Asian central banks seen adding euro to reserves
Asian central banks seen adding euro to reserves
TOKYO (Reuters): Major holders of external reserves such as Taiwan and China, as well as other Asian central banks, are expected to diversify their reserves to include the euro while trimming U.S. dollar holdings, analysts say.
As holders of about 40 percent of the world's reserves, Asian central banks have looked forward to the birth of the euro since regional currencies pegged to the U.S. dollar were hurt more than others during the region's financial crisis, they said.
"Major reserves holders as well as other Asian nations seem to have realized the danger of holding too many dollars so they should be eager to diversify their reserves. The euro launch comes at the right time as they are looking for alternatives," said Yoshio Maki, research associate at Fuji Research Institute.
"Many nations in Asia must be considering using the euro as their potential key reserve currency," Maki said.
Some Asian nations have already expressed an interest in holding euros. In December, an official at China's central bank reportedly said it will gradually increase the proportion of euros in its foreign reserves, the world's second-largest.
"The People's Bank of China plans to adjust the mix of China's foreign reserves, appropriately reducing holdings in the U.S. dollar and increasing holdings in the euro," the official International Finance News newspaper said, quoting Wang Yu, an official with the central bank's research bureau.
About 19 percent of China's external reserves are made up of European currencies, with the dollar accounting for 62 percent and the yen about eight percent. As of the end of October, China's reserves stood at $143.7 billion.
Analysts said the ratio of euros in China's reserves was expected to rise to about 30 to 40 percent after its launch.
Last July, Taiwan's United Daily News newspaper said Taiwan planned to hold 10 billion euro as part of its external reserves. Taiwan reported its foreign exchange reserves stood at $88.074 billion at the end of November.
German Bundesbank President Hans Tietmeyer said in Tokyo in July that the euro had potential to surpass the current status of the mark as an official reserve currency in Asian central banks.
After meeting leaders of Asian central banks, Tietmeyer said the banks would likely monitor the euro carefully to see if it could maintain a stable and credible status over the long term.
The International Monetary Fund said the mark accounted for about 12.8 percent of international foreign reserves and the dollar 57.1 percent in 1997.
Analysts said the timing of a shift into the euro would depend on the performance of the dollar in the near future and on economic trends in Europe and the United States.
Fumiyuki Sasaki, an economist at Nomura Research Institute, said: "It's simple. Central banks are focusing on the euro because the dollar and the yen have not been stable in recent years. If they were stable, the banks would not consider diversifying their reserves to include the euro.
"Holding the dollar heavily in their reserves is very risky now. We can see this just by looking at the behavior of the dollar in recent months," Sasaki said.
Analysts are also skeptical about the dollar's position as the key currency while the United States remains the largest debtor nation and holder of the world's biggest trade deficit.
"There are safe-haven needs to hold the dollar, such as for security purposes, but the dollar's position as the leading key currency could be shaken if the value of the dollar starts depreciating rapidly again," said Atsushi Niigata, a researcher at Fuji Research.
"That could be the time when Asian central banks start shifting their reserves into the euro," Niigata said.