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Japan suspends Morgan for market manipulation ... again
8:41p ET Thursday, March 9, 2006
Dear Friend of GATA and Gold:
Here it is in the open again -- a former central banker
arguing that central banks have to work together to rig
(they call it "manage") the currency and gold markets
and that, indeed, this is the plan for arranging a long
and gradual decline of the U.S. dollar.
The former central banker, John Nugee, director of the
official institutions group at State Street Global
Advisors, formerly a foreign exchange official for the
Bank of England, tells Dow Jones Newswires: "Central
banks will solve their dollar overhang only if they act
together. If they try to act individually, to diversify
while hoping no one else will notice, there's a
possibility it could become as disorderly as the gold
market after 1980."
Yes, the central banks got gold under control and will
keep order -- but at what price and whose cost, and in
the open or surreptitiously? And who elected them anyway?
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *
Dollar Fall to Encourage Central Bank Cooperation
By Andrew Batson
Dow Jones Newswires
Friday, March 3, 2006
http://sg.biz.yahoo.com/060303/15/3z4ca.html
HONG KONG -- The world's central banks are likely to start working
more closely together as they try to manage the impact of an
expected long-term decline in the value of the U.S. dollar, said a
former central banker who now advises the institutions.
"Just as the U.S. role as world superpower won't last forever,
neither will the dollar's role as the world reserve currency," said
John Nugee, director of the official institutions group at State
Street Global Advisors. SSgA, an arm of State Street Corp., is the
world's largest institutional money manager with US$1.4 trillion in
assets under management.
Former superpowers like the U.K., France, Spain, and Holland also
saw the value of their currency slip as they lost prominence on the
global stage, and the U.S. is unlikely to prove an exception to this
historical pattern, Nugee said in an interview with Dow Jones
Newswires.
Central banks are particularly interested in such longer-term trends
because they invest to maintain the solvency of their nations, he
said.
Nugee said he is expecting a gradual shift in the dollar's role over
the next 25 years or so, rather than forecasting short-term trends
in the market. Nugee's division serves government agencies, central
banks, and international institutions, and he himself previously
helped manage foreign reserves for the Bank of England.
But there are widespread concerns the U.S.' growing overseas
indebtedness, reflected in a current account deficit of more than 6%
of gross domestic product, is creating the risk of a sharp
correction in the nearer term. If foreign investors become less
enthusiastic about continuing to add to their dollar holdings, that
lack of demand could quickly depress the currency.
The dilemma that central banks face is that any move to reduce their
exposure to a declining dollar would only accelerate that decline,
further pushing down the value of their existing holdings.
This isn't a trivial problem: the International Monetary Fund
estimates that U.S. dollars account for 66% of combined global
foreign exchanges -- that is, the portion of reserves whose currency
holdings are known. The euro came second with a weighting of 24%,
while holdings of the Japanese yen and British pound were each just
under 4% of the total.
"Central banks will solve their dollar overhang only if they act
together. If they try to act individually, to diversify while hoping
no one else will notice, there's a possibility it could become as
disorderly as the gold market after 1980," when central bank sales
helped trigger years of declining prices for the metal, he said.
"The lesson of the gold market is that it's a very difficult thing
to do without coordinated action," Nugee said. He alluded to the
Central Bank Agreement on Gold of 1999, when several major central
banks tried to stabilize the declining gold market by publicly
pledging to limit sales from their gold reserves.
The issue is particularly acute in Asia, as economies in this region
make up seven of the world's 10 largest holders of foreign exchange
reserves, according to figures compiled by the Hong Kong Monetary
Authority, which is itself No. 7 on the list. Japan and China are
the top two holders, with Taiwan, South Korea, India, and Singapore
also placing in the top 10.
There are already some vehicles for Asian central banks to talk
regularly to each other, though there is no indication yet that they
have started to work together on market activities.
Officials of the 10-member Association of Southeast Asian Nations,
as well as China, Japan and South Korea, agreed in early 2005 to set
up the "Asian Bellagio Group," which was intended to help central
banks and other finance officials to share policies and ideas.
Little has been heard from the gathering since the initial
announcement.
The region already has another grouping of central banks, the 11-
member EMEAP, or Executives' Meeting of East Asia-Pacific Central
Banks. That organization has become the focal point for regional
efforts on bond-market cooperation, including measures to make it
easier for Asian central banks to buy each others' debt for their
reserves.
"A lot of this region is sleepwalking a bit about the long-term
future of the dollar," Nugee said. "I hope that the dollar doesn't
become an asset that people have too much of and nobody really
wants," he said.
Nugee said some form of coordination is clearly in the interest of
the central banks who hold dollars, and wouldn't be unheard of. "I
think central bank coordination is quite plausible. ...The biggest
question is whether any form of central bank coordination can
achieve anything without the Federal Reserve," he said.
For the U.S. central bank to participate in this kind of
international arrangement, it would need backing from the
administration and the Treasury -- making it ultimately a political
decision for the U.S., Nugee said.
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