News Brief – June 3, 2010
A report by Iran’s Press TV
, that the country's central bank was switching €45 billion ($55.06 billion) of its foreign-currency reserves into dollars and gold has prompted fears that others might also abandon the currency.
The Wednesday report came after the head of the Iran's central bank hinted that the euro's decline could prompt a reassessment of its holdings. It has been estimated that Iran’s central bank holds up to $97 billion in reserves.
The news comes as concerns mount that central-bank reserve managers around the world could be on the brink of dispensing with the troubled 16-country currency. The euro slipped 0.5% on the news to around $1.22. Gold prices showed little reaction.
Many market analysts were skeptical of the PressTV report, saying that central banks hardly ever telegraph major reserve shifts. However, if true, the move could be a harbinger of similar moves by other central banks in the region and even in Asia, where the reserve policies of the People's Bank of China are watched particularly closely.
There is growing unease over the long term security of the euro. The currency having shed some 20% of its value against the dollar since December—an unusually heavy drop for a major currency.
Last month, Russia said it trimmed its euro holdings in 2009 to 43.8% of total reserves, from 47.5%. South Korea's central bank has also aired concerns over the euro, saying the euro zone's debt crisis has shaken its appeal as a reserve currency.
Globally, central banks hold a combined total of around $7.5 trillion in reserves. Around one-third of this is held by emerging-market central banks in euros—a proportion that has grown markedly in recent years.
However, the euro’s recent decline in value means that many of these investments are now worth less than they were when the central banks first bought them. Projections of further reserve losses could now tempt other countries to shift their holdings.
Last updated 04/06/2010