By this, I mean that when I last wrote about Bernanke, it was already a foregone conclusion that Bernanke would be approved for a second term as Chairman of the Fed. While his confirmation is still pretty much a given (despite the requisite speechifying by a small but vocal opposition), the fact that it has been so bumpy has caused all of us talking heads to seek higher ground and look afresh at the situation. My intention here, however, is not to look at other potential candidates for Bernanke’s position, as such would be a complete waste of time at this point. Nor do I want to discuss the implications of Bernanke’s eventual confirmation, as I have already done that. Rather, I want to discuss the implications of the delay/complications in his being approved. You would think that there wouldn’t be enough meat here for a substantive analysis, but you would be wrong.

That the confirmation process has been anything but smooth tells us much about both public attitudes towards Bernanke and about the attitudes towards the Fed. With regard to Bernanke, there is now a strong amount of criticism being leveled against him – for fomenting the housing bubble via low rates, lowering rates too quickly, not injecting enough new money into the financial markets. That such criticism is often contradictory is not important. What is important, is that such criticism is increasingly being taken seriously by Bernanke et al, such that the Fed is gradually losing its position as an independent stabilizing force and is instead becoming a highly politicized organization, that may soon be subject to the same checks and balances as other branches of government.

Of course, many commentators (and not a small number of politicians, as evidenced by the progress of Ron Paul’s ‘Audit the Fed’ bill), couldn’t be happier with this turn of events. They argue that the Fed has too much power, and for too long has been able to successfully operate in a public gray area with the power of a government institution but the freedom of a private one. Bernanke – and supporters of the status quo – argue that the Fed needs to be independent so that it can continue to shape monetary policy in line with certain economic objectives, rather than the whims of political parties and competing ideologies.

Many of you are probably indifferent to this issue. But consider that the outcome of this battle (whether the Fed remains independent, or its decisions will become subject to Congressional scrutiny)  – of which Bernanke’s confirmation is part of – carries potentially serious implications for currency markets. It is arguable that the Dollar’s safe haven perception at the onset of the credit crisis stemmed in part from actions that the Fed took to stabilize currency markets, in the form of swap lines and liquidity injections. If such decisions could be vetoed by the government, suffice it to say that investors would begin to question whether the Dollar was really the king of currencies that it purports to see.

On the one hand, accountability in any organization is important. On the other hand, skepticism towards the government is currently near an all-time high, and I would venture to guess that most of you wouldn’t want to see the role of auditor filled by the government. While criticism towards the Fed is justified, turning it into a political institution probably isn’t the solution. Abolishing it all together, on the other hand, well, that’s a different story altogether…

Part of the problem with existing forex regulation is not that it’s insufficiently strict, but rather that it’s essentially optional. That’s because retail forex brokerages do not technically need to be registered in order to operate. Moreover, if they do register, they can choose between several organizations, depending on whose regulations most jive with their business models.

The Commodity Futures Trading Commission (CFTC) is probably the most prominent regulatory organization in retail forex, and of which most retail brokers are registered. [It is also the organization that has proposed the rule changes that everyone in forex is currently talking about]. It was only in 2008 that the CFTC was vested with the power to regulate retail forex, but contrary to popular, only its members (rather than all forex brokers) are subject to the sword of its regulation.

The Financial Industry Regulatory Authority (FINRA), the self-regulatory body for securities brokers,meanwhile, is trying to reach its regulatory powers into the arena of retail forex. In coordination with the SEC, it has proposed enhanced regulation for its own member brokers. Under this proposal, the handful of retail forex brokers that are registered with the SEC would be subject to stricter regulation than their counterparts under the control of the CFTC. Brokers registered only with the CFTC, then, would probably enjoy a competitive advantage (specifically the right to offer 10:1 leverage, instead of 4:1, as proposed by the SEC).

Then, there is the National Futures Association (NFA), which operates in association with the CFTC. Not to mention the exchanges, themselves, which impose their own set of rules on brokers. Make no mistake; all of these organizations are fairly vigilant in pursuing violations and in revoking membership for those brokers that really run afoul. The problem is that such does not nothing to stop a broker from simply registering with another regulatory agency instead, and/or not taking advantage of client apathy/laziness by either not registering at all, or even worse, lying about the registration.

