12 October 2009, 13:56 / Finance

World central banks are fleeing the dollar

The share of the American currency in their investments fell to a historical low, and in new reserves it amounted to only 37%. Andrey Kotov D. Grishkin

From July to September, the volume of world gold and foreign exchange reserves rose to $7.3 trillion, an increase of $413 billion compared to the previous quarter, Bloomberg calculated. Moreover, the share of the American currency in new reserves was only 37% - almost half as much as in the previous 10 years.

According to Barclays Capital, in the third quarter of 2009, central banks placed 63% of new reserves in yen and euro - this was the largest quarterly increase in history. The US currency accounted for the remaining 37%, while the dollar's share of new international reserves has averaged 63% since 1999. “Central banks around the world are seriously targeting reserve diversification, whereas previously they were only talking about it,” the agency quotes Barclays analyst Stephen Englander.

The central banks of developing countries were the most active in exiting the US currency: as Bank of America-Merrill Lynch analysts note, since March 2009 they have been selling an average of $30 billion per month. Because of this, the share of the dollar in international reserves decreased, according to the IMF as of June 30, to 62.8%.

The flight from the dollar was fueled by the weakening of the US currency as the global economy recovered. Thus, last week the dollar index (reflecting changes in the exchange rate of the American currency against the euro, yen, pound sterling, Canadian dollar, Swiss franc and Swedish krona) fell to 74.77 points, the minimum value since August 2008. Over the past six months, the dollar has fallen in price by more than than 10%.

Investors are frightened by the record US budget deficit, which in the 2009 fiscal year (ended September 30) amounted to $1.4 trillion. “The actions of central banks indicate a lack of faith in the ability of Obama, Geithner and Bernanke to pursue a strong dollar policy. In addition, currencies reflect only general changes in the balance of power in the world,” Stephen Pope, chief global market strategist at Cantor Fitzgerald, told Vedomosti . According to him, the downward trend in the role of the dollar will continue until the United States ends its policy of “quantitative easing” of the economy, or the interest rate in the United States returns to levels characteristic of other large countries. Now it is set at 0-0.25%, while the refinancing rate in the euro area is 1%, in the UK - 0.5%. However, according to Stephen Pope, the dollar's dominance will only be weakened, but by no means ended.