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Zero-Bound Fed Breaks Dollar
The Fed's shift to a range-driven fed funds target intensifies the yield assault to the world's main reserve currency.
Nazar. thanks for the kind words. I agree with you about the euro. It certainly passed several major tests and the diversification of FX reserves is gradually progressing. I predicted in my book that in 2010, wed see 50%-50%. between USD and EUR. Chapter 7 has a whole analysis on central bank diversification. As for competitive devaluations, not sure there will be any trading wars. The devaluations are mainly a result of central bank policies. A key question is when will China's economy recover and gradually get back on its commodity-led spending binge. Once we see that, PBOC can revalue again and we may see 5.0 in 2 year's time.
Ashraf
i held euros but hada bit of pressure recently when it went down to 1.23 range but luckily things started to improve. Its clear that FED is digging a hole for the dollar and thats the only option for the US economy - specially when oil has retreated.
As USD is around 65% of world reserve and Euro around 24%, while Yen and Pound have a much smaller role, even when the eurozone also bleeds further, would it still not be the only viable alternately as reserve when more and more central banks consider to decrease their exposure to the dollar? I think this is a strong tail wind for the euro.
Also, I think the euro has passed its major test in the currency markets since its inception. Euro has sustained and eastern europeon currencies have plummeted clearly showing the stability in prices that comes with a multinational currency.
Overall, how do u think china's yuan will behave in the next few years? does it have any chance to become one of the major reserve currencies? how is china going to fund its stimulus package? by selling foreign reserves or by just printing more money and practically devaluing the yuan?
I think we have a wave to competing devaluations coming up between countries combined with protectionism in trade.
best wishes and u r the man!
j