Titel : This is not a currency crisis
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This is not a currency crisis
By John Normand
Published: September 22 2009 17:35 | Last updated: September 22 2009 17:35
The latest sell-off in the dollar has prompted renewed talk of reserve diversification – but this is not the stuff a currency crisis is made of, says John Normand, global head of FX strategy at JPMorgan.
“Quantifying reserve diversification is financial alchemy – often attempted and never successful,” he says. “But there is decent circumstantial evidence that this process has accelerated since June.”
Mr Normand notes that global foreign exchange reserves are growing at $100bn a month, while official purchases of US assets are running near $50bn. “This sort of divergence is unusual in an environment where rate spreads between the US and the rest of the world are stable,” he says.
Mr Normand points out that official investors are still sizeable net buyers of US assets, even if the dollar share of total reserve recycling appears to be declining.
“We could pander to the dollar-crisis camp and claim that this divergence marks the beginning of the end for the dollar and US asset markets where foreign ownership dominates, but that course would be too easy,” he says. “It would also be wrong.
“The dollar crisis scenario still looks low-probability for the next three to six months since the US manages to attract a high absolute level of official financing, even though the US’s relative share of global reserves may be declining.”
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Published: September 22 2009 17:35 | Last updated: September 22 2009 17:35
The latest sell-off in the dollar has prompted renewed talk of reserve diversification – but this is not the stuff a currency crisis is made of, says John Normand, global head of FX strategy at JPMorgan.
“Quantifying reserve diversification is financial alchemy – often attempted and never successful,” he says. “But there is decent circumstantial evidence that this process has accelerated since June.”
Mr Normand notes that global foreign exchange reserves are growing at $100bn a month, while official purchases of US assets are running near $50bn. “This sort of divergence is unusual in an environment where rate spreads between the US and the rest of the world are stable,” he says.
Mr Normand points out that official investors are still sizeable net buyers of US assets, even if the dollar share of total reserve recycling appears to be declining.
“We could pander to the dollar-crisis camp and claim that this divergence marks the beginning of the end for the dollar and US asset markets where foreign ownership dominates, but that course would be too easy,” he says. “It would also be wrong.
“The dollar crisis scenario still looks low-probability for the next three to six months since the US manages to attract a high absolute level of official financing, even though the US’s relative share of global reserves may be declining.”
Copyright The Financial Times Limited 2009. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.
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