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Arab Central Banks Move Assets Out of Dollar

PHILIP THORNTON / The Independent (UK) 14mar2006

 

Middle Eastern anger over the decision by the US to block a Dubai company from buying five of its ports hit the dollar yesterday as a number of central banks said they were considering switching reserves into euros.

The United Arab Emirates, which includes Dubai, said it was looking to move one-tenth of its dollar reserves into euros, while the governor of the Saudi Arabian central bank condemned the US move as "discrimination".

Separately, Syria responded to US sanctions against two of its banks by confirming plans to use euros instead of dollars for its external transactions.

The remarks combined to knock the dollar, which fell against the euro, pound and yen yesterday as analysts warned other central banks might follow suit.

Last week the US caused dismay after political opposition to the takeover of P&O by Dubai Ports World forced DPW to agree to transfer P&O's US port management business to a "US entity" .

The governor of the UAE central bank, Sultan Nasser al-Suweidi, said the bank was looking to convert 10 per cent of its reserves, which stand at $23bn (13.5bn), from dollars to euros. "They are contravening their own principles," he said. "Investors are going to take this into consideration [and] will look at investment opportunities through new binoculars."

Hamad Saud al-Sayyari, the governor of the Saudi Arabian monetary authority, said: "Is it protection or discrimination? Is it okay for US companies to buy everywhere but it is not okay for other companies to buy the US?"

Syria has switched the state's foreign currency transactions to euros from dollars, the head of the state-owned Commercial Bank of Syria, Duraid Durgham, said.

Last week the White House told US financial institutions to terminate all correspondent accounts involving the Commercial Bank of Syria because of money-laundering concerns. Mohammad al-Hussein, Syria's finance minister, said: "Syria affirms that this decision and its timing are fundamentally political."

The euro rose a quarter of one percentage point against the dollar to a one-week high of $1.1945, although it retreated in later trading.

Monica Fan, at RBC Capital Markets, said: "The issue is whether we will see similar attitudes taken by other Middle Eastern banks. It is a question of momentum."

Middle Eastern anger over the decision by the US to block a Dubai company from buying five of its ports hit the dollar yesterday as a number of central banks said they were considering switching reserves into euros.

The United Arab Emirates, which includes Dubai, said it was looking to move one-tenth of its dollar reserves into euros, while the governor of the Saudi Arabian central bank condemned the US move as "discrimination".

Separately, Syria responded to US sanctions against two of its banks by confirming plans to use euros instead of dollars for its external transactions.

The remarks combined to knock the dollar, which fell against the euro, pound and yen yesterday as analysts warned other central banks might follow suit.

Last week the US caused dismay after political opposition to the takeover of P&O by Dubai Ports World forced DPW to agree to transfer P&O's US port management business to a "US entity" .

The governor of the UAE central bank, Sultan Nasser al-Suweidi, said the bank was looking to convert 10 per cent of its reserves, which stand at $23bn (13.5bn), from dollars to euros. "They are contravening their own principles," he said. "Investors are going to take this into consideration [and] will look at investment opportunities through new binoculars." Hamad Saud al-Sayyari, the governor of the Saudi Arabian monetary authority, said: "Is it protection or discrimination? Is it okay for US companies to buy everywhere but it is not okay for other companies to buy the US?"

Syria has switched the state's foreign currency transactions to euros from dollars, the head of the state-owned Commercial Bank of Syria, Duraid Durgham, said.

Last week the White House told US financial institutions to terminate all correspondent accounts involving the Commercial Bank of Syria because of money-laundering concerns. Mohammad al-Hussein, Syria's finance minister, said: "Syria affirms that this decision and its timing are fundamentally political."

The euro rose a quarter of one percentage point against the dollar to a one-week high of $1.1945, although it retreated in later trading.

Monica Fan, at RBC Capital Markets, said: "The issue is whether we will see similar attitudes taken by other Middle Eastern banks. It is a question of momentum."

source: http://news.independent.co.uk/business/news/article351127.ece 15mar2006


Their Appetite for Us

JUSTIN LAHART / Wall Street Journal 15mar2006

 

The first rule of relying on the kindness of strangers is simple: Try not to tick the strangers off.

Ticking Higher
Net foreign purchases
of long-term US
securities, in billions

source: US Treasury Dept.

The U.S. which depends on foreign investment in its bonds, stocks and real estate to help finance its prodigious appetites hasn't been following the rule.

Last week, in the face of pressure in Washington, Dubai Ports World opted to spin off the U.S. ports it acquired through its purchase of London's Peninsular & Oriental Steam Navigation. Similarly, last year, U.S. political pressure led Chinese oil company Cnooc to withdraw its offer for California's Unocal.

United Arab Emirates central-bank governor Sultan Nasser al-Suwaidi said Sunday that the ports row would color foreign investors' view of the U.S. Underscoring his point, he said the U.A.E. was looking to switch more of its $22.5 billion in central-bank reserves out of dollars and into euros. (Dubai is a member emirate.)

Those comments have helped stir up an old worry in the foreign-exchange and bond markets: Foreigners, tired of holding so many U.S. IOUs, might cut America off. Those IOUs are piling up. Yesterday, the Commerce Department reported that the current-account deficit the broadest measure of the nation's trade gap widened to a record $804.9 billion in 2005 from $668.1 billion in 2004. That put it at about 6.5% of gross domestic product, also a record.

So far, there isn't much evidence any of this has damped the demand among foreign investors for U.S. securities. According to the Treasury Department, foreigners bought, on net, more than $1 trillion of U.S. long-term bonds and stocks last year.

Today, the Treasury releases the foreign-investment figures for January. A figure below $68.5 billion which was the size of the trade deficit that month could stoke worries that foreign investors are becoming less enamored with the U.S.

Roubini Global Economics economist Brad Setser notes there is a good reason why foreign governments will keep buying U.S. assets for now. If they stop, the dollar would weaken which in turn would send their own currencies down as well, since in many cases their currencies are pegged to the dollar. For now, that means, they will keep feeding the hand that bites them.

p.C1

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