Dollar Weakens as Russia Weighs Shifting Its Holdings to Euros

[zimv20]

link (http://nytimes.com/2004/11/23/business/worldbusiness/23cnd-dollar.html?ei=5094&en=55c5954d150e0331&hp=&ex=1101272400&adxnnl=1&partner=homepage&adxnnlx=1101250681-XegUvVkHd6h5SPAgOdKk5g)


LONDON, Nov. 23 - The euro rose to another record high against the dollar today after the Russian central bank said it might increase its euro holdings in an effort to insulate itself against further weakness in the American currency.

Like the United States Federal Reserve and its other counterparts, the Russian central bank holds huge reserves of dollars, euros and other currencies as a means of defending its own currency, the ruble, and smoothing out foreign-exchange market movements whenever necessary. Nearly two-thirds of its $113 billion in foreign-exchange and gold reserves are denominated in the dollar, which has reigned for decades as the premier global reserve currency.

Alexei Ulyukayev, first deputy chairman of the Russian central bank, said today that the institution was considering altering the mix of its holdings, a move that the Russian bank and others have been hinting at for some time.

"Most of our reserves are in dollars and that's a cause for concern," Bloomberg News quoted him as saying in Moscow. "Looking at the dynamics of the euro-dollar rate, we are discussing the possibility to change the reserve structure."

That possibility further weakened the dollar today and sent the euro as high as $1.31 for the first time. The euro was recently quoted at $1.3082 in afternoon trading in New York, compared with $1.3038 late Monday. So far this month, the euro has risen 2.5 percent against the dollar, giving it a total gain of more than 11 percent over a year ago.

The euro has borne the brunt of the dollar's decline, as Asian central banks seek to prevent their own currencies from climbing, so as to prevent a loss of competitiveness for their exports.

(more)

could be trouble for the dollar.

[skunk]

Whaddya mean, could be?

Is.

[skunk]

Next up, they'll be telling you it's a really, really good thing for exports.

[Zaid]

link (http://nytimes.com/2004/11/23/business/worldbusiness/23cnd-dollar.html?ei=5094&en=55c5954d150e0331&hp=&ex=1101272400&adxnnl=1&partner=homepage&adxnnlx=1101250681-XegUvVkHd6h5SPAgOdKk5g)


could be trouble for the dollar.

bugger!!
The euro is absorbing almost all of the dollar's fall.

I think the big problem for the dollar is not that it is losing value per se (which should be seen as long overdue correction to its value), but that if it falls to far too quickly, markets could easily over react causing the dollar to fall too far, in turn causing some reserve banks to switch their dollar reserves into € further weakening the dollar.

While a slightly weaker dollar is prob good for the US, a too weak dollar will not be.

Oh well at least Apple stuff ought to be cheaper here (one would think anyway :) )

[Desertrat]

I think the total foreign holdings are around $2 trillion. China and Japan are just over $1T, between them.

India recently said it planned to sell off around $125 billion in US-denominated assets and reinvest in-country.

Some are expecting the dollar to fall more against the yen. It's already down around 103:1, and expected to drop to 95 or even 90.

Those countries which export commodities, or food as a notable percentage of GDP, have currencies which are doing well against the dollar...

European central banks have a problem: Most economies' growth, there, are relatively weak. If they lower interest rates to help economic growth, the Euro will drop back. And, many over there have personal fortunes in dollar-denominated assets and don't want to see the dollar fall too far or two fast.

If China lets the renmimbi float and it rises against the dollar--as it should--their exports to the US will fall off and Wally World's sales will drop.

IOW, a lot of the whole world is in doo-doo; the only difference is the comparative depth. :)

'Rat

[IJ Reilly]

Next up, they'll be telling you it's a really, really good thing for exports.

We're already hearing that old soft shoe routine. The big problem is, a falling dollar really only helps exports of commodities. For those who are waiting for cheaper Apple products, you can forget about it -- they like virtually all consumer electronics are made abroad of foreign components. In fact I would expect companies like Apple to come under increasing margin pressure from the plummeting dollar as their component costs increase steadily.

[blackfox]

Once again, the blame obviously lies with those damn communists.

[Desertrat]

Komyewnists? Huh? Trouble is, them there komyewnists in China ain't acting like they oughta. More like facism and mercantilism, really.

From an essay at Lew Rockwell: http://www.lewrockwell.com/dilorenzo/dilorenzo85.html

Interesting commentary.

