According to Reuters’s 29th March article
titled “Dollar reserve role secure but set to shrink: BIS”:
The
dollar's share of central bank reserves may fall by as much as 10-15 percentage
points in coming years without threatening its role as the world's main reserve
currency, a senior official from the Bank of International Settlements said on
Saturday.
Always
fascinating to find out the machinations and webs of finance. These institutions
that regulate currency, drive its prices up and down, buy and sell currency,
enrich and bankrupt countries are always so obscure so its always a curiosity
when you find out about one.
According
to Wikipedia, the “Bank of International Settlements” is:
The Bank for International Settlements (BIS) (in French,Banque des règlements internationaux (BRI)) is aninternational
organization of central banks which "fosters international
monetary and financial cooperation and serves as a bank for central banks".[2]
The BIS carries out its work through subcommittees, the
secretariats it hosts and through an annual general meeting of all member
banks. It also provides banking services, but only to central banks and other
international organizations. It is based in Basel, Switzerland, with representative offices inHong Kong and Mexico City.
According to BIS’s website:
The BIS
offers a wide range of financial services specifically designed to assist
central banks and other official monetary institutions in the management of
their foreign exchange reserves. Some 140 customers, including various
international financial institutions, currently make use of these services and
on average, over the last few years, some 4% of global foreign exchange
reserves have been invested by central banks with the BIS. BIS financial
services are provided out of two linked trading rooms: one at its Basel head
office and one at its office in Hong Kong SAR.
Incidentally, I was present when Dr. Mahathir,
former Prime Minister of Malaysia, gave a delightful and thoughtful speech at
the Kathmandu Hyatt hotel last Sunday. And one thing he mentioned is that he doesn’t approve of the sale and speculation of foreign currency. “Currency
is just currency, pushing up the prices, bringing it down just to make a profit
is not good,” he said (I am paraphrasing here, his exact words may have been different.)
So what
are foreign exchange reserves? According to Wikipedia, my favourite source of
unbiased information:
Foreign-exchange reserves (also called forex reserves or FX reserves) are assets held
by central banks and monetary authorities,
usually in different reserve currencies, mostly the United States dollar,
and to a lesser extent the Euro,
the Pound sterling, and the Japanese
yen, and used to back its liabilities,
e.g., the local currency issued, and the various bank reserves deposited with the central bank, by the government or financial
institutions.
So
basically countries are holding on to dollars because it is seen as the “world’s
main reserve currency.” Now why is that—considering the fact the US economy is
in major doldrums, and their debt runs in the trillions?
Now lets
forget that for a moment to go to a cybercafé in Nepal, where I am typing this
article. About ten minutes ago, I happened to be sitting next to an Italian commodities
trader, and an Indian options trader. The Italian couldn’t print his Excel
sheet-the Indian offered to help. Soon they were in a riproaring conversation
about stocks and gold and commodities. The Italian said his gold was down but
he was going to hold on to it, since he would recover its value even if it took
20 years. The Indian said gold wasn’t good-India didn’t produce its own gold,
it was made in China, so therefore gold become an import which became a net
liability on the balance sheet. While all of this was going on, it occurred to
me that large swathes of the world’s population now survives in this manner—by trading
on commodities, stocks and options with very little interaction with the people
who actually produce these commodities.
How did
such a state of affairs come about? How did large populations of Asia and
Africa who actually dig this stuff out of the ground become irrelevant, while
those who buy and sell these virtually became millionaires? Clearly a big hand
lies in these institutions like BIS which set the tone for currency trading,
which has now replaced the trading of real goods in the world market.
An
interesting historical tidbid about BIS, also from Wiki:
Between 1933
and 1945 the BIS board of directors included Walther Funk, a prominent Nazi official, and Emil Puhl, who were both convicted of war crimes at
the Nuremberg trials after World War II, as well as Hermann Schmitz,
the director of IG Farben, and Baron von
Schroeder, the owner of the J.H.Stein Bank,
which held the deposits of the Gestapo.
There were allegations that the BIS had helped the Germans loot assets from
occupied countries during World War II.
As a result of these allegations, at the Bretton
Woods Conference held
in July 1944, Norway proposed the "liquidation of the Bank for
International Settlements at the earliest possible moment".
Clearly
an interesting history. As the linkages between international companies and
bonded labor and slavery in the contemporary moment become clearer, it is clear
that institutions like the BIS either have to do some “international settlements”
against present day workers who have seen the most egregious labor violations
by TNCs. BIS is, indeed, not yet in the clear regarding crimes against
humanity.
Is it
really necessary for the world to hold on to its dollar as “reserve currency”—or
do we merely think we need to do this because BIS tells us so?
I have no
answer to this. Perhaps time will tell if it is necessary.
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