Wednesday, February 23, 2005

Asia calms dollar fears

by Brian Turner

Comments by South Korea’s central bank that it will diversify it reserves across other currencies, such as the Canadian dollar and Australian dollar, resulted in the US dollar’s largest single fall in value for 4 months.

However, assurances by Japan and Sourth Korea that they would maintain strong US dollar holdings was enough to allow the currency to rally back some of its losses over the days trading.

Investment markets feared that if Asian banks were to drop the US dollar as a major reserve currency, then there would be no one left to underwrite the United States of America’s massive debt.

Although oil holding countries in the Middle East are already increasing their euro holdings in lieu of the dollar, and Asian central banks are already known to be holding back on dollar purchases, Asian countries such as Japan and South Korea respectfully hold the first and fourth largest dollar reserves in the world.

If Asian markets were seen to be openly shunning the USD, it could be very detrimental to a currency that has already failed to rally despite otherwise favourable economic conditions.

 

 

 

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