Reduce over-reliance on dollar, gold council
Reduce over-reliance on dollar, gold council
KUALA LUMPUR (AFP): Countries should make gold a key reserve
asset to reduce risks in a "one-currency" world monetary system
dominated by the U.S. dollar, a World Gold Council senior
official said Tuesday.
Robert Weinberg, the council's head of institutional
investment, said the dollar's dominance had reached far beyond
its traditional role in money, capital markets and foreign
exchange reserves.
"It extends also to the worldwide influence of the Federal
Reserve in shaping the monetary conditions of the global
economy," Weinberg told a news briefing.
Countries linked to the dollar were forced to follow US
monetary policies and even Japan and the Euro area cannot escape,
he said.
"In a sense it could be viewed as recolonization. An
increasing number of countries seem to be yielding voluntarily
that independence that many fought for so long and hard ... the
world depends critically on the Fed and on (its chairman Alan)
Greenspan."
Currently, he said, about 50 percent of global equities are
dollar-denominated, as are 47 percent of global bonds, 35 percent
of foreign bank loans, 87 percent of forex transactions and 48
percent of international trade payments.
Weinberg warned of the dollar's vulnerability in the long-
term, citing the US ballooning current account deficit and its
massive accumulation of external liabilities.
He said countries should diversify into gold.
"The overall risk of a portfolio shrinks when you add gold and
the portfolio becomes much more robust... it becomes better able
to cope with shocks to the system," he said.
Governments, central banks and other official institutions
currently hold 32,000 tons of gold, or a quarter of world stock,
he added.
Weinberg said the world gold price, currently hovering between
260 and 270 dollars an ounce, is more likely to rise than to
fall.
Some 30 percent of world gold was being produced at a loss.
And with little incentives to open new mines, output was unlikely
to increase for the next few years.
A pact in September 1999 by leading central banks -- to
contain sales of gold in their reserves to not more than 2,000
tons over the next five years -- had also capped fears of a
"tidal wave" of gold sales, he said.
But Weinberg criticized the ongoing gold auction by the Bank
of England. By advertising the sales ahead of time, this led
investors to sell short so they could buy at cheaper price at the
auction, he said.
"They went about it in a very bad way. There are better ways
of doing it, although we didn't think they should have done it at
all," he added.