Most Dollar bulls cringe when they hear the word “diversification.”
Within the context of forex,
diversification usually refers to the shift towards non-Dollar denominated
assets among Central Banks. The thinking
is that with the declining Dollar, it probably makes sense to hold reserves in
non-US investments. However, analysts
have begun to realize that this only represents a small segment of entities
that could harm the Dollar by diversifying. The world’s Central Banks probably hold at
most $5 Trillion of reserves, whereas US institutional investment funds
probably have over $20 Trillion collectively invested in US assets. Thus, diversification in this segment probably
poses a much greater threat to the long term health of the USD. The Economist reports:
American mutual funds have gradually increased their
overseas allocation of equities since 2003 from 15% to 22.5% of assets. If this portfolio shift mirrors the behaviour
of all pension, insurance and mutual fund managers, it would imply an outflow
from dollar assets of $1.16 trillion since 2003.
Read More: Soft currency
Original post by Jimmy Atkinson and software by Elliott Back
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