Tags: Canadian Minister | Russia | China | Currency | Shun | U.S. Dollar | diversify

Canada Hints Russia, China to Shun U.S. Dollar

By Dan Weil   |   Wednesday, 23 Dec 2009 12:17 PM

Russian and Chinese officials have been warning for months that they plan to diversify away from the U.S. dollar.

And Canadian Finance Minister Jim Flaherty says his country may be a beneficiary.

“It does not surprise me that China and Russia would take greater positions in the Canadian dollar than they have previously,” Flaherty told Bloomberg.

“I would expect countries looking around the world to invest in market currencies that are reliable.”

The Canadian dollar has jumped 15 percent against its U.S. counterpart this year.

The U.S. dollar accounts for most of China’s $2.3 trillion in currency reserves, and Chinese officials have expressed concern about its recent decline.

“We know that China has been interested in things in Canada, whether it’s the bond market or the oil sands or oil companies,” David Watt, senior currency strategist at RBC Capital Markets, told Bloomberg.

“They’ve been sniffing around in the past. We know they’ve been interested.”

Russia said in November that it will add Canadian dollars to its currency portfolio, to lessen its exposure to the greenback.

Many experts argue that the U.S. dollar will eventually lose its status as the world’s primary reserve currency.

“The strength of the dollar is becoming riskier and riskier,” Nobel laureate economist Joseph Stiglitz writes in The National Interest.

“The growing U.S. deficit and the ballooning of the Federal Reserve’s balance sheets leave many worried that in their wake will come inflation.”

Earlier this month, China’s foreign-exchange reserve regulator said the U.S. dollar stands secure as the anchor of China's mammoth foreign exchange reserves, even as Beijing seeks to diversify its investments across different currencies and assets.

The statement by the State Administration of Foreign Exchange, which manages the country's $2.3 trillion of currency reserves, followed a suggestion by an official from the agency that diversification has been very gradual.

Wang Xiaoyi, deputy head of SAFE, said China had maintained a consistent reserve allocation in different currencies and that dollar weakness was a long-term trend, not a near-term worry, Reuters reported.

China's desire to see a stronger dollar was reinforced by a recent opinion piece in the People's Daily, the main newspaper of the ruling Communist Party, which said that the slumping greenback was harming the world economy.

Global markets have periodically been shaken by the idea that China could dump dollars, as it is estimated to hold about two-thirds of its currency reserves in dollar-denominated assets.

In November, Chinese banking regulator Liu Mingkang said that ultra-low U.S. interest rates and weak dollar were a "new systemic risk" for the global economy, driving up asset prices in emerging markets.

Such criticism has been dismissed by U.S. Federal Reserve Chairman Ben Bernanke.

Answering questions at a recent confirmation hearing, he said countries that are concerned about speculation "have their own tools to address bubbles in their economy" and shouldn't look to U.S. monetary authorities to do the job for them.

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Russian and Chinese officials have been warning for months that they plan to diversify away from the U.S. dollar. And Canadian Finance Minister Jim Flaherty says his country may be a beneficiary. It does not surprise me that China and Russia would take greater positions...
Canadian Minister,Russia,China,Currency,Shun,U.S. Dollar,diversify
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2009-17-23
 

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