Asia to adjust reserves on U.S. dollar's rise

Asia to adjust reserves on U.S. dollar's rise

By P. Parameswaran

SINGAPORE (AFP): The current strengthening of the U.S. dollar
may lead to bouts of selling of the greenback by some Asian
central banks keen to diversify their foreign reserves
portfolios, analysts said.

"There is a general trend for regional central banks to reduce
their U.S. dollar holdings and increase their deutschemark and
yen holdings because of greenback volatility," said Andy Tan,
Singapore-based regional economist for U.S. investment house MMS
International.

Tan said that there could be some weakening of the Asian
currencies against the greenback which since last week has been
rising on the back of support from the U.S. and Japanese central
banks.

"In the short term, we may see the U.S. dollar making ground
against the regionals in general. But the dollar will not be able
to erase all the gains chalked up by the Asian currencies since
early this year," Tan told AFP on Tuesday.

A dealer with a foreign bank here said some of the Asian
central banks were already selling the U.S. dollar "but in
relatively small amounts on the quiet and waiting for the U.S.
dollar level to rise a bit higher."

According to records by MMS International, the U.S.
strengthened against most Asian currencies since last Monday.

It went up by 2.7 percent against the yen, half a percent
against the Singapore dollar and Malaysian ringgit, one percent
against the New Taiwan dollar, 0.34 percent against the Thai baht
and about 0.1 percent against the Indonesian rupiah.

Analysts said that many Asian countries were increasingly
worried about the U.S. dollar's usefulness as a reserve currency
due to the greenback's rapid slide since January and also because
much of their debt was denominated in yen.

They said that Asian central banks were being squeezed between
their countries' yen liabilities which kept on getting dearer and
their U.S. dollar assets declining by the day.

"Even assuming the Asian central banks sell the dollar, I
don't think they will do it on a massive scale. In the longer
term, there will of course be a shift in foreign reserves more to
the yen and mark," said an analyst with Singapore's leading bank,
United Overseas Bank (UOB).

For example, Indonesia, whose huge foreign debt is 40 percent
yen-denominated, wants to have its foreign reserves in Japanese
currency increased to 40 percent from 37 percent, analysts said.

The UOB analyst felt that Washington's move to take up other
trade issues with Japan after the resolution of the bilateral
auto dispute could be a crucial factor stemming the greenback's
rise against the yen.

"As these new issues crop up, there is always the suspicion
that the Clinton administration is more than willing to let the
dollar slide again," the analyst said.

In Singapore trading on Tuesday, the U.S. dollar rose against
most Southeast Asian economies. It went up to 2.4510 Malaysian
ringgit from 2.4503 on Monday, 24.76 Thai baht from 24.75, and
2,227.95 Indonesian rupiah from 2, 227, but was down to 1.4025
Singapore dollars from 1.4053.

MMS International said that despite the greenback's recent
strengthening, it was still down against most Asian currencies if
its movements were tracked since January.

It said that since the start of 1995, the U.S. dollar dropped
3.9 percent against the Singapore dollar, 3.8 percent against the
Korean won, 1.73 percent against the Chinese yuan and 1.37
percent against the Thai baht.

The U.S. dollar was also down 0.5 percent against the New
Taiwan dollar but strengthened 1.3 percent against the Indonesian
rupiah.