How much is the Euro taking over as a reserve currency?

[Kidlicious]

People are assuming that since the dollar is falling in value that the Euro is taking over as a reserve currency, but is that really happening? I was just reading an article in The Economist and I saw this

The dollar’s role as the reserve currency of discriminating central bankers everywhere has already lost ground. On figures from the Bank for International Settlements (BIS), the world held 76% of its reserves in dollars in 2000; by 2003, the proportion had slipped to 68%. Part of that reflects the dollar’s slide in value. But part reflects growing diversification, which is as it should be. Asian countries are trading more with each other these days, as well as with Europe. The euro now offers a liquid alternative to the dollar, and Europe shows no signs of wanting to flood the world with its paper.

but it seems to me that the fall in value of the dollar compared to the Euro would account for most of that change. Do you guys think that's right?

[Asmodean]

Politics are surely playing a role here too. It's not hard to imagine some countries choosing to place their reserves in Euros, just to spite the US.

And I read somewhere that the russkis are contemplating pricing their oil in Euros.

Asmodean

[Atahualpa]

I don't think that this means anything...............but a slide from 76% to 68%

[Kidlicious]

Does anyone else think that people will worry about holding Euros at a high price, because of the risk? I'd feel safer with dollars at this point even if they do lose a little value. Euros seem like a greater risk.

[DAVOUT]

The share held by the Euros as reserve currency does not exceed 20%.

[Bosh]

Not as much as it should be the won is still staying over 1000 to the dollar by its fingernails

[Spiffor]

Originally posted by Kidicious
Does anyone else think that people will worry about holding Euros at a high price, because of the risk? I'd feel safer with dollars at this point even if they do lose a little value. Euros seem like a greater risk.

Euros would be a greater risk if the people had any voice in the monetary policy. Fortunately for the investors, the EU's monetary power is firmly in the hands of monetarist ayatollahs, whose only aim is stability. There isn't any important central Bank (FED, BOJ, Bank of Britain) that is more maniacal, that is more obsessed on stability than the ECB. They have that little thing called pragmatism that we don't. Investors gotta love us

[Mr. Harley]

Given the fiscal policies in the United States, and it's refusal to acknowledge that many countries are hurting key US economic interests via government intervention, the Euro is over the next two decades going to take over from the Dollar as the world reserve currency.
The only reason the trend has not accelerated is because certain US trading partners, with very high dollar reserves, are choosing not to do so as a matter of trade, versus monetary policy. Examples abound, the two worst being Japan and now China.

You will probably see increasing amounts of raw material production being denominated in Euros. This will let those countries essential profit off of governments/central banks that continue to prop up the Dollar. The biggest problem will come at whatever breaking point exists where smaller countries, currency traders, etc. reach a point where their gaming the system becomes too expensive for countries like Japan and China, and the dollar is devalued substantially.

This will essentially wipe out a large portion of US debt via cheaper dollars, but that will only happen if the US is able to increase its foreign exchange as result of cheaper dollars. If instead the de facto protectionism continues, it could still find itself unable to raise the dollars necessary to pay off the foreign held US debt, and find itself in the plight that many Latin American countries have found themselves. This is a worst case scenario, but ask the Argentinians about worst case scenarios, they do happen.

However, this scenario only occurs if the EU Central Bankers are able to retain their political independence. If anybody had told my Greenspan would give Bush cover for his taxcuts and the resulting budget deficits five years ago, I would have claimed they were nuts. I would have been wrong. You could also have a new US administration in three years that bites the fiscal bullet, and puts the US back on a sound fiscal policy. So my scenario could essentially be reversed if you end up with political hacks in charge of the EU Central Bank, and fiscally responsible leadership in the US. I see that as a highly unlikely scenario at this point.

[trev]

The decrease in US currency reserve holdings as a percentage could be explained solely as a result of its devaluation only, it has decreased significantly against gold, the other major currency reserve as well as against most major currencies of the world by 25% plus easily enough to explain the percentage decrease. The actual quantity of US currency reserve holdings has probably increased substantially, the massive trade deficit of the US is sending trillions of dollars into other countries, probably much of which ends up in their reserve holdings.

[Provost Harrison]

The UK should join the Euro and then the takeover would be complete

[DAVOUT]

The best shield of the US$ against a loss of value without limitation is the attractivity of assets in $, such as american shares and physical assets. This attractivity will not decline as long as there is no economic depression.

[Kidlicious]

Originally posted by trev
The decrease in US currency reserve holdings as a percentage could be explained solely as a result of its devaluation only, it has decreased significantly against gold, the other major currency reserve as well as against most major currencies of the world by 25% plus easily enough to explain the percentage decrease. The actual quantity of US currency reserve holdings has probably increased substantially, the massive trade deficit of the US is sending trillions of dollars into other countries, probably much of which ends up in their reserve holdings.

Yeah. I'm thinking most investors are just making small adjustments to the % of dollars they hold in their reserve. As the dollar falls in value they probably buy more of them to keep the % in their reserve fairly constant.