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Article: What if foreign governments diversified their reserves?
- Article from:
- FRBSF Economic Letter
- Article date:
- July 29, 2005
- Author:
CopyrightCOPYRIGHT 2005 Federal Reserve Bank of San Francisco. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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World financial markets paid close attention when officials from both South Korea and Japan said that their governments were considering diversifying their holdings of foreign reserves (Dougherty 2005 and Koizumi 2005). Many analysts thought these announcements were partly in response to the past depreciation of the dollar; if true, then it seemed likely that those two governments would sell some of their dollar-denominated assets, putting further downward pressure on the dollar.
Since then, officials in both countries have insisted that they were not considering any major changes to the policy of reserve holdings. Nonetheless, the potential for a sell-off of ...