Longtime readers of FX Hub/FX Briefs/ForexLive will be familiar with the term “reserve diversification”, one of the factors that helped drive EUR/USD to 1.6000 last summer before it collapsed. China and other Asian exporters as well as a legion of oil producing nations were selling a significant portion of their dollar-denominated reserves to diversify their reserve asset mix.
The mix was probably pretty similar to the IMF’s Speacial Drawing Rights, a synthetic currency (an accounting fiction, really) made up of 44% USD, 34% EUR and 11% each in GBP and JPY. SDPs are in the news as China suggests maybe it should be the new global reserve currency.
I have just one question for China, Russia, SAMA, and all the others who were quick to dump the dollar a year ago: How’d that work out for ya?
They dumped dollars in the spring and grabbed dollars with both hands in the fall, contributing to the spike in volatility on the way down and on the way up. Keep that in mind before jumping off the dollar bandwagon yet again.
