Asia stuck with dollar dilemma

[TexasLawyer]

Asia stuck with dollar dilemma

Andy Mukherjee

Wednesday, January 24, 2007

<snip>

If oil keeps plummeting - because of global warming, the El Nino weather effect, slowing world economic growth, rising crude output, or whatever - Asia may pay a big price as a financier of US consumerism.

Last year, the Asian monetary authorities, together with the central banks and state investment agencies in oil- exporting countries, bought about US $770 billion in foreign-currency assets. These official purchases financed most of the estimated US $870 billion US current-account deficit in 2006, according to research by the Federal Reserve Bank of New York.

If the petrodollar surpluses dwindle (dollars held by the oil-exporting countries for payment by the US for its imported oil), the job of sustaining US consumption will fall squarely on the Asian central banks. Should the monetary authorities in China, Japan, South Korea and India continue to feed the American spending habit or invest their surpluses elsewhere?

If they keep loading up on US Treasuries, and the dollar eventually collapses, Asian central banks may have to sustain large losses on their balance sheets. If they stop buying "risk-free" US debt, the dollar might decline anyway. That's the dilemma. Of course, it all depends on the extent of the slide in energy costs.

<snip>

http://www.thestandard.com.hk/news_detail.asp?pp_cat=22&art_id=36725&sid=11861905&con_type=1

[screembloodymurder]

1. Very interesting indeed.

China says they plan on broadening their investments. I wonder if that's why gold went up today.