Turmoil on the FX markets and power struggles: Foreign demand for US financial assets falls, BRICs meet in Russia

This story follows up on discussions regarding reserve currencies and the threat to the US dollar’s role.  It seems that Japan and China have trimmed holdings of US assets.  The US dollar has been losing ground to the Yen but analysts believe that this will hurt the Japanese economy.  At the same China has also been critical of the US dollar role.  Discussions with Brazil over a new reserve currency were initiated.  One has to however put these moves into perspective; US financial market remains one with the highest liquidity and US market one of the largests and that will be for some time.  According to top FX analyst Boris Schlossberg the discussion is more about expressing concerns over US’s fiscal policy and not so much about changing reserve currency policies in China.  After all China holds 10% of US publicly held debt; a massive investment.  However there’s a discussion that has started on this.  Lately the emerging economies have met in Russia; the so-called BRIC bloc. Although there’s not doubt that their share to global economy is increasing is not yet up to EU/US/Japan level. Furthermore they have much different economies; hence probably different objectives. 

 Related Articles:  Foreign demand for US financial assets falls, AP, June 15, 2009, Emerging Economies Meet in Russia, New York Times, June 16, 2009,  Analysis: BRIC’s differences might outweigh common goals, RGE Monitor,16 June, 2009

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