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Undercurrent of dismay in China over accumulation of dollar assets
By Steve Johnson
Financial Times, London
Monday, March 7, 2005
http://news.ft.com/cms/s/a51f413c-8f3a-11d9-a70f-00000e2511c8.html
The extent to which Indian and Chinese banks are cutting their
exposure to the ailing US dollar was revealed yesterday in data from
the Bank for International Settlements.
The Asian central and commercial banks covered in the BIS data held
only 67 percent of their deposits in dollars as of September 2004,
down from 81 percent in the third quarter of 2001, said the Basel-
based bank. The data indicate the shift out of the dollar was most
evident in India, where dollar holdings fell from 68 per cent to 43
percent during the three-year period.
Chinese banks have reduced their dollar share from 83 percent to 68
percent, mostly before the third quarter of 2002.
The data do not include Japan, which has the world's largest foreign
exchange reserves, nor deposits held in countries that do not
provide a currency breakdown, such as Singapore and Hong Kong. Only
cash and other short-term monetary instruments are counted.
The figures come only two weeks after the Bank of Korea said it was
reducing the proportion of its dollar reserves.
The euro and Japanese yen have been the most popular alternatives.
"This ... adds more evidence to the view that the hegemony of the
dollar in the region is declining," said Tony Norfield, global
head of forex strategy at ABN Amro.
BIS points out that dollar-denominated deposits have risen in
absolute terms, "suggesting, at most, that the currency shift is
taking place at the margin," said report author Patrick McGuire.
The waning enthusiasm for dollar assets comes at a time when the US
needs to attract $2 billion of capital a day to cover its current
account deficit.
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