According to Derek Halpenny, senior currency economist at Bank of Tokyo-Mitsubishi UFJ, there is strong evidence to suggest that the importance of reserve diversification by the world’s central banks has been overstated.
Halpenny feels that the end of the cycle of interest rate increases in the US has caused market participants to search for what will be the next driver of the dollar’s value. “The market is starting to look at how the US will fund its current account deficit,” he says. “The perception that emerged at the end of the fourth quarter of 2004 was that the US would look to weaken the dollar to do this and that would fuel diversification.” The...