Odd-funny about China. The government sez it's Communist and all that. The people in general are industrializing, and it wasn't for no reason that for many decades the Chinese were referred to as "the Jews of the Orient". Business acumen? You better believe it!

Got a kid? Concerned about his future? Get him to learning Mandarin and Cantonese.

We've had it so easy for so long in this country that way too many people think it's a natural thing...

:), 'Rat

[blackfox]

'Rat,
I am reminded of an old quote:
"Communism is merely Fascism without the latter's ability to make the trains run on time."

You are probably correct that more people should learn Mandarin.

[zimv20]

You are probably correct that more people should learn Mandarin.
i'd say that's a good idea. though one form of rebellion against our future masters (that's somewhat tongue-in-cheek) is to learn cantonese instead.

[IJ Reilly]

Fascism is what I've been calling China's form of government ever since they started their economic reform program. The Chinese style of authoritarianism combined with a tightly managed free market economy is as close to textbook fascism as we're likely to see in this century. The Chinese government has even sprinkled in a little nationalism and militarism, for those of us who might still be a little confused by what's happening in the PRC. If China continues along this course, and doesn't institute major political reforms to go with, I can envision the nation becoming a serious threat to world peace and security in not many years from now.

[blackfox]

Fascism is what I've been calling China's form of government ever since they started their economic reform program. The Chinese style of authoritarianism combined with a tightly managed free market economy is as close to textbook fascism as we're likely to see in this century. The Chinese government has even sprinkled in a little nationalism and militarism, for those of us who might still be a little confused by what's happening in the PRC. If China continues along this course, and doesn't institute major political reforms to go with, I can envision the nation becoming a serious threat to world peace and security in not many years from now.
Not to split hairs IJ, but as I have understood, Nationalism is part-and-parcel of Fascism. As for Militarism, is this not a logical conclusion from an ideology that does not place limits on the power of the State?

Don't get me wrong, I agree with your point(s), I just thought you were unnecessarily redundant. My apologies if I misconstrue.

[Xtremehkr]

It's not a good time to travel while Bush is in office anyway, and it's geting too damn expensive now.

On the flip side, it's probably a good time to come and see a bit of the US. I would avoid the middle if you have an accent though.

[miloblithe]

On the flip side, it's probably a good time to come and see a bit of the US. I would avoid the middle if you have an accent though.

In defence of the Midwest, I got married over the summer, and my midwestern hosts really enjoyed the international representation among the guests (Russian, English, French). Midwesterners also host a great deal of foreign exchange students, precisely because foreigners don't often go there. Most midwesterners, in my experience, would be warm, polite and curious with foreigners...if a little dopey. :)

As for the southern middle, I have my prejudices, but I've never been there so I don't know.

The dollar, however, seems to be in trouble. Makes me kind of glad I don't have any. Here's hoping my next 'real' job after grad school is Euro denominated.

[Thomas Veil]

Once again, the blame obviously lies with those damn communists.
I thought it was Clinton's fault.... :rolleyes:

[tristan]

Russia's buying high and selling low. They should have done this two years ago. People forget that the euro originally opened at close to $1.16 to the dollar, fell to $0.88, and now is back up to $1.30. These kinds of swings will happen, depending upon the relative strengths of the economies, interest rates, inflation, etc. Trying to chase these swings is a recipe for financial disaster.

[zimv20]

Trying to chase these swings is a recipe for financial disaster.
i understand the point you're trying to make, but there _is_ a huge currency trading market, and it's not all arbitrage.

[skunk]

There may be ulterior motives.

Worldwide distaste for US foreign policy = not too much unhappiness at seeing the US squirm.

[takao]

boy do i remember the whole complaining about the "euro weakness" when he was introduced ... looks very different now ...

(as for the personal fortunes mentioned by desertrat: make that Swiss Francs ...then it would be correct)

[Ugg]

Russia's buying high and selling low. They should have done this two years ago. People forget that the euro originally opened at close to $1.16 to the dollar, fell to $0.88, and now is back up to $1.30. These kinds of swings will happen, depending upon the relative strengths of the economies, interest rates, inflation, etc. Trying to chase these swings is a recipe for financial disaster.

The official opening exchange rate was 1.11 dollars to the euro when it was introduced in Jan 2001 and it is currently 1.3 dollars to the euro, not the reverse as you stated. The first actualy euros weren't in use until Jan 2002.