In the end, most forex traders probably don’t care which regulatory organization ultimately wins the turf battle over the right to regulate retail forex. Ideally, though only one such organization would have such power, and all brokers would be subject. Given that this issue isn’t likely to be resolved anytime soon, for now, you would be wise to choose a broker that is registered with the CFTC. You can confirm a broker’s membership here.

With the appreciations of 2009 canceling out the depreciations of 2008, currency markets are close to “equilibrium.” Going forward, then, investors will to find a rationale other than sheer momentum for making bets. Strong commodity prices represent one such rationale. This is not only the case because currency prices are rising and are underpinning the recoveries in the respective countries that are rich in their production, but also because economic recovery – and “normal” growth as well, for that matter – in many other economies is built precariously on debt and the expansion of sovereign money supplies.

Commodity currencies – and commodities in general – have always held allure as investment vehicles because of their tangibility and necessity. Simply, modern economies depend on commodities for their functioning. Thus, countries rich in natural resources would seem to represent safe bets, since they can be assured of demand both during periods of expansion and during economic downturns.  The strong performance of commodity currencies in 2009 underscores this point, since despite the fact that prices for many commodities are well below the record highs of 2008, these currencies are very close to their 2008 highs.

More specifically, the Canadian Dollar often tracks the price of oil; this correlation will probably only strengthen when the oil sands of western Canada are developed. While rich in many natural resources, it is gold that both Australia and South Africa are famous for, and to which their currencies are often tethered. Brazil and New Zealand deal in a more diverse array of commodities, and the Kiwi and Real often move in tandem with broad-based commodities indexes. There is also the Mexican Peso (oil), the Russian Ruble (natural gas), the Norwegian Krona (oil), and Chilean Peso (copper), but the correlations between these currencies and the respective commodities for which they are famous tend to be looser.

Of course, there are many other economies that are rich in natural resources, but for various reasons (lack of liquidity, fixed exchange rates), their currencies aren’t (as) appropriate for investing. Even the currencies I listed above don’t always reflect commodities prices. For example, Canada’s fiscal problems and South Africa’s monetary easing will arguably weigh down the Loonie and Rand, respectively, in 2010.

For commodity pure-plays, your best bet, then, would be to invest in the commodities themselves. Of course, commodities don’t pay interest and their costs associated with holding them (whether directly or indirectly) and they tend to fluctuate with greater volatility than currencies. Another option is the just-announced WisdomTree Commodity Currency Fund, an ETF composed of a basket of commodity currencies, many of which I listed above.

The recent blow-up surrounding the downgrade of Greece’s debt and subsequent explosion in the price of credit default swaps (which insure against default), have shined a spotlight on the fiscal problems of many of the EU’s member states, including Spain, Italy, Portugal, Ireland, and others. The situation in Japan, meanwhile, has been much more gradual, though equally dangerous: “In 1990, Japan’s total national debt load was 390% of GDP. Now it’s 460%. In the interim, the country has suffered sub-par growth and routine recessions.”

The fiscal problems of the US and UK governments as well as the debts of their citizens and companies have long been famous. For that reason, when the sick/healthy paradigm was first proposed, they were the two most obvious candidates. Having conducted some additional analysis, it’s now patently obvious that the same problems affect the EU and Japan. Given that their economies are also in weak shape, it doesn’t really make sense to group them in with the healthy currencies. Canada (and the Loonie, by extension) is also looking sickly, with its surging national debt and record budget deficits. The only reason it is being spared from the list is because of its richness in natural resources; in other words, it has something tangible that it can use to pay its debts.

Among the so-called majors, then, only the Swiss Franc, Canadian Loonie, Australian Dollar, and New Zealand Dollar get clean bills of health. A re-casting of the paradigm, then, would put the super-majors (Euro, Yen, Pound, and Dollar account for more than 75% of all foreign exchange activity) on one side, and virtually every other currency on the other. Given that national debt ratios and interest rate differentials diverge across the same boundary, it’s not hard to conjure a basis for this partition. “The IMF forecasts that gross government debt among advanced economies will continue to rise until 2014, reaching 114% of GDP, compared to just 35% for developing nations.” Adds another analyst: “If you look at currencies as a proxy for growth, then you can anticipate that emerging-market currencies will appreciate against the dollar.”

