Record Levels of Currency Reserves Will Hit Hard
When the US federal government was shutdown, China jumped in on the financial bandwagon and suggested that we build ‘a de-Americanized world’, which boils down to getting rid of the dollar as the international reserve currency. As the law-makers and the political parties were dragging their feet, the Chinese had their running shoes on to sneakily knock a dead man down again as he was trying to get up. Well, all is fair in love and war and we should expect nothing less.
The official Chinese state-run news agency (in mocking tone) stated: “As U.S. politicians of both political parties are still shuffling back and forth between the White House and the Capitol Hill without striking a viable deal to bring normality to the body politic they brag about, it is perhaps a good time for the befuddled world to start considering building a de-Americanized world”. But, has that dream come true? Has the shutdown affected the reserve currency of the world and is the dollar on its way out?
South Korea
It may not be on its way out just yet, but if the South Koreans are anything to go by, they are prepared to do quite a lot of damage if they have to in order to prevent their own currency the won.
- Data released today by the Bank of Korea show that the country has been hording foreign exchange reserves (which currently stand at $343.23 billion at the end of October 2013).
- This means that there has been an increase of $6.3 billion compared to September 2013.
- You would have to go back at least two years to find that sort of figure.
- This is primarily due to the fact that the won has risen by more than 9% over the past 4 months.
- By buying up large quantities of dollars they have been able to preserve an even greater rise in their currency.
- The South-Korean economy is dependent on exports for its economic-growth prospects and any increase in its currency means they are going to slow down.
- South Korea’s growth (of Asia’s 4th largest economy) was lowered for 2014 from 4% to 3.8%.
- Growth this year stands at 2.8%.
- If and when stimulus stops, the South Koreans will have a huge stockpile of dollars to play with and to counterbalance an outflow of cash back to the US.
Reserves and the Fed
