Central banks aim to seize Australian production

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The FT has story that should send a shiver down the spine:

Central bankers are putting cash into riskier assets and exotic currencies to compensate for ultra-low returns on US Treasuries, according to a poll of officials responsible for almost $7tn in reserves.

The world’s central bankers together manage reserves worth $10.9tn, most of which is held by monetary authorities in Asia and the Middle East. The bulk of their reserves, usually accumulated from attempts to curb their currencies’ gains, are held in the form of US government debt as well as the bonds of safer eurozone sovereigns.

…A poll of 60 central bankers responsible for reserves worth $6.7tn, conducted by trade journal Central Banking Publications and the Royal Bank of Scotland, sheds light on the secretive world of official sector investments. The response to the crisis by the major monetary authorities has had a profound impact, the poll found – more than four-fifths of respondents said the aggressive monetary easing of the Federal Reserve and the European Central Bank had altered their behaviour.

…The most popular alternative currencies were the Australian and Canadian dollar, the Scandinavian currencies and the Chinese renminbi. About four-fifths of respondents said they had invested, or would consider investing, part of their reserves in Australian or Canadian dollars. More than 40 per cent said they already invested in, or would consider investing, in the renminbi.

About half had, or were considering, branching out into the three Scandinavian currencies and the New Zealand dollar: 14 per cent either owned, or were considering buying, assets denominated in the Brazilian real.

It’s no fun being a safe harbour currency. The one comfort I have is that these are the same group of investors that sold their gold holdings at record low prices throughout the nineties. In my view this is more likely topping bullishness than it is a signal for new highs.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.