There is also a correction that is taking place within the group of sick currencies. Investors have come to realize belatedly that a Dollar sell-off doesn’t make any sense against the Euro and Yen, whose economic and fiscal situations could hardly be characterized as healthy. “Against the majors, we’re pretty close to the end, if we haven’t already reached the end of a bear market in the dollar,” asserted one analyst. Given that the Dollar’s demise had all but been taken for granted, this reconsideration isn’t coming natural. Volatility has surged to a 3-month high, and investors are responding by moving funds back to the US. Among the majors, then, it looks like the Dollar is still the “least worst” currency.

The Rand represents an interesting case study because it sits at the nexus of several trends. The first is the movement of funds into currencies with high interest rates. (The benchmark rate in South Africa is 7%). The second is the movement of funds into economies that are rich in natural resources. (South Africa is the world’s largest producer of platinum and the third largest producer of gold). The third is the movement of funds generally into emerging market economies. (South Africa’s economy was one of the world’s strongest [perhaps least weak is more apt] economies in 2009).

Thus, we should ask whether then Rand’s stagnation and projected decline is due to unique circumstances, or if instead it represents a reversal of one or more of these trends. Let’s start by looking specifically at South Africa. First of all, natural resource prices (gold and platinum) remain buoyant. Gold, as most of you are probably aware, is still hovering close to its (nominal) all-time high, while the price of platinum has resumed its upward trend, and is arguably closer to is all-time high than oil. In short, the pessimism can’t be explained by commodity prices.

How about interest rates? Well, South African rates are among the highest in the world. Despite a handful of cuts totaling 500 basis points over two years, the benchmark rate still stands at a healthy 7%, which is significantly higher than its counterparts in the developed world. Unfortunately, inflation in South Africa is also quite high (6%), which means real interest rates are closer to 1%. In addition, while Central Banks in other countries are contemplating raising rates, South Africa hasn’t ruled out cutting its benchmark further.

What about the fact that South Africa is considered to be one of the world’s vanguard emerging market economies? Well, this too, looks shaky. In contrast to the modest contraction in 2009 that made it a standout, 2010 may not be so kind. Analysts are expecting growth of only 2% in 2010, near the bottom of all economies, emerging market and industrialized. The US economy is projected to grow by 2.6%, in comparison.

With the exception of commodity prices (and perhaps the World Cup), there really isn’t much to be excited about when it comes to the South African Rand these days. For those looking for a growth play, South Africa isn’t it. For those employing a carry trade strategy, the Rand is also not an attractive candidate, since the positive interest rate spread it enjoys (small in real terms and shrinking) is hardly enough to compensate for the risk of currency depreciation. Those looking at Rand technicals (forgive me for not citing specifics here) must be worried that the Rand’s monumental surge in 2008 could only be followed by a correction. Not to mention the fact that various political factions in South Africa are calling for the Rand to be pegged to the Dollar at a rate 33% higher than current levels.

When you consider also that asset prices in emerging markets are now stalling, as investors fret about possible bubbles and contemplate bringing cash “home,” and also that the carry trade is slowly falling out of favor, it’s no wonder that analysts are gloomy about the Rand’s near-term prospects.

It’s not clear whether €1.50 was ever conveyed by the Swiss National Bank explicitly, or whether it was merely accepted implicitly by the forex markets. Regardless, traders certainly respected this boundary, and for most of 2009, dared not challenge it. At the end of December, as I said, there were two important developments, which bore on the EUR/CHF cross. First, credit downgrades and the (far-off) prospect of sovereign default in the EU set loose a wave of panic, after which the Euro has generally fallen. The second development was a subtle change in the wording of the SNB’s forex policy. Previously, it had promised to prevent any “appreciation” in the Swiss Franc, whereas now it is only interested in stopping an “excessive” appreciation.

It’s not clear whether the Swiss Franc suddenly blasted through the €1.50 because investors believe(d) it was undervalued, or if instead it merely got caught up in the Euro’s weakness. Perhaps, investors realized that now they had an excuse to sell the Euro and no longer had to worry about whether actually doing so would risk provoking the SNB. It was probably a combination of both.

For its part, the SNB (through its President and chief mouthpiece Philipp Hildebrand) is already sending subtle clues to the forex markets about the Franc’s prospects. Hildebrand recently told reporters both that “Raising interest rates would be inappropriate,” and “Since the recovery is still fragile, the current expansionary monetary stance will need to be maintained until the recovery strengthens and deflationary pressures recede.” In other words, those that bet on Franc’s appreciation shouldn’t expect any return on their investment, in the form of higher interest rates.

