It's starting to happen. At the Bank for International Settlements meeting in Basel recently, Asian central bank officials have started talking about diversifying their currency reserves from dollars only to euros and dollars. China, Korea, Malaysia, and the Phillipines have made such comments recently, according to The Business Times (Singapore). Since the 1997 Asian financial crisis, Asian central banks have been accumulating larger foreign currency reserves as a hedge against speculative attacks on their own currencies. Spending has been at an all-time high level in the last 18 months, when Asian central bank reserves rose 57%, to US$2.156 trillion, mostly to curb strength in their own currencies. Asian central banks now hold the majority of the world's currency reserves as a result, it is said.
The key thing I will be looking for is a gradual process of diversification and not a precipitous sell-off of dollars.
Most of the 2004 comments re US oil reserve currency have been toungue-in-cheek. No one is predicting much; most are waiting to see what is going to shake out. Are the Asian banks going to invest in US corporations? Are they going to stock up on Euros? Is Europe going for stabilizing the Euro by way of everybody-pulling-together? Are they waiting to see how the US economy fares? Is the US election a factor? We all want to know.
Posted by: kate sisco | 2004.07.20 at 15:50