What do you do if you hear that the bank that holds your savings is in difficulty? Unless you want to lose your money, you keep as quiet as possible and unobtrusively shift your deposits elsewhere. That’s what small-country central banks are doing with respect to US dollar-denominated securities.Nouriel Roubini has comments and reproduces much of a Financial Times story on this point.
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<the fate of the dollar rests in the hands of a handful of central bankers in Asia.
Reminds of when Murdoch’s fate hung on that small midwest bank manager.
I somehow dropped the intro quote – which was:
“The fate of the dollar rests in the hands of a handful of central bankers in Asia.”
One of the main economic (as opposed to purely financial) reasons for holding dollars is to finance dollar-denominated oil imports. For this to continue, (a) oil purchases must continue to be denominated in dollars, not euros, and (b) the price of oil must be high and look like rising. Gee, this looks just like what is happening! I know that Prof. Quiggin is a skeptic on the oil/dollar issue, but maybe the FT/Roubini remarks will persuade him to think again. It looks like a pretty good (if drastic) strategy to avoid a “hard landing”.
If you’d stashed away euros three years ago, you’d be in a far better position to buy oil (or anything else) than if you;d kept your money in dollars
And, Prof. Quiggin, this would have been a good speculative strategy for a private individual or an investment fund. But the gains would have been even greater if central banks had not been under continuous pressure to buy dollars to finance oil imports. The “stash” option is limited for central banks of oil-importing countries.