He also reiterated the SNB’s stance on the Franc more explicitly: “Our policy is clear: we will resolutely prevent an excessive appreciation as long as there are deflationary risks.” Given that the markets called his bluff in December, investors are unfazed: “The difference in the number of wagers by hedge funds and other large speculators on an advance in the franc compared with those on a drop, so-called net longs, was 13,926 on Jan. 12 compared with net shorts of 2,780 a week earlier.”

In all likelihood, the Franc will continue to hover around €1.50, only below that barrier, rather than above it. As long as the Franc remains basically stable, either in literally not moving, or in appreciating at a snail’s pace, the SNB probably won’t get involved. After all, the change in wording to its forex policy is a tacit admission that €1.50 is arbitrary and that perhaps the Franc could stand to gain a little bit, especially in the context of the EU fiscal issues. Not to mention that intervention is expensive and ineffective in the long-term.

If traders really get ahead of themselves, though, Hildebrand has already proven that he’s not afraid to act.

Recently, gold prices have collapsed at virtually the same rate as the Euro, with the result being a near-record high short-term correlation between EUR/USD and gold prices. This has caused no shortage of confusion among gold-watchers, which are accustomed to seeing the strongest (inverse) correlation with the US Dollar. This change is causing everyone to rethink some classically held assumptions about gold prices.

The foremost of which is that gold is chiefly a hedge against the Dollar, which is a symbol for inflation and erosion of value. [In fact, analysts argue that gold has little real purpose (besides a handful of trivial practical uses, such as jewelry), especially since holders of gold don't receive interest, there is little reason to own it other than as a store of value].  Thus, as the Dollar has declined over the last five years, gold has soared. Investors who are nervous about perennial budget deficits in the US and the skyrocketing national debt, have turned to Gold because of the belief  it will continue to hold its value even (or especially) if the US government is forced to devalue its debt by devaluing the Dollar. While this tenet underlies the gold/Dollar inverse relationship, the long and short of it is that investors typically buy gold when the Dollar falls, and vice versa. Thus, when the credit crisis struck and the Dollar rallied, gold prices fell, despite the fact that the US was now more likely to default on its debt.

In the last month, however, the Euro has taken center stage in dictating the price of gold. This is most likely because of the sovereign debt problems of certain EU countries. A not insignificant number of which well exceed the budget (not to exceed 3% of GDP per year) and debt (not to exceed 60% of GDP) limitations imposed on them by their membership in the EU. Recent credit rating downgrades have underscored an increasing likelihood of default, which has been duly noted both by the forex and gold markets. As the Euro has dropped (quite dramatically in fact), so has gold.

According to the current paradigm, this is not wholly unsurprising, since the Euro’s fall has naturally been mirrored by a rise in the Dollar. Thus, if you continue to look at gold prices in terms of the Dollar, it seems naturally that a rising Dollar is being accompanied by falling gold. On the other hand, the fact that the Dollar is suddenly rising has little to do with a change in US fundamentals, and instead reflects the fact that in forex, it’s impossible to short all currencies simultaneously, even if sometimes fundamentals would justify such an approach.

In other words, that certain EU member states are more likely to default on their respective debt obligations has limited bearing on whether the US will also default. [If anything, it increases the likelihood, since a default in the EU would likely send sovereign borrowing costs higher around the world, straining the ability of the US to continue borrowing]. By extension, the current drop in the price of gold is fundamentally irrational, especially when viewed relative to currency markets.  To borrow a hackneyed expression, perhaps it’s time for a paradigm shift.

For those of you who haven’t been following this story, let me give you an overview. On January, the U.S. Commodities Futures Trading Commission (CFTC) proposed a set of sweeping changes to the rules that currently govern forex trading in the US. Among the changes are beefed-up requirements for forex dealers which would be legally required to register with the CFTC as “retail foreign exchange dealers”, and satisfy certain capital adequacy requirements, aimed at mitigating counter-party risk (i.e. dealer bankruptcy.) In addition, “introducing brokers,” (i.e. those that act as intermediaries between customers and dealers) would be required to sign exclusivity agreements with dealers, who would in turn be required to vouch for their brokers. Last, but not least, would be a bombshell change that would shrink leverage (i.e. raise margin requirements) to a maximum of 10:1.

