the past five years.
Where the dollar has failed is as a store of value. Since 1960 the dollar has fallen by around two-thirds against the euro (using Germany's currency as a proxy before 1999) and the yen (see chart 1). The euro area, unlike America, is a net creditor. Never before has the guardian of the world's main reserve currency been its biggest net debtor. And a debtor may be tempted to use devaluation to reduce its external deficit—hardly a desirable property for a reserve currency.
Those bearish on the dollar are asking why investors will want to hold the assets of a country that has, by its own actions, jeopardised its reserve-currency position. And, they point out, without the intervention of central banks, which have been huge net buyers of dollars, the dollar would already be lower. If those same central banks were to begin to sell some of their $2.3 trillion dollar assets, then there would be a risk of a collapse in the dollar. However you look at it, America is likely to find it increasingly hard to finance its huge current-account deficit."
http://www.economist.com/finance/displayStory.cfm?story_id=3445928
To simplify... Europe and the big OPEC countries are predominately investor nations. China and East Asia are predominately producer countries. The US is predominately a consumer country.
At this juncture China and East Asia are happy to see the US go further into debt because this is stimulating the growth of their economies. Europe and the Middle East are frustrated because this diminishes the value of their US holdings. Now it appears they are contemplating some radical divestment.
For now, I think the worst they can do is fuss and moan. The key player appears to be China, which accounts for the biggest share of the US’s balance of payments deficits. China’s currency is currently pegged against the dollar, and it’s playing it conservative by not selling it’s currency on the international markets.
If, for any reason, China decided to peg its currency against the Euro (or even the Yen) shopping at Wal-Mart would be like shopping at Lord & Taylors overnight.
I tend to bore people when I start talking economics. But this seems like a very tense situation to me.
Middle Eastern central banks have reportedly switched reserves from dollars to euros and sterling to avoid incurring losses as the dollar has fallen and prepare for a shift away from pricing oil exports in dollars alone.
Private Middle East investors are believed to be worried about the prospect of US-held assets being frozen as part of the war on terror, leading to accelerated dollar-selling after the re-election of President George W. Bush."
...
"Opec officials say the cartel is trying to protect its purchasing power per barrel, as Europe is its largest trading partner. Opec imports from Europe rose 29 per cent between 2001 and 2003 while those from the US fell by 14 per cent, according to Morgan Stanley, the US investment bank."
http://news.ft.com/cms/s/67f88f7c-47cb-11d9-a0fd-00000e2511c8.html
Meanwhile, the "London Economist" which is usually pro-American (most of its readers being US citizens) recently published this flaming editorial:
"The requirements of a reserve currency are a large economy, open and deep financial markets, low inflation and confidence in the value of the currency. At current exchange rates the euro area's economy is not that much smaller than America's; the euro area is also the world's biggest exporter; and since the creation of the single currency, European financial markets have become deeper and more liquid. It is true that the euro area has had slower real GDP growth than America. But in dollar terms the euro area's economic weight has actually grown relative to America's over the past five years.
Where the dollar has failed is as a store of value. Since 1960 the dollar has fallen by around two-thirds against the euro (using Germany's currency as a proxy before 1999) and the yen (see chart 1). The euro area, unlike America, is a net creditor. Never before has the guardian of the world's main reserve currency been its biggest net debtor. And a debtor may be tempted to use devaluation to reduce its external deficit—hardly a desirable property for a reserve currency.
Those bearish on the dollar are asking why investors will want to hold the assets of a country that has, by its own actions, jeopardised its reserve-currency position. And, they point out, without the intervention of central banks, which have been huge net buyers of dollars, the dollar would already be lower. If those same central banks were to begin to sell some of their $2.3 trillion dollar assets, then there would be a risk of a collapse in the dollar. However you look at it, America is likely to find it increasingly hard to finance its huge current-account deficit."
http://www.economist.com/finance/displayStory.cfm?story_id=3445928
To simplify... Europe and the big OPEC countries are predominately investor nations. China and East Asia are predominately producer countries. The US is predominately a consumer country.
At this juncture China and East Asia are happy to see the US go further into debt because this is stimulating the growth of their economies. Europe and the Middle East are frustrated because this diminishes the value of their US holdings. Now it appears they are contemplating some radical divestment.
For now, I think the worst they can do is fuss and moan. The key player appears to be China, which accounts for the biggest share of the US’s balance of payments deficits. China’s currency is currently pegged against the dollar, and it’s playing it conservative by not selling it’s currency on the international markets.
If, for any reason, China decided to peg its currency against the Euro (or even the Yen) shopping at Wal-Mart would be like shopping at Lord & Taylors overnight.
I tend to bore people when I start talking economics. But this seems like a very tense situation to me.