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.