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Qatar & Vietnam ditch the 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 per barrel would not be unreasonable.

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.

Cue dollar sale.

Asian investors have already pulled out of US Treasuries - as FT Alphaville reported in September, foreign government holdings of T-Bills fell 3.8 per cent in August.

Japanese investors in particular, reports Bloomberg, are anticipating another rate cut from the Fed. The world’s second largest actively run bond fund, Japan’s Kokusai Global Sovereign is staying away from US Treasuries. According to Masataka Horii, who oversees $47.6bn:

The US dollar will go weaker because the market expects that interest rates will be cut and the economy will slow down… Another rate cut will make the economy stabilize. Maybe early next year, weakness in the US dollar will stop.

The problem for the US is that foreign appetite for debt has become an important prop for the economy. A 2006 study by Federal Reserve economists concluded that foreign investment in the US economy has been a liquidity support keeping long-term interest rates 90 basis points below where they should be.

This entry was posted by Sam Jones on Thursday, October 4th, 2007 at 12:42 and is filed under Capital markets. Tagged with , . You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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Comments

  1. Oct 08   19:00 Posted by Anonymous [report]

    Any one that lays the blame for this economic downturn at the door step of so many “unforseen consequenses” or “bad decisions” is still looking at the world with blinders on. I heard this saying long ago and I think it is applicable here.
    “Once is an accident, twice is a coincidence but three times is enemy action” there have been so many screw ups as to be unbeleivable as “accidents” any more.
    Lets just say for a minute that there are a few really bad elements in the highest levels of power in our government that are so corrupt that they don’t hold this countries best interests in anything that they do.
    A person like this would do ANYTHING to extend their power and wealth including selling our country out from under us.
    My example would be, GATT>NAFTA >CAFTA, these three trade deals have destroyed our manufacturing base so that the main component of our economic growth, the blue collar worker, no longer has a job that pays enough to get by, much less drive our economy.
    There have been a mirade of foreign countrys that have said that they will destroy the U.S. though economic warfare, not the least of which are countries such as Japan and China.
    I am going to use then as an example: All through the 70’s through to today these countries have been buying up our country.
    Mabey they were buying lobbiest’s and politicians too. I am not suggesting that ALL of our politicians are dirty like this as you only need senior politicians that head committees to mislead everyone else into thinking that they are doing something good for the country (GATT, NAFTA, CAFTA)
    On the surface these things looked good, they get us lots of new bussiness (although the people we are “getting” business from are so poor by and large that they cannot afford the high end products that used to drive our economic growth, they can’t afford them, and now we can’t either)
    Just underneath however you see that these were designed to destroy our export of real products(by sending all of our real manufacturing jobs out of the country) and cripple our economy so that we will have to take a new currency (the AMERO, and if you think I am crazy, I have seen pictures of the proofs that that have already been made, even though they say there are no plans to do this) which will probably be shared with the rest of this hemi-sphere eventually.
    This will add to the things that are destrying U.S. soverenty and economic power ( the loss of high paying jobs to third world countris where they get paid nothing. If our leaders realy had our best interests in mind you would think that there would hace been standards place on the manufacture of products in other countries like say paying wages equal to ours for the same job. This would have spread wealth around the third world and makde real competition possible. Instead companies are allowed to import products that have been produced by virtual slave labor.
    This was a great deal for the FEDERAL GOV. as they raise a large portion of thier budget from tarrifs on imports, but is was a real disservice to us.
    The federal debt has risen from 3.6 trilliion in the 90’s to 9.5 trillion now.if you are then dissregard this but if you aren’t this is for you, WHY AREN”T YOU DOING SOMTHING ABOUT THIS, OUR COUNTRY IS SLOWLY BEING BLED TO DEATH BY A GREEDY FEW. MOST POLITICIANS MEAN WELL BUT BY AND LARGE THEY ARE AS DUMB AS MOST OF US ARE (1 American in five can’t: find the U.S. on a map; name the vice president or deffine any of the Constitutional amedments that make us free Americans). GET EDUCATED ABOUT MORE THAN WHAT IS GOING ON ON YOUR TV, AND THEN GET PISSED OFF, WRITE YOUR SENATORS AND REPS. EDUCATE THEM, GET THEM PISSED OFF. LETS TAKE OUR COUNTY BACK AND BECOME PROSPEROUS AGAIN!!!!

  2. Oct 08   16:55 Posted by flyingpenguin » Blog Archives » The Markets React to America’s Declining Security [report]

    […] The safety of Americans has lessened dramatically since Bush took office. This is perhaps reflected most clearly in the numbers of investors dropping the dollar from their portfolio. There is a lot of irony in the fact that the oil barons who are close friends of the President are the ones looking to reduce their risk of association: 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. […]

  3. Oct 07   7:47 Posted by Dollar Watch « Daily Liberty Research [report]

    […] 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. Full Story. . . […]

  4. Oct 07   6:07 Posted by Truth is Contagious [report]

    […] Sam Jones Financial Times […]

  5. Oct 05   16:47 Posted by FriendlyFire.Org » Blog Archive » Qatar & Vietnam ditch the dollar [report]

    […] FT Alphaville » Blog Archive » Qatar & Vietnam ditch the dollar […]

  6. Oct 05   3:43 Posted by www.buzzflash.net [report]

    Qatar & Vietnam ditch the 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 go…

  7. Oct 05   2:07 Posted by When Bureaucratic Bullshit Attacks « The Sound of EmCeeKhan [report]

    […] Remember when Bush said the economy was going to be fine while he was in office? How it was “doing well”? Then suddenly we had airlines declare bankruptcy and the health care industry kinda tripped? And then the mortage company facing massive defaults caused a slump in the real estate industry, which caused a massive loss and pain in the banking industry? And then we found out we’re going to be in debt in the Fed by over a trillion dollars? Well, it gets more complicated. Our dollar is being dumped left and right, and when China decides to dump the dollar and unpeg their currency, the deficit triples and Wal-Mart prices will be four times what they are now. Congratulations, Mr. President. You were completely and utterly WRONG. And all this goes on your record. […]

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