We have are now partially through a 60-day “comment period,” during which the CFTC is soliciting feedback from stakeholders to determine if and in what form it should ratify these changes. And feedback is indeed reverberating around the blogosphere (more so than traditional media, based on my observation). Most industry insiders are predictably opposed to the regulation, on the grounds that it will make them less competitive with their (lightly regulated) foreign counterparts. Based on an online poll, it seems the majority of forex traders are as well. On forums, many have promised to shift their accounts overseas (or are gloating about already having done so) as soon as the measures pass. Meanwhile, the blogger to come out most prominently in favor of the regulation, is none other than Karl Denninger, who champions the the potential increase in transparency in decrease as leverage, but notes that it will probably bring about the “Death of Retail Forex.”

Personally, I am inclined to agree with Denninger (though not his flawed math, nor his erroneous tirade against rollover fees), on the grounds that transparency – especially with regard to commissions, which are dissimulated and ultimately buried in spreads – can only benefit customers. In addition, requiring all brokers and dealers to register, while strengthening the CFTC’s jurisdiction over forex will surely go a long way towards minimizing fraud, which remains rampant and in disguise, even among major brokers. Interestingly, industry lobbyists have come out in tepid support of this measure, but only because it will also raise the barriers of the entry.

As for the clause that aims to limit margin – and is really the only one that anyone is seriously protesting – this is also a step in the right direction. While libertarians and the 1% of traders that have turned a profit employing 100:1 leverage (the current U.S industry standard) will surely disagree, I think that sometimes, people need to be protected from themselves. I don’t want to frame this debate in political terms, however, since at the end of the day, such high leverage is both de-stabilizing to the market, and unnecessary. It’s destabilizing, because of the massive speculation it invites, and its resulting contribution to volatility and systemic risk, and unnecessary because it’s impossible to produce a viable trading strategy that’s built on borrowing 100 times as much money as you are able to commit. For the sake of comparison, consider that the average hedge fund, its reputation for excessive risk-taking not withstanding, will rarely employ leverage greater than 2:1. How about another comparison: Has 100:1 leverage (i.e. 1% down-payment) been good for the housing market, from both the standpoint of individual and society?

As for the argument that retail traders will instead send their money off-shore to gamble (cough, I mean trade), well I suppose that’s possible. But given that a related piece of  recent regulation has been very successful at preventing Americans from patronizing offshore casinos, I’m sure the government can ensure a high rate of adherence with this piece as well. But obviously, this too, is a highly charged political issue, and it’s probably not practical to examine forex from this angle.

In the end, I think the government has (rightly) identified retail forex as the casino it is, and is finally taking steps to make it legitimate. For regular readers of the Forex Blog and those that follow its implicit approach (i.e. not churning your portfolio on a daily, or even weekly basis), I am confident that this regulation, if approved, will NOT adversely affect you. As for everyone else, maybe it’s time to either re-think your strategy, or ask yourself whether trading forex is still right for you.

Alas, 2010 has seen a stabilization – even a modest appreciation – in the Dollar, which means the carry trade is here to stay. For now at least. This is based on two abiding notions. The first is that US short-term interest rates – and, hence, borrowing costs for carry traders – will remain low for the foreseeable future. The second belief is that the most attractive investment opportunities can still be found outside the US, namely in emerging markets. Let’s explore both of these ideas in greater details.

The minutes from its last monetary policy meeting suggest that the Fed is in no hurry to raise rates. On the contrary, it may ease monetary policy even further. According to St. Louis Federal Reserve President James Bullard, U.S. interest rates may remain low for “quite some time.” Added another analyst, “The U.S. economy is chugging along, albeit at a slow pace, and that means the Federal Reserve has no real urgency to raise interest rates.”

In short, investors are rapidly scaling back their expectations for interest rate hikes; futures prices now reflect a mere 20% of a hike by the Fed’s June meeting. If Bullard’s comments carry any weight, investors might turn their attention to the other tools in the Fed’s arsenal- namely quantitative easing. A rise in inflation, portended by many economists, could spur the Fed to draw money out of the markets by selling some of its $1 Trillion in credit securities.  Regardless of what it decides on this front (expand, hold steady, rein in), however, the long and short of it as that interest rates aren’t going anywhere anytime soon. And that means funds will remain cheap and available for carry trading.

