From Volume 6, Issue Number 10 of EIR Online, Published Mar. 6, 2007

World Economic News

Survey Reports Some Central Banks Shift Out of Dollar

A survey sponsored by the British Crown asset, the Royal Bank of Scotland Group Plc, published in the British-headquartered Central Banking Publications Ltd., reported Feb. 26 that between September and December 2006, the central banks of Italy, Russia, Sweden, and Switzerland made "major adjustments" in foreign-exchange holdings, increasing the share of euros and pounds sterling they hold, and decreasing the share of dollars. The survey questioned reserves managers at 47 central banks, which altogether hold approximately one-third of the reserves held by the world's central banks.

One central bank reserve manager told Central Banking magazine, that the central banks, whose reserves holdings have increased dramatically during the past five years, have sufficient reserves to handle such long-standing central bank responsibilities as "insuring against financial crisis," and are now seeking "higher returns from cash," according to the Feb. 26 Financial Times. The FT reported that this has led some central banks to invest in "riskier assets." Sean Callow, senior currency strategist at Westpack Banking Corp. in Singapore, asserted, "Central banks are open to saying they've been diversifying to improve returns and reduce exposure to any single currency."

This "diversification" would put downward pressure on the dollar, if carried out on a large scale. There has been an explosion of foreign reserves held by the world's central banks, as such reserves have increased from $2.05 trillion at the end of 2001, to $4.75 trillion at the end of the third quarter of 2006, according to figures compiled by the International Monetary Fund.

All rights reserved © 2007 EIRNS