U.S. Dollar Reserves Increase

Despite all the gnashing of teeth regarding the dollar ...

The IMF's authoritative Currency Composition of Official Foreign Exchange Reserves (COFER) report last week indicated that the dollar's share of global reserves (where the allocation is reported) rose to 65%, to stand at its highest since 2007.

Though one would expect diversification by central banks into other currencies simply as prudent portfolio management, the simple fact is that there is no credible alternative to replace the dollar, nor will there be for many, many years.

Comments

[Traffic:]

Oh boy.Im sold.

Jul 12 11:59 AM

[nobby73:]

More propping up of the Dollar....

Jul 12 12:42 PM

[Roger Knights:]

"Though one would expect diversification by central banks into other currencies simply as prudent portfolio management, the simple fact is that there is no credible alternative to replace the dollar, nor will there be for many, many years."

The Yuan would be credible, if strongly backed by gold.

Jul 12 01:06 PM

[derryl:]

In maybe a decade the Chinese might be ready to make the yuan fully convertible and offer it as a reserve currency, IF things go smoothly for them between now and then. In the 1980s we were turning Japanese and that didn't pan out too well.

I am not convinced that any national currency will replace the dollar. If we eventually move to a new reserve currency it will be supranational. But others point out that without the power to tax in order to support a deep bond market, a supranational currency will never fly either.

This is not dollar jingoism. Replacing the dollar is a big deal and currently there is nothing nearly capable of doing it.

Jul 12 03:40 PM

[PlayForKeeps:]

Granted it may take many years to transition to another reserve currency, but it seems extremely myopic to think that the rest of the world will acquiesce to the US dollar remaining as the global reserve currency in perpetuity. Agreeing with what Derryl mentioned above, ("I am not convinced that any national currency will replace the dollar") it would be just as foolish to create another reserve currency off from a single currency such as the yuan, as it would create the same problems as currently exist with the US dollars country specific risk. It may be a few years or a decade, but things are changing and you need to seriously question the logic behind any argument that rests on the idea that something will 'never' change. When the US dollar became the reserve currency, the world was very different and the US was much stronger relative to other economies. If it weren't for the obvious political issues involved, the US would already have had their debt downgraded. How much longer do you think the rest of the world and especially Asia will accept US debt and payments on that debt that are paid back with inflated and thus devalued dollars. The future of the reserve currency lies in SDRs which should be a combination of a number or currencies and possibly underlying commodities as well. I do believe this will take some time though, as it is a necessarily slow process. But listen closely to remarks from China - they are slowly dropping more and more hints that the gross mismanagement of the US economy is not acceptable with them and they (and other countries including Russia) will push more and more for a transition from the US dollar. When it happens, and it certainly will, the dollar will fall precipitously.

Jul 12 08:27 PM

[Dave Wrixon:]

This only serves to demonstrate that improving trade figures are pure fiction. Foreign reserves simply represent imports that the US has received on tick.

Jul 13 01:00 AM

[Dave Wrixon:]

Because nobody is prepared to get in as much debt as the US. Foreign reserve holdings basically just represent unsettled debt.

Of course if the dollar value went down sharply relative to the Euro, which it almost certainly will do, the US dollar could actually be replaced very quickly without anyone doing anything. It is all relative.


On Jul 12 03:40 PM derryl wrote:

> In maybe a decade the Chinese might be ready to make the yuan fully
> convertible and offer it as a reserve currency, IF things go smoothly
> for them between now and then. In the 1980s we were turning Japanese
> and that didn't pan out too well.
>
> I am not convinced that any national currency will replace the dollar.
> If we eventually move to a new reserve currency it will be supranational.
> But others point out that without the power to tax in order to support
> a deep bond market, a supranational currency will never fly either.
>
>
> This is not dollar jingoism. Replacing the dollar is a big deal
> and currently there is nothing nearly capable of doing it.

Jul 13 01:04 AM

[Moon Kil Woong:]

I don't suppose some of the reason is because the US is floating a boatload of more and more bonds and the US keeps running a trade deficit which means they wind up in foreigner's hands in exchange for goods? So it this good news or bad for the dollar?

Jul 13 04:05 AM

[Don Hamilton:]

Has anybody seen a yuan? The Chinese don't send their yuans out into the world trade - they just send their goods out. The yuans could never be a reserve currency there is not enough of them out there. The Chinese are rich in dollars and these dollars are welcome everywhere - thats why the dollar is the reserve currency of choice.

Jul 13 10:13 AM