On the other side of the equation is an enduring optimism in emerging markets. The last decade has been very kind to investors that bought emerging market stocks, returning a “modest” 100% in some cases and an incredible 1000% in others. The S&P, in contrast, declined slightly over the same period. In some ways, 2009 was a microcosm for this trend, as the MSCI emerging markets index gained 73%, compared to 25% in the S&P. While investors are cautious about bubbles forming in some of these markets (bubbles seem to form and burst with alarming regularity), they continue to pour money in. $75 Billion was added to emerging market equity funds in 2009, to be precise. They are buoyed by predictions that emerging markets will account for the lion’s share of global GDP growth going forward.

This has facilitated a twist on the carry trade, whereby investors are now commonly using Dollar-funded loans to buy stocks, rather than sit back and earn a modest return investing in comparatively low-risk interest-bearing securities. This “traditional” carry trade is perhaps less popular now because interest rates are at all-time lows in many countries. But this is already starting to change as a healthy recovery in emerging markets has paved the way for rate hikes. While this could put a damper on stocks, it would re-open the bread and butter for carry traders, which is to sit back and earn a simple interest rate spread. Moreover, these carry traders can rest assured that if/when the Fed eventually raises rates, Central Banks in Asia and Latin America will almost certainly be in the same position.

The main threat at this point is uncertainty. “Investors plying the carry trade should tread cautiously — economic data will continue to be volatile, as befits a recovery that will proceed in fits and starts,” summarizes one columnist. In short, while fundamentals continue to support a carry trade strategy, it could be undone (rapidly) by an uptick in volatility.

I’m guessing a lot of you are probably in the same boat as me, wondering why forex reserves are worth paying any attention to. While busy looking at complex charts and GDP/inflation statistics, however, we forget that a currency’s value is fundamentally determined by supply and demand. In other words, while bullish/bearish indicators and interest rates are the proximal factors behind forex, the supply/demand dynamic is the ultimate factor. And Central Banks, collectively, comprise one of the largest contingents behind this supply/demand.

As I was saying, this equilibrium is currently undergoing a seismic shift. Specifically, “The dollar’s share in official foreign exchange reserves in 140 countries has fallen to its lowest level since euro cash was introduced in 2002, according to the IMF.” The Euro, Yen, and “other currencies” (i.e. minor currencies that are collectively important but individually unimportant), meanwhile, have seen increased interest from Central Banks. This is consistent with another report I saw recently, enunciating that,”Global reserves probably gained by about $180 billion in the third quarter with U.S. dollar-denominated reserves accounting for about $50 billion or less than 30 percent.”

This came as a shock to many market observers, who assumed that many economies lacked either the capacity or the impetus to diversify their reserves, especially since many of them peg their currencies to the Dollar. These countries are savvier than they used to be, however: “Emerging market central banks are selling their local currencies and buying U.S. dollars to prevent appreciation of their currencies. They’re avoiding having a bigger concentration of U.S. dollars in their portfolio by turning around and selling dollars against the euro and other currencies.”

Even industrialized countries, whose forex reserves are dwarfed by their emerging market counterparts, are jumping into diversification. After a nearly 10-year hiatus, Canada will jump back into the forex reserve game, by $1 Billion in foreign currency bonds, denominated in Euros. According to one analyst, “This…should be viewed in the context of the entire developed world, which is in the process of generally ramping up the size of its foreign reserves, and subtly shifting away from USD.”

The wild card is China. I use the term wild card both because China’s forex reserves are the world’s largest (recently confirmed at $2.4 Trillion) and hence whatever it decides will have major implications, and because it does not report the specific composition of its reserves to the IMF, so it’s unclear how it’s outlook is changing from month to month. Plus, it offers only vague indications of its intentions, so all we can do is speculate.

But speculate we will! While China has publicly maintained its support for the Dollar, quasi-publicly, there is an abundance of concern. This has most recently manifested itself in the form of internal calls for China to use its hoard of reserves to buy natural resources abroad. This wouldn’t necessary involve large-scale selling of its Dollar-denominated assets – since most oil contracts, for example, are still settled in Dollars – but would certainly involve shedding some of them.

As for why Central Banks are dumping Dollars (or simply choosing not to accumulate more of them), that seems pretty obvious. Even ignoring the Dollar’s problems, a well-balanced portfolio is an exercise in risk management. Especially now that many of the Dollar’s rivals are as liquid and as stable as the Greenback, itself, it makes little sense to put all one’s eggs in one basket.