The dollar’s position as the world’s leading reserve currency faces increased pressure as the financial crisis allows emerging economies greater influence on the world stage, analysts said.
A report last week in the Independent claiming that China, Russia and Gulf States are among nations prepared to ditch the dollar for oil trades has heightened the uncertainty surrounding the US currency’s future.
The dollar slumped against rivals last week in the wake of the British daily’s controversial report.
“The US dollar is being hurt by the continued talk of a shift away from a dollar-centric world,” said Kit Juckes, an analyst at currency traders ECU Group.
“Three conclusions stand out very clearly. Firstly, the shift in economic power away from the G7 economies is continuing. Secondly, there is a growing acceptance amongst those winners that one consequence of this power shift will be to strengthen their currencies.
And finally, as long as the US economy is not strong enough for any rise in interest rates to be conceivable for a long time, the dollar’s underlying downtrend will remain in place,” Juckes said.
The Independent, under the front-page headline “The demise of the dollar,” reported on Tuesday that the Gulf states, together with China, Russia, Japan and France, were considering replacing the dollar as the currency for oil deals.
“In the most profound financial change in recent Middle East history, Gulf Arabs are planning — along with China, Russia, Japan and France — to end dollar dealings for oil,” wrote Robert Fisk, the newspaper’s Middle East correspondent.
They would switch “to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Cooperation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar,” wrote Fisk, citing Gulf Arab and Chinese banking sources.
The report was denied by a host of countries, including Kuwait, Qatar and Russia, while France dismissed it as “pure speculation.”
Even so, the UN itself last week called for a new global reserve currency to end dollar supremacy, which had allowed the US the “privilege” of building up a huge trade deficit.
UN Undersecretary-General for Economic and Social Affairs Sha Zukang (沙祖康) said “important progress in managing imbalances can be made by reducing the [dollar] reserve currency country’s ‘privilege’ to run external deficits in order to provide international liquidity.”
Sha was speaking at the annual meetings of the IMF and World Bank, whose president Robert Zoellick recently warned that the US should not “take for granted” the dollar’s role as preeminent global reserve currency.
Meanwhile at a G20 summit in Pittsburgh last month, world leaders unveiled a new vision for economic governance, with bold plans to fix global imbalances and give more clout to emerging giants such as China and India.
Following the summit, US Treasury Secretary Timothy Geithner repeated Washington’s commitment to a strong dollar.
But last week Geithner was left to watch as traders used the Independent’s report as an opportunity to push lower the troubled US unit.
The newspaper report “has helped concentrate the minds of traders and investors alike, and has given them another excuse to take the dollar lower,” GFT Global Markets analyst David Morrison said.
“Despite what the Fed and other central bankers say, a weaker dollar is desirable because it is necessary to rebalance the global economy,” he said.
“As long as the decline is gentle and orderly, then they’re happy. But aggressive selling would spook the markets,” he said.
Commerzbank currency analyst Antje Praefcke agreed that the market’s reaction was significant because it showed that the dollar was on a downward trajectory.
“The questionable article in the Independent was of course disclaimed,” Praefcke said. “It is nonetheless an interesting study of the pscychological factors which are currently putting pressure on the dollar. Even if conspiracy theories turn out to be nonsense, the dollar is subsequently able to retrace only some of its losses.”
EFFICIENCY: The rules for Philippine arrivals were revised after 17.6% of arrivals with symptoms tested positive, compared with 0.7% of those with no symptoms Starting today, Chinese spouses who hold a reunion permit can apply to enter Taiwan and travelers without symptoms from the Philippines do not need to be tested for COVID-19 upon arrival, but are to be tested after a 14-day quarantine, the Central Epidemic Command Center (CECC) said yesterday. Minister of Health and Welfare Chen Shih-chung (陳時中), who heads the center, said that from today, Chinese who are married to a Taiwanese citizen and hold a reunion permit can apply to the National Immigration Agency for entry into Taiwan. Chinese who are married to a foreign national and hold an accompanied reunion permit
CONSOLIDATION? Taiwan Thinktank deputy executive-general Doong Sy-chi said Beijing’s intimidation tactics are further alienating those who identify as Chinese Only 2 percent of respondents to a poll on constitutional amendments and national identity identified as Chinese, while 62.6 percent identified as Taiwanese, the Taiwan Thinktank said yesterday. Legislators have proposed amendments to the Additional Articles of the Constitution (憲法增修條文), which would change the definition of the nation’s territory, remove the Taiwan Provincial Government as an entity, prioritize the use of “Taiwan” for national groups at international events, and remove restrictions on defining the national emblem, national flag and national anthem. The poll showed that 80.5 percent of respondents agreed that the nation should participate as “Taiwan” at events organized by world
MISTAKE: The Global Covenant of Mayors for Climate and Energy is not a UN body, and the government is committed to protecting the nation’s name, Joseph Wu said The Ministry of Foreign Affairs yesterday condemned the Global Covenant of Mayors for Climate and Energy for listing Taiwanese cities as belonging to China on its Web site, and asked that it correct the error. The organization was inaugurated in Brussels in 2016 as a global coalition of mayors committed to reducing greenhouse gas emissions. Six Taiwanese cities at the time joined the coalition as cities in “Taiwan,” the ministry said. However, officials from the Kaohsiung City Government — one of the organization’s members — last week noticed that the city was now listed on the organization’s Web site as a
BALANCED DEVELOPMENT: TSMC chairman Mark Liu said the firm is committed to local investment: a third in the north, a third in the center, a third in the south Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world’s biggest contract chipmaker, yesterday said that, based on its strategy of balancing capacity, it plans to make northern Taiwan its manufacturing hub for advanced technologies that go beyond 2 nanometers. “As the company is committed to investing in Taiwan, we try to deploy one-third [of our total production capacity] in the north and have one-third each in the center and south” of the nation, TSMC chairman Mark Liu (劉德音) told reporters on the sidelines of Semicon Taiwan’s Master Forum in Taipei. TSMC last year reached its goal of deploying capacity equally across those parts