Small countries, big impact: Dollar escape accelerates
Qatar and Vietnam aren't exactly marquee players on the world financial stage. But if this is any indication, they're harbingers of what's to come for the U.S. dollar:
Announcements on Thursday from the Qatari and Vietnamese governments that they are rapidly divesting in dollar denominated securities will not come as good news to the US government. Overseas investors hold half of America’s $4,400bn of marketable government debt, up from a third in 2001 according to the US Treasury department.
Qatari Prime Minister, Sheikh Hamad bin Jassim bin Jabr al-Thani said on US TV that the government-backed $50bn Qatari Investment Authority (QIA) now had less than 40 per cent of its investments in dollars, down from a high two years ago of 99 per cent.
Given that the Emirate’s oil and gas revenue is in dollars, the latest troubles in the US economy have accelerated the need to diversify investments into non-dollar markets. Currencies such as the Euro, the British Pound and the Swiss Frank, are all looking far more stable as investments for the QIA, said Sheikh Hamad.
Such was the Qatari PM's concern about the sliding dollar, that he even said an oil price of $125 a barrel would not be unreasonable.
Ouch. Coming on the heels of Kuwait's decision to decouple its currency from the dollar, and Saudi Arabia's refusal to cut interest rates in tandem with the Fed last month… the notion of the six Gulf Cooperation Council nations forming a single currency pegged to the dollar is looking not only improbable, but impossible.
And what about Vietnam? This too looks like an omen:
On Thursday, the State Bank of Vietnam quietly let slip it would be ending its dollar purchase schemes, which it has been using to hold down the Vietnamese currency. Although it only has middling dollar reserves of $40bn, Vietnam is widely regarded as a barometer for economic sentiment among other, bigger, regional dollar sinks like China, Taiwan, Korea or Singapore. Hans Redeker, currency chief at BNP Paribas, told the Telegraph:
"Vietnam is a relatively small country but it is symptomatic of Asia. The entire region is seeing inflation move up as a result of mercantilist policies of holding down their currencies with 'dirty floats', which are designed to help their export sectors. They need to change monetary policy. "
Would the last country to exit the dollar please turn out the lights?