>Presumably central banks can exchange their surplus US currency on
>currency markets for other currency.
Yup, they could. But there's never been a significant Japanese T-bill market, so it's difficult to keep reserves in yen. And next to the U.S. Treasury market, the German and French government bond markets are tiny. Like I said, once an integrated euro market develops, everything will change. In fact, the weakening of the dollar vs. the euro <http://finance.yahoo.com/q?s=^XEU&d=c&t=1y&l=on&z=m&q=l> may be anticipating just that.
Fascinating quote in a NYT article this morning - and the very existence of the article on the front page of the biz section was pretty fascinating itself. It was about the postwar euphoria in the financial markets giving way to some longer-term concerns, e.g., the U.S. ability to fund its deficit indefinitely. Here's the quote:
>"America is more dependent on the rest of the world for capital than
>at any time in the past 50 years," said David P. Bowers, chief
>global investment strategist of Merrill Lynch. "What the rest of the
>world is being asked to fund is very different from what they were
>being asked to fund three years ago. Three years ago they were being
>asked to fund a private sector miracle. Now they're being asked to
>fund Bush's tax cuts and the war on Iraq."
Couln't have put it better myself.
Doug