Central Banks Shunning the Dollar

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machinehead's picture
machinehead
Status: Diamond Member (Offline)
Joined: Mar 18 2008
Posts: 1077
Central Banks Shunning the Dollar

From Bloomberg:

Oct. 12 (Bloomberg) -- Central banks flush with record reserves are increasingly snubbing dollars in favor of euros and yen, further pressuring the greenback after its biggest two- quarter rout in almost two decades.

The dollar’s 37 percent share of new reserves fell from about a 63 percent average since 1999. Steven Englander of Barclays concluded in a report that the trend “accelerated” in the third quarter.

Developing countries have likely sold about $30 billion for euros, yen and other currencies each month since March, according to strategists at Bank of America-Merrill Lynch. That helped reduce the dollar’s weight at central banks that report currency holdings to 62.8 percent as of June 30, the lowest on record, the latest International Monetary Fund data show.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aOTmsmEQpY6A

Roughly speaking, the dollar is getting a one-third share of new reserve additions, while its historical, cumulative share of global reserves is closer to two-thirds.

This is a huge shift at the margin. And it's largely shifts at the margin that determine market pricing.

Benny Bubbles' reckless zero interest rate policy not only makes the dollar uncompetitive, but also it's inflating Bubble III as we speak.

Letting banksters control the external value of the national currency is just flipping insane. Extend federal counterfeiting laws to the Federal Reserve bankster criminals, and SHUT THE SUCKER DOWN.

 

 

 

 

DrKrbyLuv's picture
DrKrbyLuv
Status: Diamond Member (Offline)
Joined: Aug 10 2008
Posts: 1995
Re: Central Banks Shunning the Dollar

Hello machinehead,

The U.S. is insolvent and it is obvious that it cannot repay the debt, so what are the choices?

  1. Default on the loans - this has begun on some loans as Social Security payouts have been frozen, no COLA increases.  Soon the payouts will be reduced.  I think the government will default on many of the intragovernmental loans while trying to pay the other debt to foreign and private treasury bill (securities) holders.
  2. In order to pay private and foreign debt holders; the dollar must be sacrificed - it is purposely being being devalued.  I think the plan calls for a 50% devaluation over 9 years.  If the debt is too large, it may be effectively reduced by half as the dollar decreases by the same amount.
  3. The G-20 (mostly China?) has evidently approved (dictated?) this move and now looks to have the dollar dive slowly and steadily as not to disrupt markets any more than necessary.

I don't think it is possible to reduce the value of dollar in an orderly or slow fashion.  The cat is out of the bag and no one wants to be left behind with too many dollars.

My suspicion is that China and maybe some others, have secret deals with the U.S. in which "collateral" has been guaranteed.  I'm not sure what was promised but you can bet it's going to hurt upon a default.

Larry   

Lemonyellowschwin's picture
Lemonyellowschwin
Status: Platinum Member (Offline)
Joined: Apr 22 2008
Posts: 548
Re: Central Banks Shunning the Dollar

Machinehead,

Thanks a lot for this post.

I do not understand, though, how this information squares with the fact that central banks seem to be singlehandedly supporting the market in treasury bonds.  See Chris's post at:  http://www.peakprosperity.com/martensoninsider/central-banks-buy-more-100-us-government-debt.

On the one hand, they're diversifying out of dollars . . . on the other hand, they're buying up dollar-based bonds.

Can you cure my cognitive dissonance?  :)

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