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March 11th 2005

Asian Central Banks diversify reserves

In a new study released by the Bank of International Settlements, the world’s central bank, Asian central banks have been slowly diversifying their foreign exchange reserves. This news belies frequent announcements by these Central Banks to the contrary. Leading the pack is China, which has reduced the portion of its forex reserves held in Dollars by more than 15%. The collective process of diversification is intended to undue the buildup of reserves that took place over the last couple decades, as Asian Central Banks willingly financed widening US trade and current account deficits. The study also confirmed earlier reports that trading in Asian currencies and currency derivatives have increased multifold over the last few years. In fact, somewhat incredulously, trading in Yuan forward contracts has increased almost 300,000%. Asia Times Online reports:

It appears that Asian currencies have become more elastic and their central bankers increasingly determined to pursue an independent course as financial markets gain greater depth and begin to more accurately mirror the region’s importance to world trade.

Read More: Dollar catching Asian flu

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Posted by Adam Kritzer | in Central Banks, US Dollar | No Comments »

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