In most soccer leagues, if a team performs poorly enough, they get “sent down” to the next division. (Clippers, Raiders, and Pirates take note.) The same thing is now happening to the U.S. dollar as world central banks decide in which currency to hold reserves. Since 1999, an average of 63% of central bank reserves have been held in dollars. Last quarter, foreign central banks added $413 billion to reserves, but only 37% went into dollars. The bulk of the reserves went into euros and yen, where central bankers felt more comfortable with fiscal policies.
As a matter of prudence, central bankers have to consider global macroeconomic factors when investing their billions. As a matter of prudence, maybe it’s time we all looked a little more carefully around the globe for investment opportunities.
