(OPE-L) Re: dollar versus euro prospects

From: glevy@PRATT.EDU
Date: Thu Nov 25 2004 - 18:21:53 EST

Putin and Russia may be a big player in this move.

This may represent a realignment of capitalist nation-
states and a period of heightened inter-capitalist

In solidarity, Jerry

Russia Weighs Shifting Its Holdings to Euros
International Herald Tribune

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.
two-thirds of its $113 billion in foreign-exchange and gold reserves  are
denominated in the dollar, which has reigned for decades as the
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.

The dollar showed little change today against the Japanese yen,
edging up to
103.41 yen in afternoon trading in New York from 103.25 yen late

With the dollar falling, and the euro acting as the pressure valve,  analysts
said it was a logical step for the Russians to consider adding to  their euro
reserves, which now make up less than one-third of overall foreign- exchange
and gold reserves. Much of Russia's trade is conducted with the 12  European
countries that use the euro, but much of the inflow of foreign
capital is in
the form of dollars, for Russian oil.

"It makes sense for their reserves to accurately reflect where their  trading
is," said Paul Mackel, a currency strategist at ABN AMRO in London.

"For the weakening dollar," he added, "it's more fuel on the fire."

Over the last nine trading days, the dollar has weakened against the  euro
during all but two of those sessions, with the euro rising to levels  it had
not previously touched during its nearly six-year life. Though
politicians have called on American policymakers to do something to  stem the
dollar's fall, which makes European goods more expensive in America,  the
Bush administration seems willing to let the dollar depreciate
currency market analysts say.

At two international gatherings over the weekend - the Group of 20
industrial and developing countries and the Asia-Pacific Economic
Cooperation forum - American policymakers chose not to focus on the  dollar
in their public pronouncements. That sent a message of "benign
about the dollar to the currency markets, Mr. Mackel said.
The comments today by Mr. Ulyukayev, the Russian central banker,
followed a
warning from Alan Greenspan, chairman of the Federal Reserve, that  overseas
investors, who have been pouring money into the United States in
years, might start to diversify into nondollar-denominated assets.

"A diminished appetite for adding to dollar balances must occur at  some
point," Mr. Greenspan said at a gathering of bankers in Frankfurt on  Friday.

Economists, too, have said such a shift is inevitable given the size  of the
United States' current-account deficit, a broad measure of America's  trade
in goods and services. Because the United States imports far more  than it
exports - the current-account deficit is running at 5.7 percent of the
nation's gross domestic product - it has required huge inflows of  funds
the rest of the world to keep the dollar buoyant.

Stephen Jen, head of global currency research at Morgan Stanley in  London,
said Mr. Greenspan's comments might indicate that the Fed is growing
increasingly concerned about the size of the American trade and now  sees
weaker dollar as the only way to shrink it.

"If the theme 'drive the dollar lower to help narrow the U.S. current
account deficit' gains momentum in the U.S., the dollar would
effectively be
devalued," Mr. Jen wrote in a note to investors.
--- End forwarded message ---

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