[A-List] Asian CBs play chicken with the dollar

["Nestor Gorojovsky" <nestorgoro@xxxxxxxxxxxxxxx>]

This reached me from Caracas.  My Venezuelan correspondent's 
"Subj.:"line is "Keeping watch of each other", which I feel to be 
better than the original title by Bloomberg.  

Anyhow, it is not the title that matters most, but the kind of news 
and the kind of agency that sent it to the air.  

I leave you with this interesting piece of news that reached me 
through a Bolivarian friend.  Maybe this is the time to silently sell 
one's own dollars and purchase Euros, or --good old gold? Was it Mark 
Jones or Anne W. who said that if gold became global standard of 
prices again, it would be costing something like u$s 80,000 the 
ounce, or it was just some bad dream I had after an evening of (not 
so) good wine?

------- Forwarded message follows -------

Date sent:      	Fri, 11 Mar 2005 10:04:44 -0400
From:           	Bob Weiss <bobweiss@xxxxxxxxx>
Subject:        	Observándose los unos a los otros

Bloomberg ? New York, NY ? USA ? 11 de Marzo de 2005

Asian Central Banks Play Chicken With the Dollar: 
by Caroline Baum 

March 11 (Bloomberg) -- Asian central banks are poised on the edge a 
cliff. Who will be the first to jump? Late last month, traders 
pummeled the dollar when they learned South Korea's central bank was 
looking to boost returns on its foreign-exchange reserves with non-
U.S. government bonds. Within hours of the revelation, courtesy of an 
annual report to the legislature that was hyped by the media, the 
Bank of Korea was forced to issue a press release saying it had no 
plan to sell dollars. Fast forward two weeks, and China's central 
bank governor made noises about dropping the yuan's peg to the dollar 
in favor of a basket of currencies. China's finance ministry 
countered with an opaque statement -- something about keeping the 
currency stable. The same day, the Japanese government found itself 
in a similar predicament of having to appease foreign-exchange 
markets by contradicting itself. Prime Minister Junichiro Koizumi 
told the budget committee of the upper house of parliament that Japan 
needed to diversify its foreign-exchange reserves, which at $840.6 
billion are the world's largest and are held mostly in U.S. dollars. 
This time, it took less than an hour for a no-name Ministry of 
Finance official to issue a we-didn't-mean-it statement. The Prime 
Minister was speaking generically, the nameless official said. Dollar 
Dilemma All across Asia, central banks that peg or manage their 
currencies to the dollar are facing the same predicament: whether to 
shoot themselves in the foot by reducing their dollar holdings, 
thereby depressing the value of the dollar even further; or to dig 
themselves into a deeper hole, buying more dollars to prevent their 
currencies from appreciating and plowing the money into U.S. 
Treasuries. Currently foreigners own 53 percent of privately held 
marketable U.S. Treasuries, which excludes the Federal Reserve's 
holdings. More than half of that is held by foreign central banks. 
The choices the banks face aren't great. The dollar dilemma is an 
even a bigger deal in Asia than the low-long-rate conundrum is in the 
U.S. Financial market professionals I've met traveling through the 
region, including folks who manage the foreign- exchange reserves at 
various central banks (no, they don't reveal any trade secrets), all 
agree the dollar has problems. They're less clear on the solution. 
The perceived arrogance of the U.S. -- the idea that the dollar is 
our currency but someone else's problem -- doesn't sit well overseas. 
Hobson's Choice I explain that it's less arrogance than a lack of 
viable solutions. There's no constituency in the U.S. for sharply 
higher real interest rates, which is what it would take to induce 
consumers to change their profligate ways (save more). And the party 
of limited government has learned that bigger (government) is 
actually better when it comes to courting the folks back home. Still, 
there's a sense that the U.S. needs to clean up its act, put its 
house in order, address the large twin deficits (budget and current 
account). Just call it 1980s redux. When I point out that Germany, 
Europe's largest economy, has exceeded the mandated deficit-to-GDP 
ratio of 3 percent for three years running -- and isn't the only 
repeat offender -- I get blank stares. The U.S. is still bigger and 
badder. If these rumblings from Asian central banks on diversifying 
their foreign-exchange reserves and rebalancing their portfolios are 
indeed shots across the bow, they might want to rethink their 
strategy in favor of less talk, more action. Cross Purposes Central 
bankers need to understand the concept of first-mover advantage. 
While the term generally applies to the advantage that accrues to the 
first company to move into a specific market -- big rewards in return 
for sizeable risks -- it's applicable to central banks as well. It 
would be much smarter for these banks to quietly sell dollars, if 
that's what they want to do, without calling attention to it. They 
could take lessons from the private sector, from big money managers 
like Bill Gross of Pacific Investment Management Co., for example, 
who's a master of the ex-post outlook. They also might want to get 
their priorities straight. Asian central banks can't sell dollars and 
expect their currencies to weaken against the dollar. They can't 
diversify their foreign- exchange reserves away from dollars and, at 
the same time, prevent their currencies from rising and diluting 
their export advantage. It just doesn't add up. Beg To Differ 
Implicit in their game of chicken with the dollar is the notion that 
the U.S. should do something so the burden doesn't fall on the rest 
of the world. Once you realize that Asian exports to the U.S. were 19 
percent of Asia's gross domestic product last year, you start to 
understand that slowing U.S. growth may do more harm than good. A 
strong U.S. economy, it seems, is in Asia's best interest. Fed 
Chairman Alan Greenspan has become more sanguine about the current-
account deficit recently, even as he's raised the level of concern 
about the budget deficit. In a speech to the Council of Foreign 
Relations in New York last night, Greenspan said the resolution of 
the current-account deficit, which is approaching 6 percent of GDP, 
and the household debt burden, which remains at near an historic high 
of 13.26 percent, were not ``overly worrisome.'' This is one area 
where Greenspan's counterparts in Asia just don't agree.

 To contact the writer of this column: Caroline Baum in New York 
atcabaum@xxxxxxxxxxxxxx

 To contact the editor responsible for this column: Bill Ahearn 
atbahearn@xxxxxxxxxxxxxx

Last Updated: March 11, 2005 07:41 EST 


Néstor Miguel Gorojovsky
nestorgoro@xxxxxxxxxxxxxxx

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 
"Sí, una sola debe ser la patria de los sudamericanos".
Simón Bolívar al gobierno secesionista y disgregador de 
Buenos Aires, 1822
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _