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EJ
10-17-06, 01:32 PM
Russia diversification talk hurts dollar, boosts yen (http://tinyurl.com/y7klwf)
Oct 17, 2006 (Wanfeng Zhou, MarketWatch)

Persian Gulf States to meet in Nov. to discuss possible end to dollar peg

The Bank of Russia's decision to increase the yen's weighting in its currency reserves is just another signal of central banks' waning interest in the U.S. dollar, analysts said Monday.

Alexei Ulyukayev, Russia's first deputy central bank chairman, said that the bank had started buying yen and intends to raise the proportion of yen to several percent of total reserves from close to zero percent at present. Ulyukayev suggested that the bank may buy other currencies too, but said the bulk of the reserve reallocation will be executed in 2007.

The diversification efforts by central banks worldwide will continue to weigh on the U.S. currency in the years ahead, Dolan said.

Sweden's Riksbank, the Central Bank of the United Arab Emirates, and Qatar Central Bank all announced intentions early this year to diversify their reserves away from dollars. Officials in Beijing have also repeatedly hinted that China might gradually reduce its purchases of dollar-denominated bonds and diversify its reserves as a hedge against further dollar weakness.

Persian Gulf States have decided to meet on Nov. 4 to discuss potential monetary union and possibly an end to the dollar peg, according to Dolan.
The meeting "suggests another major shift among central banks away from the U.S. dollar and this may weigh on the buck and favor the euro and pound in the process," he said.

AntiSpin: The process that I've been warning you about for years (http://www.alwayson-network.com/comments.php?id=7273_0_24_0_C) has begun. When Alan Greenspan went on his final sales trip with Treasury Secretary John Snow to China and Japan at the end of 2005 (http://tinyurl.com/yxokjx), as Alan Greenspan's last trip after 18 years as Fed Chairman, the event signaled the beginning of the end of the dominance of the US dollar–here referred to here at iTulip as the bonar (http://www.itulip.com/glossary.htm#Bonar).

The bonar is in the process of losing its place as the world's primary reserve currency, as the Pound Sterling and Peso did in earlier currency regime transitions. From now on, you will see a series of events that begin with benign diversification, leading to a period of a "Disorderly' U.S. Dollar Drop (http://www.bloomberg.com/apps/news?pid=20601085&sid=aYXu7ScpRXC4&refer=europe)," to use the IMF's term, followed by a period of currency and financial markets chaos, followed by a new global currency regime.

Jeff
10-18-06, 10:51 AM
And the obvious question is..

Where to put the money? I'm curious about this forum's ideas on the best market basket of currencies for the next 3-7 years or so. I'm thinking government paper from commodities producing countries, plus (or especially) those whose currency will be purchased as bonar purchases decline.

Canada is obvious. Others?

BTW, I got and devoured TheBubbleBook(tm). You need to write an entire one next time. Everyone buy this book.

jk
10-18-06, 08:40 PM
Where to put the money? I'm curious about this forum's ideas on the best market basket of currencies for the next 3-7 years or so. I'm thinking government paper from commodities producing countries, plus (or especially) those whose currency will be purchased as bonar purchases decline.


the question on my mind, which i also brought up in another thread, is whether to bother with currencies at all or just have a larger pm position. so my question for you, jeff, is: under what circumstances do you think currencies will provide a better [risk-adjusted] return than pm's?

akrowne
10-19-06, 10:37 PM
This is the sleeper bombshell in the article:



Persian Gulf States have decided to meet on Nov. 4 to discuss potential monetary union and possibly an end to the dollar peg, according to Dolan.
The meeting "suggests another major shift among central banks away from the U.S. dollar and this may weigh on the buck and favor the euro and pound in the process," he said.



When I noticed recently that the <a href="http://www.furl.net/item.jsp?id=11229858">talk of an Asian currency unit was getting serious</a>, I predicted that soon the world would evolve into a <a href="http://www.furl.net/item.jsp?id=10452525">system of competitive regional currencies</a>, like a Eurozone but for every continent or region.

Sooner than most observers think, the dollar will collapse or otherwise become completely rejected by the international community, and the US will only be able to participate in global trade and finance by joining its neighbors in a soundly-managed regional currency. When this happens, we'll be bending over backwards to satisfy the needs of powerful neighboring petro-states, Canada and Mexico.

They'll relish the role-reversal, I'm sure.

In fact, it will be imperative that the US not have a leading role, as it will have no credibility by this point.