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Forex reserve shift drowned in oil income
Some central banks are trimming the share of US assets in their foreign exchange reserves but such shifts are overwhelmed by the money that oil-rich nations are investing in US securities to maintain their dollar pegs.
- Reuters
- Published: 00:02 August 10, 2008
London: Some central banks are trimming the share of US assets in their foreign exchange reserves but such shifts are overwhelmed by the money that oil-rich nations are investing in US securities to maintain their dollar pegs.
Market chatter of diversification got louder recently after Ukraine's central bank started buying sterling for its reserves and China said problems at US mortgage lenders are threatening its $1.8 trillion foreign reserves - the world's largest.
Also South Korea's central bank reportedly sold $15 billion of its reserves in July to prop up the won to stem rising inflation risks.
But analysts say that high oil prices will keep petro-dollars flowing into the coffers of oil producers, many of whom are Gulf states that peg their currencies to the dollar and are compelled to reinvest such flows into US assets, usually Treasuries, to maintain these pegs.
Huge surpluses
"If oil price forecasts hold true, these guys are all going to have unprecedented current account surpluses. And there will be offsetting deficits around the world... and the big deficit country will continue to be the US," she said.
"Exactly what assets they will buy I don't know, but it has to be true on a very broad macro level that those surpluses are financing deficits in the US."
Crude oil prices surged to a record high near $150 per barrel last month and are still 23 per cent higher this year even though prices have since retreated to below $120.
Such high prices means oil revenues among the Middle East's four major Opec oil producers will be roughly 50 per cent or more higher this year compared with 2007, a recent Reuters survey showed.
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