Friday, February 25, 2005


Asian "Catch-22" With The US Dollar

The web site of the Financial Times has a piece on the dilemma facing central banks in Asia. The bank reserves have been hit hard by the decline of the greenback. But they are not eager to pull the rug out from under their biggest customer. This paragraph sums up their choices:

"The meeting...led to speculation that Asia is attempting to draft a unified response to its catch-22 situation – while it is not in the interest of Asia as a whole to sell dollars, thereby sending the dollar lower and crystallising losses across the continent, it is in the interest of each individual country to be the first to sell, assuming the dollar declines further."

A game of chicken among the Asian banks could emerge, where one player dumps their dollar assets to get out before the price plummets. The fate of the dollar is in the hands of these central bankers.

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