| Asia will diversify without dumping dollars { February 23 2005 } Original Source Link: (May no longer be active) http://news.ft.com/cms/s/07fd38da-85d7-11d9-9011-00000e2511c8.htmlhttp://news.ft.com/cms/s/07fd38da-85d7-11d9-9011-00000e2511c8.html
Asia banks ‘will not dump any dollars’ By Steve Johnson and Chris Giles Published: February 23 2005 20:16 | Last updated: February 23 2005 20:16
The dollar stabilised on foreign exchange markets on Wednesday after policy makers sought to banish the idea that Asian central banks might diversify their reserves from US dollar assets. Despite their comments, the currency clawed back only a fraction of Tuesday's losses, recovering 0.3 per cent to $1.322 to the euro and 0.9 per cent to Y104.9 ($1.01) against the yen and highlighting continued nervousness in the currency markets.
The Bank of Korea said that while it was planning to diversify more of its reserves into higher yielding non-government bonds, it was not planning to sell existing dollar holdings.
US officials also sought to calm fears. Travelling with George W. Bush in Germany, Stephen Hadley, national security adviser, said: “There's no news about making adjustments in holdings; banks do that.”
Japan, which has the world's largest foreign exchange reserves $841bn as of the end of January reiterated it does not intend to sell dollars. And Taiwan, with $243bn of reserves, said it had not been selling dollars.
But analysts questioned the appetite for funding a US current account deficit of $2bn a day, 83 per cent of which was financed by central banks in 2003.
“Nobody is suggesting [central banks] sell dollars, but all they have to do is buy fewer dollars and that will put downward pressure on the dollar,” said Tony Norfield, global head of foreign exchange strategy at ABN Amro.
One senior strategist at a large bank said: “I don't think the market has been reassured. Diversification has to be on the agenda, central banks just don't want to make a song and dance about it.” The BoK told the FT that around 70 per cent of its $200bn of forex reserves were invested in dollar-denominated assets.
Additional reporting by James Harding in Mainz
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