Further predictions of secular dollar weakness, from a portfolio balance perspective
Asian central banks are huge holders of Americans’ precious dollars and major bankrollers of the U.S. current account and trade deficits. The fear that they will shift more of their reserves into other currencies is ever-present.
Meanwhile, at the end of last year, total money under management in the United States was $17.7 trillion, according to data from the Bureau of Economic Analysis — six times the total official reserve holdings of the major Asian central banks, which stood at roughly $2.89 trillion as of May.
“I really don’t believe the Asian central banks are the thing to fear here, because they want stability,” said Michael Woolfolk, senior currency strategist at the Bank of New York. “That’s one of the reasons why they intervene as heavily as they do and have the assets they do.”
MORE U.S. INVESTORS LOOK OVERSEAS
Almost 40 percent of U.S. funds expect to make a “significant” asset-allocation change over the next three years, according to financial-services research group Greenwich Associates in Greenwich, Connecticut.
The survey found that many funds expect both to increase allocations to the type of foreign investments they already hold and to seek other opportunities.
But Greenwich Associate’s Webster said the U.S. institutional community tends to adopt a much longer-term view, and even another string of U.S. rate rises is unlikely to reverse the ongoing shift into international waters.
While I find the the article’s thesis that central bank reserves are not central a bit overstated (after all, central banks can act in a unilateral or coordinated fashion that private agents can’t), the observation that private investors are ready to diversify out of dollar assets of interest.