Dollar sucks!

Others have done that too…read on..

Malaysia shifts reserves away from dollar (Al Jazeera.com, 31 Jan 2007)

Malaysia shifted some of its $82 billion of currency reserves away from the dollar, Prime Minister Abdullah Ahmad Badawi said, adding that potential foreign-exchange volatility may hurt exporters.  “We’re concerned for the reason that the high percentage of our international trade is in U.S. dollars,” the Malaysian Prime Minister told reporters in Davos, Switzerland at the annual meeting of the World Economic Forum.  

When asked whether Malaysia will cut its dollar holdings, he said: “We have already done. We’ll continue to watch the situation.”  

Abdullah’s remarks raises concerns that lopsided trade flows between the United States and the rest of the world will weaken the dollar, which dropped 6 percent against the euro in the past year. Malaysia’s central bank abandoned a peg to the dollar in July 2005 and manages it against an undisclosed basket of currencies. The ringgit has advanced 0.7 percent against the dollar this year, climbing to a nine-year high this month and trailing only the Icelandic krona as the world’s best performing currency. 

“Overdependence on one currency can create a problem, the dollar or any other currency,” said Abdullah. He declined to comment on the country’s foreign exchange policy or his favored currencies. In November, central bank Governor Zeti Akhtar Aziz refused to say whether Malaysia was diversifying its reserves.  Dollar reserves are being replaced with euros by oil producers including the United Arab Emirates and Venezuela. China, which has the world’s largest foreign-exchange reserves, also plans to increase euro reserves and Iran says it’s boosting oil sales priced in euros.

Kuwait, the third-largest Arab oil producer, also announced last week that it may abandon the dinar’s peg against the dollar in favor of a basket of currencies to help minimize economic harm after the dollar declined.“We might go to a basket for an interim period,” Kuwait’s Finance Minister Bader al- Humaidhi told reporters in Davos. “The dollar fell a lot against the euro last year, but if we’d been linked to a basket we wouldn’t have suffered” as much.  

Most of the currencies of the six Gulf Arab states, including Saudi Arabia and Kuwait, are undervalued against the dollar, based on their current-account balances, inflation and costs of goods and services, Deutsche Bank AG said in a report this month. “Without the peg, Gulf currencies would have appreciated in the past couple of years because of the increase in oil prices,” thus boosting the cost of imports, according to Standard Chartered Plc economist Monica Malik. “Instead they weakened against other major currencies owing to the dollar.”  

The six Gulf Arab states earned as much as $500 billion from oil sales last year, according to the International Monetary Fund. About two thirds of that amount is likely to be invested in overseas savings and investments in countries, including the United States.  The U.S. needs to attract about $2.5 billion a day from foreign investors to keep the dollar steady and fund a current- account deficit that widened to a record $225.6 billion in the third quarter of last year.

~ by pickholes on January 31, 2007.

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