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Strategies & Market Trends : Currencies and the Global Capital Markets -- Ignore unavailable to you. Want to Upgrade?

To: Frodo Baxter who wrote (540)	9/1/1998 3:04:00 PM
From: Robert Douglas	Read Replies (3) \| Respond to of 3536

Lawrence, I haven't bought the yen, although after today's move I am sorry I didn't. I have been playing it the chicken way by shorting the U.S. Dollar index. This gives a broad exposure against a basket of currencies. I ran across this today in the "Far Eastern Economic Review". It is from their cover story titled: "Get Ready For The Euro" For personal use only. Ultimately, most economists expect the euro to be a strong and credible currency. And that means it will take its place in the vaults of the world's central banks as one of the three core reserve currencies: the dollar, the euro and the yen. To make this happen, countries will sell dollar and yen assets- mainly U.S. Treasurys and Japanese government bonds-and replace them with euro-denominated equivalents. The European Commission predicts this switch will quickly gain momentum after the euro's launch. Central banks have already shown a willingness to diversify beyond the dollar. During the period 1973-95, the U.S. currency's share of global central-bank reserves fell to 61.5% from 76%, while the yen's share rose to 7.4% from 0.1% and the Deutsche Mark's doubled to 14.2% from 7.0%. "The U.S. and Japan will clearly want to rebalance reserves as the euro becomes better established," Nomura International predicts. All this means that the dollar, as well as the yen, may be at the beginning of a long, slow readjustment downward-the kind of cycle that comes about only once every 10 years. The last such shift was brought about by the 1985 Plaza Accord, when the world's five largest industrialized nations agreed to push an exorbitantly overvalued dollar lower against other major currencies. Back then the dollar was worth as much as 3.44 Deutsche Marks. No more. Maybe that's an indication that it's time to start stuffing euros under the mattress. I certainly don't think it's prudent for 60% of central-bank reserves to be in the dollar and cannot imagine these prudent men not taking any opportunity to diversify. -Robert