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Bill Bonner: GATA isn''t as crazy as the financial establishment
By Steve Johnson
Financial Times, London
Thursday, June 8, 2006
http://news.yahoo.com/s/ft/20060608/bs_ft/fto060820061237072188
Russia became the latest country to shift a chunk of its central bank
reserves out of the dollar, further eroding the standing of the
greenback as the world's de-facto reserve currency.
Sergei Ignatyev, chairman of the central bank, said 50 percent of its
forex reserves were now held in dollars, with 40 percent in euros and
the remainder in sterling. Previously it was believed that just 25-30
percent of the reserves were in euros, with virtually all the
remainder in dollars.
Moscow's reserves have grown rapidly in tandem with high oil and gas
prices. The central bank now boasts the world's fourth-largest
reserves, after China, Japan and South Korea, with its gold and forex
holdings rising by 36 percent so far this year to $247 billion.
The move ties in with increasing signs that cash-laden Middle Eastern
oil exporters are also looking to diversify reserves out of the
dollar, following hints from the United Arab Emirates, Kuwait, and
Qatar.
"This is a bearish development for the dollar," said Chris Turner,
head of currency research at ING Financial Markets. "It reminds us
that global surpluses are accumulating to the oil exporters, and
Russia is telling us that an increasingly lower proportion of these
reserves will be held in dollars. This suggests there is a trend
shift away from the dollar."
Clyde Wardle, senior emerging market currency strategist at HSBC,
added: "We have heard talk that Middle Eastern countries are doing a
similar thing and even some Asian countries have indicated their
desire to do so."
In a sense, Moscow's move was unsurprising. Russia's $71.5 billion
budget stabilisation fund is due to be converted from roubles to a
mixture of 45 percent dollars, 45 percent euros, and 10 percent
sterling, and the day-to-day movements of the rouble are monitored
against a basket of 0.6 dollars and 0.4 euros.
Furthermore, some 39 percent of Russia's goods imports came from the
eurozone in 2005, against just 4 percent from the US.
The announcement failed to stop the dollar strengthening 1 percent to
$1.2661 against the euro on Thursday as interest rate differentials
and geopolitical factors continued to support the greenback.
However, the statement does play into a perception in the forex
market that central banks, which together hold $4,250 billion of
reserves, are increasingly channelling fresh reserves away from the
dollar to reduce potential losses if the dollar was to fall sharply
as part of the process of reducing global economic imbalances.
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