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Why the dollar is still king
CNBC By Matt Clinch
23 hours ago
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Why the dollar is still king
.
View photo
Stephan Levesque | Getty Images
A question that has frustrated even the most experienced economists in the last few decades is how the dollar has remained the most prominent reserve currency in the world despite the global share of U.S. output eroding away.
The Bank for International Settlements (BIS), a Basel-based institution that is known as the central bank of central banks, thinks it has found the answer.
Read More The year's hottest trade is about to get even hotter
"We argue that the dollar's role may reflect instead the share of global output produced in countries with relatively stable dollar exchange rates - the 'dollar zone'," it said in its new quarterly report released on Sunday.
In 1978, economists Robert Heller and Malcolm Knight were credited as first to draw attention to the fact that countries held an average of 66 percent of their foreign-exchange reserves in dollars. Even today that number hasn't budged much with the latest statistics from the International Monetary Fund showing that just over 60 percent of allocated funds are held in the greenback.
The higher the correlation in price between a given currency and the dollar, the higher the economy's dollar share of that country's official reserves, according to Robert McCauley and Tracy Chan, the two authors of the BIS report. The report adds that the dollar's robustness comes despite an 18 percent decline against major currencies since 1978 and the U.S. economy's share of global GDP (gross domestic product) shrinking 6 percent in those 36 years.
"The 'dollar zone' still accounts for more than half of the global economy. In countries whose currencies are more stable against the dollar than against the euro, reserve composition that favors the dollar produces more stable returns in terms of the domestic currency," they said.
Read More Could a strong dollar derail Wall Street's rally?
"This alternative interpretation implies that currency shares could shift rapidly, as happened between the world wars."
The survey covers 24 different economies which represent 28 percent of the official foreign exchange reserves from nations outside of the top three biggest economies. it also included samples for the private sector and found a similar correlation in reserve holdings.
"The logic underlying both private and official behavior is straightforward. The dollar looks less risky as an investment or a borrowing currency the more closely the domestic currency moves with the dollar," McCauley and Chan said. "If correct, these findings have implications for the future of the renminbi."
Rapid growth of the Chinese economy might therefore not be sufficient for the renminbi to eclipse the dollar in official reserve holdings, they added. This would only be possible if it showed "substantial independent movement" against the major currencies and if its neighbors, they said, calling it a possible "renminbi bloc."
- By CNBC's Matt Clinch
Why the dollar is still king
CNBC By Matt Clinch
23 hours ago
????
Why the dollar is still king
.
View photo
Stephan Levesque | Getty Images
A question that has frustrated even the most experienced economists in the last few decades is how the dollar has remained the most prominent reserve currency in the world despite the global share of U.S. output eroding away.
The Bank for International Settlements (BIS), a Basel-based institution that is known as the central bank of central banks, thinks it has found the answer.
Read More The year's hottest trade is about to get even hotter
"We argue that the dollar's role may reflect instead the share of global output produced in countries with relatively stable dollar exchange rates - the 'dollar zone'," it said in its new quarterly report released on Sunday.
In 1978, economists Robert Heller and Malcolm Knight were credited as first to draw attention to the fact that countries held an average of 66 percent of their foreign-exchange reserves in dollars. Even today that number hasn't budged much with the latest statistics from the International Monetary Fund showing that just over 60 percent of allocated funds are held in the greenback.
The higher the correlation in price between a given currency and the dollar, the higher the economy's dollar share of that country's official reserves, according to Robert McCauley and Tracy Chan, the two authors of the BIS report. The report adds that the dollar's robustness comes despite an 18 percent decline against major currencies since 1978 and the U.S. economy's share of global GDP (gross domestic product) shrinking 6 percent in those 36 years.
"The 'dollar zone' still accounts for more than half of the global economy. In countries whose currencies are more stable against the dollar than against the euro, reserve composition that favors the dollar produces more stable returns in terms of the domestic currency," they said.
Read More Could a strong dollar derail Wall Street's rally?
"This alternative interpretation implies that currency shares could shift rapidly, as happened between the world wars."
The survey covers 24 different economies which represent 28 percent of the official foreign exchange reserves from nations outside of the top three biggest economies. it also included samples for the private sector and found a similar correlation in reserve holdings.
"The logic underlying both private and official behavior is straightforward. The dollar looks less risky as an investment or a borrowing currency the more closely the domestic currency moves with the dollar," McCauley and Chan said. "If correct, these findings have implications for the future of the renminbi."
Rapid growth of the Chinese economy might therefore not be sufficient for the renminbi to eclipse the dollar in official reserve holdings, they added. This would only be possible if it showed "substantial independent movement" against the major currencies and if its neighbors, they said, calling it a possible "renminbi bloc."
