Like other portfolio managers, reserve-holders seek to diversify. That means fewer dollars
novel “The Postman Always Rings Twice” portrays a violent love affair between Frank Chambers, a drifter, and Cora Papadakis, a former beauty queen now married to a man she despises. Their romance is doomed from the beginning. Every attempt to find happiness fails. Any attempt at being apart is equally hopeless. “Why did you have to come back?” she hisses after one break-up. “I had to, that’s all,” he replies.
The dollar is the closest thing to a world currency. Commodities that are traded globally are quoted in dollars. So are other currencies. A lot of cross-border trade is invoiced and settled in dollars, too. Dollars are the unit by which the world of finance keeps score. So there is logic to countries keeping stores of them in reserve. It is generally dollars that you need in an emergency.
There are other reasons for breaking free of the greenback. Its global role gives America the means to impose financial sanctions to great effect. Its use of such powers has steadily grown. In response, Russia has slashed the share of dollars in its currency reserves. It is not hard to imagine that some other countries have weighed the odds of at some stage being caught in a dispute with America.
Reserve managers appear to be countercyclical investors, selling when others are buying. This is rather cheering. The dollar looks overvalued on many benchmarks. And if anyone can take a long-term view, it ought to be reserve managers. Even so, Mr Englander suspects that some of them are waiting for signs of dollar weakness before selling.
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