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Fri, Mar 04, 2005 - Page 12 News List

Greenspan soothes fears over dollar

CURRENCY MOVES The Federal Reserve chair said that despite speculation by the media, foreign banks are not moving to reduce their US-dollar holdings


US Federal Reserve Chairman Alan Greenspan said on Wednesday there's "very little evidence" foreign central banks are dumping the US dollar, saying the recent changes in those banks' currency portfolios are mostly "technical moves backwards and forwards."

Testifying before the House Budget Committee, Greenspan said foreign investors continue to regard US assets as "world class." It's possible, he said, that central banks that have been buying dollars heavily could eventually decide they hold too much of the currency. But that isn't yet happening, he said.

"There, I must tell you however, is very little evidence that that is even going on, even though there's been some rumors in the press and the like that there's been a significant move out of US dollars," Greenspan said. "That may occur somewhere down the line, years ahead, nobody really knows for sure. But there's very little evidence that is what is occurring."

The US dollar slumped sharply earlier this year after South Korea's central bank announced it planned to diversify its currency holdings. The head of the IMF, Rodrigo de Rato, said he had "little doubt" the slump reflected international investors' worries about US indebtedness.

Greenspan, asked what would happen to the economy in the event foreign banks sell US Treasuries in large volumes, said he doesn't expect it will cause a surge in interest rates.

"Our general conclusion at this stage is we do not perceive that it is a really a significant problem for our domestic economy," he said.

"The fairly significant purchases of US securities ... has lowered long-term interest rates modestly but not in any considerable extent," Greenspan said. If there were large-scale sales, "One would presume the response is symmetric."

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