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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: orkrious who wrote (30830)4/17/2005 7:41:13 PM
From: Taikun  Read Replies (1) of 110194
 
Ork,

If a CB has reserves at all it is to manage their exchange rate against trade in the currency where they are most exposed. Companies can do swaps but for nations it is harder, and forwards are hard past 1 yr also. In addition, these CBs aren't the greatest at TA at the best of times...could they put their USD in gold and then be able to buy USD if, say, the Yuan appreciated so much it really hurt their exports, say exports in Asia?

I think they still need USD in this scenario. It is not an investment for them. It is kind of like you or I deciding we don't want to have a bank account because we don't like banks and we put all our money in gold and silver. OK, how do we pay bills, arrange financing? It becomes difficult. Instead, we go to the bank and ask what kind of accounts they have. Foreign reserves are their 'accounts' and some gold may work, but I see too much divergence from USD as dangerous. What is long bonds go to 8% and USD spikes?

D
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