from Follow the Money

Russia and India sour on the dollar?

November 7, 2004

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Blog posts represent the views of CFR fellows and staff and not those of CFR, which takes no institutional positions.

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Reports that Russia and India are selling dollars, as in this FT story, are interesting, even leaving aside the rumors about China.

Unless China uses the move to basket to revalue significantly against the dollar, I personally don’t think all that much will change if China moves to a basket peg. A basket peg just means the renminbi just won’t fall as fast as the dollar against the euro ... to support the basket peg, the Chinese central bank will still have to intervene. They may buy a few more Euros as part of a basket peg, but they will still need to buy lots of dollar assets to sustain a peg, basket or their current peg.

On the other hand, the current global financial equilibrium (or disequilibrium) only works if Russia, India and a whole of other countries -- including Japan -- are not just holding on to their existing dollar reserves, but are adding to them. So rumors, apparently pretty solid rumors, that these central banks are selling are a big deal.

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