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Presented By:
Rupesh Gaikwad
Shreyak Shah
Suvrat Dayal
Vinayak Sanil
 US Dollar accepted as a universal Reserve
Assets.
 Gold Convertibility Clause.
Reasons For Decline
 VietnamWar (1967-71).
 Doubts in International Markets.
 After 1971 US cut a deal with OPEC.
 Countries needed dollar reserves to buy oil.
 Iraq started selling oil in Euro (2000).
 US invading Iraq (2003).
 Revert sale of oil in Dollars.
 Greenback resumes its slide.
 Apprehension about the gaping U.S. federal
deficit and/or fear of runaway inflation ?
 U.S. trade balance in goods & services.
 Net capital inflows have been negative most
of this year.
 Combination of a modest trade deficit & net
capital net capital outflows from U.S. has
exerted pressure on dollar.
 U.S. short-termT-bill purchases jumped to
$380 bn in second half of 2008.
 U.S. banks lent billions of dollars in good
times to foreign banks but tightened credit
lines when crisis began.
 Foreign banks were forced to scramble for
dollar liquidity.
 This contributed to dollar appreciation
between July’08 to March’09.
 As governments took steps to stabilize global
financial system, investors become more tolerant of
risk again.
 FI now in search of high yields elsewhere often in
their own countries.
 Depreciation of dollar this year: unwinding of one-
off factors that led to its appreciation.
 Spike in risk aversion led to FI seeking to invest in
U.S.T-bill.
 Behaviour of net purchases of long-term securities
has also contributed to pressure on the dollar.
 Purchase of foreign securities by U.S. investors was
in negative in second half of 2008.
 Foreign purchases of U.S. long-term securities
weakened.
 In first seven months of 2009, FI bought $279 bn vs
$462 bn at same time last year.
 Weakening in sale of U.S. corporate bonds by
FI reflects net sales of securitized fixed-
income securities.
 In contrast, foreign purchases of U.S. stocks
strengthened from $28 bn in first seven
months of 2008 to $78 bn so far in 2009.
 As per FRBNY, foreign central banks continue
to buyTreasury securities.
 These holding have increased to $300 bn
since March’09.
 Since March’09, FI have bought $143 bn of
long-termTreasury securities.
 At end of June’08, foreign holding of U.S.Treasury
notes & bonds totaled $2.2 trn.
 Foreign central banks hold nearly ($1.7trn) half of
marketable supply of long-termTreasury securities
outstanding.
 What can reverse dollar’s recent slide ?
 A return of risk aversion
 Higher rates of return on dollar assets will attract
capital inflows dollar

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Dealth of dollar How real it is - Rupesh Gaikwad, Shreyak Shah, Suvrat Dayal, Vinayak Sanil

  • 1. Presented By: Rupesh Gaikwad Shreyak Shah Suvrat Dayal Vinayak Sanil
  • 2.
  • 3.  US Dollar accepted as a universal Reserve Assets.  Gold Convertibility Clause. Reasons For Decline  VietnamWar (1967-71).  Doubts in International Markets.
  • 4.  After 1971 US cut a deal with OPEC.  Countries needed dollar reserves to buy oil.  Iraq started selling oil in Euro (2000).  US invading Iraq (2003).  Revert sale of oil in Dollars.
  • 5.
  • 6.  Greenback resumes its slide.  Apprehension about the gaping U.S. federal deficit and/or fear of runaway inflation ?  U.S. trade balance in goods & services.
  • 7.  Net capital inflows have been negative most of this year.  Combination of a modest trade deficit & net capital net capital outflows from U.S. has exerted pressure on dollar.  U.S. short-termT-bill purchases jumped to $380 bn in second half of 2008.
  • 8.  U.S. banks lent billions of dollars in good times to foreign banks but tightened credit lines when crisis began.  Foreign banks were forced to scramble for dollar liquidity.  This contributed to dollar appreciation between July’08 to March’09.
  • 9.  As governments took steps to stabilize global financial system, investors become more tolerant of risk again.  FI now in search of high yields elsewhere often in their own countries.  Depreciation of dollar this year: unwinding of one- off factors that led to its appreciation.  Spike in risk aversion led to FI seeking to invest in U.S.T-bill.
  • 10.  Behaviour of net purchases of long-term securities has also contributed to pressure on the dollar.  Purchase of foreign securities by U.S. investors was in negative in second half of 2008.  Foreign purchases of U.S. long-term securities weakened.  In first seven months of 2009, FI bought $279 bn vs $462 bn at same time last year.
  • 11.  Weakening in sale of U.S. corporate bonds by FI reflects net sales of securitized fixed- income securities.  In contrast, foreign purchases of U.S. stocks strengthened from $28 bn in first seven months of 2008 to $78 bn so far in 2009.
  • 12.  As per FRBNY, foreign central banks continue to buyTreasury securities.  These holding have increased to $300 bn since March’09.  Since March’09, FI have bought $143 bn of long-termTreasury securities.
  • 13.  At end of June’08, foreign holding of U.S.Treasury notes & bonds totaled $2.2 trn.  Foreign central banks hold nearly ($1.7trn) half of marketable supply of long-termTreasury securities outstanding.  What can reverse dollar’s recent slide ?  A return of risk aversion  Higher rates of return on dollar assets will attract capital inflows dollar