BI holds off on adding euro to reserves
BI holds off on adding euro to reserves
JAKARTA (JP): Indonesia's central bank will not immediately
diversify its external reserves to include the new euro currency
and reduce U.S. dollar holdings, according to Bank Indonesia (BI)
director Miranda Goeltom.
Miranda said on Monday that although the value of the euro had
the potential to strengthen against the dollar, BI would make
extensive calculations before including the euro in its reserves.
"We will not simply follow the prevailing views. Our reserves
management policy is not to speculate, but to help maintain the
exchange rate and foreign exchange reserves," she told reporters
at a press conference.
She added that the central bank would hold only enough euro
for hedging purposes.
She did not disclose government liabilities denominated in the
legacy currencies (the currencies of the 11 nations joining the
euro) or the makeup of the central bank's external reserves.
The new euro currency was adopted by 11 European nations as
their single currency on Jan. 1.
Reports said that Asian central banks, which hold about 40
percent of the world's reserves, are expected to diversify their
reserves to include the euro and trim their U.S. dollar holdings
because regional currencies pegged to the greenback had been
badly hurt during the current 18-month financial crisis.
Miranda said that there was a huge potential demand for the
euro because it would likely become an invoicing currency that
could contend with the domination of the U.S. dollar.
"However, during the transitional period there will be
uncertainty," she added.
She said that there were still many questions about claims
that the euro could rival the U.S. dollar as the primary global
currency.
She pointed out that the euro had to meet several criteria,
including acceptability, liquidity and stability, before it could
become the primary global currency.
"It has yet to be seen (if it can answer these questions),"
she said, adding that the euro also had to prove that it could
serve as the world's unit of account, store of value and means of
payment.
"The European Central Bank must also prove its credibility and
reputation," she added.
Miranda said that the euro would not have as much impact as
the yen in affecting the value of the rupiah because Japan's role
in the country's economy was greater than that of the European
Union.
"The impact of the euro on the rupiah and other ASEAN (the
Association of Southeast Asian Nations) currencies will depend on
the contribution of the EMU (European Monetary Union) to ASEAN
economies both in terms of trade and financial inflow," she said.
"Japan's role is still much greater," she added.
She said that the exchange rate of the rupiah against the euro
would be set based on the rate of the U.S. dollar against the
euro through a cross rate mechanism in order to prevent arbitrage
transactions.
She said that in addition to the exchange rate of the euro
against the rupiah, BI would continue to announce its exchange
rates on major European currencies.
She added that the central bank would continue to accept the
currencies of the nations that have joined the euro until the
year 2002 when the euro bank notes are printed.
BI announced on Monday that its export draft exchange rate for
the euro was set at Rp 9,479/Rp 9,482.
"But there were not any transactions," Miranda said.
The euro debuted on the foreign exchange market on Monday,
ending sharply higher against the U.S. dollar.
The euro rose to an intraday high of 1.1885 against the dollar
in Singapore trading before German banks sold the new currency.
It closed Asian trading in Singapore at 1.1805 against the
dollar, up from the 1.16675 level set on Thursday on the eve of
its official Jan. 1 launch, according to rates quoted by Banque
Nationale de Paris in Singapore. (rei)