Central banks snubbing the dollar

The world's central banks are starting to get serious about diversification, and it all started when the Federal Reserve started monetizing debt.

(Bloomberg) -- Central banks flush with record reserves are increasingly snubbing dollars in favor of euros and yen, further pressuring the greenback after its biggest two- quarter rout in almost two decades.
Policy makers boosted foreign currency holdings by $413 billion last quarter, the most since at least 2003, to $7.3 trillion, according to data compiled by Bloomberg. Nations reporting currency breakdowns put 63 percent of the new cash into euros and yen in April, May and June, the latest Barclays Capital data show. That’s the highest percentage in any quarter with more than an $80 billion increase.
World leaders are acting on threats to dump the dollar while the Obama administration shows a willingness to tolerate a weaker currency in an effort to boost exports and the economy as long as it doesn’t drive away the nation’s creditors. The diversification signals that the currency won’t rebound anytime soon after losing 10.3 percent on a trade-weighted basis the past six months, the biggest drop since 1991.
“Global central banks are getting more serious about diversification, whereas in the past they used to just talk about it,” said Steven Englander, a former Federal Reserve researcher who is now the chief U.S. currency strategist at Barclays in New York. “It looks like they are really backing away from the dollar.”
The dollar’s 37 percent share of new reserves fell from about a 63 percent average since 1999. Englander concluded in a report that the trend “accelerated” in the third quarter. He said in an interview that “for the next couple of months, the forces are still in place” for continued diversification.
America’s currency has been under siege as the Treasury sells a record amount of debt to finance a budget deficit that totaled $1.4 trillion in fiscal 2009 ended Sept. 30.

That's called putting their money where their mouth is. This is only Stage 1 for the end of the dollar being the world's reserve currency. But central banks are already planning for Stage 2.
Everyone should be aware of consequences of this transition. They need to get their savings out of dollars as soon as possible.

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I read that last night

while the article title made it sound like the dollar was about to collapse, the article itself seems to imply it's already happened.

Seriously, trying to subtract away that Armageddon fear, what is the probability in the big picture we're a Russia or a S. Korea or Thailand at the moment?

The dollar won't be allowed to crash

Sort of like the frog in the pot of boiling water. The dollar is going to be cooked very slowly, otherwise the working class will notice.
This all started in 2002, but is only slowly being noticed now. The frog is already half-cooked.

The deflation of assets is being offset by the devaluation of the currency. It keeps price deflation from setting in, sort of like what happened in Argentina on a smaller scale.

right we already have Asia in the rescue

and my impression is they are playing the "save the dollar" to save their U.S. Treasuries and export driven mercantilism. (ooo, another blog post topic, it used to be China was the mythical magic 1.3B consumer market that in reality never materialized so now we can talk about the mythical magic American consumer market that is now living out of cardboard boxes and tent cities!)

But I am still wondering about the (and I guess we're back to that black swan thing again) possibility of a sudden debt default/collapse of the dollar, as in a few weeks.

That's pretty radical

But I am still wondering about the (and I guess we're back to that black swan thing again) possibility of a sudden debt default/collapse of the dollar, as in a few weeks.

Unless you are predicting a complete seizing up of the entire world's credit markets, I don't see that happening. A friend once told me that you should never underestimate the ability of the ruling elite to manage a crisis.
Notice he didn't say "fix a crisis", just "manage" it.

OTOH, ZeroHedge (who is becoming one of my favorite bloggers) noticed an interesting little tidbit from the Fed's foreign currency reserves.
Yes, the Fed has foreign currency reserves too. They just never needed them before.

The big question mark at the end of August is when the U.S. International Reserve Position increased by almost 50%. The reason for this: a near quintupling of S.D.R. holdings on the U.S. balance sheet in the span of one week - from August 21 to August 28.
By purchasing $40 billion in SDRs virtually overnight, what the Fed has done is to increase the value of the entire basket pro-rata, while in the process reducing the actual value of the dollar (which is a weighted constituent of the SDR basket). This was an operation to reduce the dollar's value: pure and simple. In many ways it explains why the DXY has continued its straight one way decline since the beginning of September, when many pundits assumed the market was finally going to tank on profit taking after Labor day. By performing this dollar adverse transaction, the Fed sent a loud and clear signal what the Fed was going to do going forward vis-a-vis the i) dollar and ii) its derivative, the stock market.
And what is worse, this is not a roundabout or circuitous way of devaluing the dollar: this is head on intervention. It is one thing to print trillions of MBS and Agencies and to monetize Treasuries, where one could say Tim Geithner's claim that the U.S. is for a strong dollar, and the dollar is only weak as a function of supporting housing prices. That could potentially fly as an explanation. However, when the Fed is actively and purposefully destroying the dollar's worth via transactions such as material SDR purchases, then it truly demonstrates Geithner's statement as an bold faced lie to the American public.

Strange sh*t like this provides a field-day for konspiracy-minded people like myself. It makes a person ask questions like: "Just what in the Hell is going on?"

I think its already time for me to write another article about the dollar.

Zero Hedge added to the middle column

The middle column isn't set in stone as well. I just added them. These are blogs which have fast moving content, they write daily and also usually write added insight into various MSM topics and/or original analysis from first principles.

I agree, I've been checking out zero hedge a lot lately, they seem so have some sort of inside track somewhere that appears no where else.

oops, on a sudden dollar collapse, I don't think it will happen but I also believed a total financial Armageddon won't happen (and in fact did not happen, but was a "disaster capitalism" moment) ...I'm a firm believer in the long dark slide to 3rd world status.

Global Reserve Currency

A recent CNN television broadcast gave the impression that Esperanto aims to be a single global language. The comparison was with a global reserve currency, instead of the US dollar.

See http://www.youtube.com/watch?v=ZpC8mPk4QBM

May I put the record straight? Esperanto intends to be an auxiliary language, or a second language for all.

Please see http://www.lernu.net for confirmation.

we don't care what CNN says

esp. in comparisons to some political whatever stuff on some agenda to create a new international language whatever.

I mean seriously....if it's a trivial story, you can bet CNN will cover it, into the ground, on every show, 24/7 and if it has any meat in it...you can bet CNN will put on "experts" who get it usually completely wrong. (this is minus Lou Dobbs, although one suspects he is being muzzled, but he still manages to get some real economists on his show periodically, but he too is fallen into the CNN "noise machine" of useless, triviality and diversionary topics..
). Faux news? Let's not even go there. I might flip on Glenn Beck because I consider that a comedy show.

Take health care....ever see a story on CNN about what's actually in the bills and have that story be accurate? Nope, it's all about the polls and brew ha ha...i.e. the trivialities.

Central Banks snubbing the dollar

"World leaders are acting on threats to dump the dollar while the Obama administration shows a willingness to tolerate a weaker currency in an effort to boost exports......"

What a joke! I love it when the US can't control the fall of its currency so they claim it will help exports. My respnse..."What exports?"

The US exported its manufacturing base since the Reagan years and now has nothing or close to nothing to export. Presently there are only 11 million people in the US out of 300 million who work in manufacturing. The lowest it has ever been.

Maybe if the US had changed to the metric system in the '70s when everyone else in the English speaking world did, they might have industries producing goods the world's people want to buy. Instead they forced American companies to export the job base so they can sell products in the metric world.

Poverty is a terrible price to pay in order to cling to obsolete measurements and standards.