Arab central banks move assets out of dollar
By Philip Thornton, Economics Correspondent
Published: 14 March 2006Middle Eastern anger over the decision by the US to block a Dubai company from buying five of its ports hit the dollar yesterday as a number of central banks said they were considering switching reserves into euros.
The United Arab Emirates, which includes Dubai, said it was looking to move one-tenth of its dollar reserves into euros, while the governor of the Saudi Arabian central bank condemned the US move as “discrimination”…
The governor of the UAE central bank, Sultan Nasser al-Suweidi, said the bank was looking to convert 10 per cent of its reserves, which stand at $23bn (£13.5bn), from dollars to euros. “They are contravening their own principles,” he said. “Investors are going to take this into consideration [and] will look at investment opportunities through new binoculars.”
London’s The Independent has an instructive article noting that political games are open to many players. With the UAE considering pulling over $2 billion out of US currency and into the Euro, they’re showing that political stunts can bear a price. (Not to mention the multi-billion dollar sale pending for Boeing, of course!)
Dumping dollar securities will put a ding in the US economy. Converting all dollars to Euros would be a serious blow. And a decision to renominate oil prices in Euros rather than dollars would be devastating.
Perhaps the American Congress will learn that grandstanding has its costs, always. Just because they aren’t immediately apparent, doesn’t mean they don’t exist.
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March:14:2006 - 01:08
I’m actually not worried about this. I believe the Euro should be trading higher than it is now. I also believe the higher value of the Euro will continue to devastate the European economy and employment situation. When European currencies (as reflected by the Euro’s predecessor ECU) was as high or higher in the 90s, European employment was lower.
March:14:2006 - 08:25
Good comment.
I linked to your post this morning and wanted to underscore the authority with another link “About John.” It looks like the internet has been picked clean of your bios and CV’s. I can understand why you might not want a high profile in today’s climate, but I hope it is your choice and not that of others. You are held in high esteem by a lot of us, and your voice of reason is much needed in the shrillness of what passes for debate about world events.
March:15:2006 - 12:51
As much as it will almost certainly impact the US economy, I’m interested to see just what effect it will have. I suspect that the US is fairly vulnerable to this sort of thing, particularly if it came on a larger scale, such as might happen if any major oil exporters are able to price their oil in Euros.
March:15:2006 - 17:26
John, it’s not a matter of being “able”. It is only a matter of deciding if they want to. It can be done at the stroke of a pen, though it might be a smart domestic move to give a bit of warning would let investors in the US economyditch their investments. The Saudis alone are invested at something close to a trillion dollars in the US.
The entire world is “vulnerable” to a lot of things as a result of being interconnected and mutually dependent. The alternatives look rather a lot like N. Korea.