The European Central Bank has been reluctant to lower interest rates to the level the US Fed has because of the eventual need for a massive correction. That is the price we here in the US will be paying this coming year for the low interest rates of the past few years. Inflation is going to rear it's ugly head in a very major way and since we have no domestic options to the vast majority of foreign made goods we'll either have to pay higher prices or go without. gw of course doesn't want Americans to go without or conserve in any way shape or form so that can only mean inflation.

It's good that Russia is diversifying, and you can bet your greenbacks that other countries will follow their lead. It's never good for the security of any system for any single currency or operating system for that matter, to dominate so totally. This will help force the US to get its own house in order. Much of the success of the US in the last 50 years is due solely to over reliance on the dollar in international markets. A little egg on Snow's face wouldn't be a bad thing. His pontificating and self-righteous attitude towards the EU's concern about the plummeting dollar will come back to haunt him when the reality of the EU's policies turn out to be better in the long run than the US' continual attempts to manipulate its economy through constant tweaking.

Now all that's needed is for OPEC to start pricing oil in Euros and the persian carpet that the US has under it's feet for so long will disappear to reveal the jerry built structure that housed it.

[Desertrat]

takao, we have a helluva lot of foreign investment here in fixed assets: Farms and ranches; Mercedes and BMW factories...And, of course, the more liquid US Treasuries of one sort or another. "A few billion here, a few billion there; first thing you know it adds up to real money."

Sidebar: I read yesterday in Strategic Investment where China recently closed on the purchase of some 210,000 acres of Amazon rain forest. They're alread buying timber from Chile.

Ugg, I have no idea how one changes a "consumer economy" to one which produces exportable goods and services. Yeah, we're "shipping jobs overseas", but our primary export seems to be our money.

It's the "little things" like the whole re-fi scene in homes that has provided whatever job growth we've had. Couldn't have done that without the low interest rates--which also gave us the recent stock market bubble, the profits from which allowed a lot of the home buying that's gone on.

When does it end, and quo vadis at that time?

What rips me out of the frame is that it has been so "obviously obvious", the whole time this has been building over these last twenty-plus years...

'Rat

[Ugg]

Sidebar: I read yesterday in Strategic Investment where China recently closed on the purchase of some 210,000 acres of Amazon rain forest. They're alread buying timber from Chile.

Ugg, I have no idea how one changes a "consumer economy" to one which produces exportable goods and services. Yeah, we're "shipping jobs overseas", but our primary export seems to be our money.

It's the "little things" like the whole re-fi scene in homes that has provided whatever job growth we've had. Couldn't have done that without the low interest rates--which also gave us the recent stock market bubble, the profits from which allowed a lot of the home buying that's gone on.

When does it end, and quo vadis at that time?

What rips me out of the frame is that it has been so "obviously obvious", the whole time this has been building over these last twenty-plus years...

'Rat

A chinese firm has expressed interest in a rather large local (Northern California) sawmill. I'm sure there will be more such expressions in the future as the Chinese start shopping for commodities that are no longer available locally. It only makes sense for them to do that shopping in the US or in countries whose currencies are tied to the dollar given the massive amounts of dollars flowing into China.

In regards to the whole refinance issue, the long term result will see a huge drop in refinancing as well as a drop in new mortgages and home building, etc, etc. Wouldn't it be better to have a more stable economy than one that is continually locked into boom and bust cycles? Unfortunately, politicians don't get elected when they preach slow and steady, we've become to used to the quick buck.

[Xtremehkr]

Is every boom cycle accompanied by a sector that does particularly well before completely destroying itself? and taking the market with it.

It seems that during good economic cycles there is always one sector that tends to suck up all the investable money out of peoples desire to make a quick buck, before the people who made the outrageous claims sell out and let the companies die. The internet sector being the last one. For some reason (greed must have a blinding effect) people were willing to believe that any and all dot.coms were going to be Blockbuster successes.

I am surprised that there wasn't a Headstones.com that didn't get a billion dollars in shareholder capital.

The internet is no doubt the distribution center of the future (especially with the new mileage tax California is proposing (as I have a sneaking suspicion that it will not apply to business use or be highly exemptable for businesses). Instead of investing in infrastructure that would be available to all, regular commuters will be punished for getting in the way of business.

Does anyone else think that the mileage tax is inherently oil industry friendly? Especially if it removes the taxes that are currently imposed on gas. I really can't see it being a good thing, especially in CA as people often live far away from where they live due to the cost of housing. It's going to end up punishing a lot of people who live outside of LA and Orange County.