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China Daily: Gold bars welcomed by Chinese consumers
2:25p ET Saturday, November 27, 2004
Dear Friend of GATA and Gold:
Today's New York Times story about the turmoil
in the currency markets, appended here, may be
most interesting for its last paragraph, which
asserts that the biggest growth in purchases of
U.S. Treasury securities is coming from
"Carribean banking centers." These Carribean
banks long have been suspected to be fronts
for covert U.S. government intervention in
markets.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *
Foreign Interest Appears to Flag As Dollar Falls
By Edmund L. Andrews
The New York Times
Saturday, November 27, 2004
http://www.nytimes.com/2004/11/27/business/27dollar.html
WASHINGTON, Nov. 26 -- Investors and market analysts
are increasingly worried that the last big source of
support for the American dollar -- heavy buying by foreign
central banks -- is fading.
The anxiety was on full display Friday, when the dollar
abruptly slid to a record low against the euro after a report
suggesting that the Chinese central bank might start to
reduce its holdings in the American currency.
Though Chinese officials later denied the report and the
dollar recovered, analysts say the broader trend is that
foreign governments are becoming less willing to finance
the growing debt of the United States government.
On Tuesday, a top official with the Russian central bank
said his government had become worried about the
sinking value of the dollar and might switch some foreign
reserves to euros.
A day later, India's central bank hinted that it was worried
about the same issue and might shift some reserves into
other currencies.
Japan and China, which together have amassed nearly
$900 billion in United States Treasury securities, have
both slowed their buying sharply from the frenetic pace
in February and March.
"There is an emerging consensus that banks around
the world are moving to expand their reserves of euros
at the expense of dollars," said Laidi Ashraf, chief
currency analyst at MG Financial Group in New York.
The Bush administration has essentially condoned the
dollar's decline. At meetings with foreign ministers last
week, the Treasury secretary, John W. Snow, repeated
the American mantra of support for a "strong dollar" but
also for letting "market forces" determine exchange
rates.
A continued decline of the dollar would be good for
American manufacturers, because it would make
exports cheaper in foreign markets and push up the
cost of imports.
But a diminished foreign appetite for dollars could
push up interest rates. The Federal Reserve has
already raised short-term rates four times this year,
but the shift in the sentiment of foreign investors may
soon seriously affect long-term rates that influence
the cost of home mortgages.
"Sell U.S., buy Europe," summed up Richard Berner,
chief United States economist at Morgan Stanley, in
a report last week. Mr. Berner noted that investors
have begun demanding higher yields for 10-year
Treasury securities than for comparable European
bonds, and he predicted that the spread would widen.
Recent data from the Treasury Department indicated
that foreign governments had sharply slowed their
purchases of Treasury securities. The question is
whether those purchases will continue to slow or
start to increase again as countries try to shore
up the American currency to help maintain their own
industries' competitiveness.
Japanese purchases of Treasury securities, which
ballooned by about $100 billion from October 2003
to March of this year, have slowed sharply and
actually declined slightly in September.
Largely as a result, the dollar has sunk to its lowest
level against the Japanese yen, about 102.5 yen to
the dollar on Friday, in four and a half years.
Chinese purchases of Treasury securities slowed to
a crawl, increasing just $2 billion in September, to
$174 billion.
On Friday, a top Chinese central bank official denied
reports in a Chinese newspaper that the government
planned to reduce its holdings of Treasury bonds.
But Chinese officials, under prodding from the Bush
administration, have repeatedly said they want to
gradually relax their 10-year-old policy of locking
China's currency, the yuan, at a fixed exchange rate
to the dollar. Any move to a more flexible exchange
rate for China would probably cause the dollar to drop
in value and allow the Chinese central bank to stop
buying United States debt securities.
America's current account deficit, the broadest
measure of its indebtedness to other countries, is on
track to exceed $600 billion next year, about 6 percent
of its gross domestic product. The United States needs
to attract about $2 billion a day to keep its spending
at current levels.
The nation attracted enormous sums of foreign money
in the late 1990s as well, but the character of that money
has changed. Back then, a big part of the inflow was
through foreign direct investment and purchases of
American stocks.
This year, by contrast, foreigners have been net sellers
of stocks. The big growth has been in foreign purchases
of Treasury securities, and the big buyers have been
foreign central banks that wanted to prevent their own
currencies from rising too much against the dollar.
Tony Norfield, currency strategist for ABN Amro in
London, said he was convinced that central banks
were trying to scale back their purchase of dollar
assets, a move that could push the euro, already up
about 30 percent in the last years, even higher.
"You do not need the central banks to sell Treasuries
for the dollar to go down," Mr. Norfield said. "All they
have to do is buy less and the dollar is going to be in
trouble."
The euro hit a new high of $1.3329 on Friday in light
trading, before settling back about a half-penny.
European leaders are alarmed about the potential
damage of a sinking dollar to their exports.
"Recent moves on exchange markets of the dollar
versus the euro are unwelcome," said Jean-Claude
Trichet, president of the European Central Bank, at
a banking seminar on Friday in Rio de Janeiro.
"I want to underline the importance of recent statements
by the Treasury secretary of the United States on his
determination to pursue a strong dollar policy," Mr.
Trichet added.
But Mr. Snow and Alan Greenspan, the chairman of the
Federal Reserve, offered no hint that they would
intervene in currency markets to prop up the dollar.
"The market for U.S. Treasury securities is deep and
liquid and continues to be attractive to a broad and
diverse pool of investors," a spokesman for Mr. Snow,
Robert Nichols, said.
That remains to be seen. According to the most recent
Treasury data, the biggest source of growth in securities
came not from China, Japan, or Europe but from
Caribbean banking centers.
----------------------------------------------------
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----------------------------------------------------
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----------------------------------------------------
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