- By CNBC's Matt Clinch
looking for a bottom
ad 121.4 getting close to your 122 the dollar still looks very strong imo
I don't like the fact that it is moving this fast but will take what market will give I rest better when its slow and steady
letting the trades run and keeping stops close on the trades
thanks good food for thought
the dollar is running up and oil futures are running up too
both cant keep going the same way ones going turn and play catch up
time to make some money
the us/yen on
the more again next line in the sand 123 imo
nice
Im not good at calling highs and lows they tend to go farther than i think they can back in the day it was trading up to 140s in 1998 but just like anything that flys to the moon this fast it will come back down and very fast the charts look very strong so yes i feel it got more room to run
cbi looking at a weekly chart thinking first buy around 44 or 46 ? we will see made good money last time you talked about them
ad work is good right now i do the built in's and custom kitchens they give me plans and let me do my thing very happy and yes still very busy going take two or three more years to work out the work sandy made for us 6 day work weeks still
where are you living now a days here ( us ) or over seas ? with family ? great talking to you ttr
most fri and Sundays it pulls back that's when i add more to the trade
take a look at a weekly chart add a ma 8 and a ma 26 on a line chart
then down below add cci 100 and a overlay ma 30 on it
that's what im trading you will see it
do i get the very top no do i get the very bottom no but i do make good money in the middle
sg have a great weekend getting cold up here so keep warm
i don't care not to be short with you but I'm just trying to make some change to put in my pocket just reading the charts that's all went in early summer went long dollar with eur and dkk been very happy with this trade
now as far as the economy goes well hell the world as far as that goes yes your right its not going end well for anyone its wrong and your right what the Govts have done is wrong and at some point in time we will have to pay for this but for
now im making what I can for my family
sg Im getting up there in years i see the kids coming to work
all want to work and make big bucks but no one wants to put in the time to learn how to do it
it scares the chit out of me to think they are the ones replacing me
great talking with you will stop in soon to see how its going take care ttr
yes have not seen the dollar this strong in a long time but it also feels like markets are going to catch this wave up too imo this looks like mid 1990s ( 1996 till 1999 ) and we all know what happened in first part of 2000s so lets ride it and make some money
thanks for putting cbi back on my watch list
have not seen a strong move in the dollar like this in years maybe back to 1997 or so market feels strong too
we should see pull backs on the way up but I think the dollar going higher in time
hello SG
I maybe old but not dead ( yes I'm long the dollar ) how's it going around here ?
still trading on the weekly chart I know you where the king on scalping hope your still doing well
the dollar is still thought of as a safe haven
but with the fed ending "QE " and euro starting QE may also help with the dollar rise
we need to get above 85 to break out of the sideways trading of late imo we will see
good to hear from you my trading is on a weekly chart now only look at it one or two times a week
glad to hear your still doing so great
http://finance.yahoo.com/blogs/talking-numbers/why-the-u-s--dollar-is-still-king-214400187.html
should back test the breakout and then run imo
more an investor than a trader these days hope all is well
did you get my email ?
http://finance.yahoo.com/blogs/talking-numbers/why-the-u-s--dollar-is-still-king-214400187.html
it should back test the breakout and then run
hello jav how has it been ?
hope some of you are riding bidu too
no Thank you !for all you did/do
they will keep it going as long as they can
much longer than you and I think they can
IMO we are going to 2400 we will have small pull backs on the way up but the trend is up
nice trade there
hope all is well with you
was looking at some charts today and see the dollar has changed
it wants up and the markets want up too ( makes me think back to 1995 or maybe 1996 ) both ran together good money to be made back then and now IMO
long time ago AD would short a pig called bidu looks to me like it wants to run some now no harm in playing both sides the hard part is knowing when to jump
lets make some money
moving to the bear side for a spell looking for a 20% correction in the s+p
hello da
have a look at the $spx macd on a weekly chart don't like the lower high
may turn back up but I'm watching it for now
hello L
well we getting some spring here sure you and baseball are getting warmed up too my div. stocks been giving me some cash looks like it might be time to go shopping again
hope all is well here
ttr
ps looks like people are spending money again ( you seeing that too ? )
work still great ( mostly from sandy ) people have 4 years to lift there homes and most don't just lift they do a remodel/add on with the lift just a very cold and snowy winter this year
have you seen these new homes with the smart phones that work lights (no switches ) blinds fireplaces heat and other things ? miles of wiring going into the home to make it all work even locking/unlocking of doors wait till some of the rich people see these homes everyone will want one a hole new market for your home ( we are working on two of them ) the one home going all in with it about 150 thousand to install it about a 4000 sqft home and there phone or tab will work just about everything in the home things are changing and we need to change with it
the markets been good too I think we going see 1950 in the s+p
hope all is well with you
hello Lback
dollar going down if it takes out 78 then I look at 72 next stop
the markets been trading the aristocrats I read the news on them and look for ones taken to the wood shed or the breakout ones the three im in now are gww afl and tgt if I'm wrong on my buy with them I can wait it out and get a divd
this winter been a hard one must be hard to find the baseball in the snow ?
I watch the 2 hr and the daily charts as to when to sell and buy them
may get a pullback (low ) but looks like its building a bottom to me
in time looking for a nice run up so if this does play out that way
what are stocks going to do ? I sold out of my shorts at this time but looking to reload in time watching the dollar ,spx , indu
and ps best of luck with the baseball this year great to see that
last two times they split it it runs after ? going have to watch that ?
I got 1490 as the line in the sand ? close to you too I think ?
big into uvxy , sdow will sell if bounces there we will see
happy new year to all
great post there big guy
thanks and sure I will
thinking 1800 on the s+p for now
long the dollar ( big time ) and sitting on cash in the trading acct
sold cbi that was a nice run
10/29 one year from sandy
boy has a lot changed around here
I really don't like this new set up here
sorry it took so long but look at the weekly on these two
spx going higher usd going lower
we should all read