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8 Nov, 2007 15:09

Dollar hits all-time low as China turns to euro

The U.S. dollar has tumbled to an all-time low against the euro after Chinese officials proposed slashing the dollar component of their reserves.

The Chinese Central Bank believes the dollar is losing its status as the world currency, and is now looking at divesting its greenback assets. Dollars currently make up to 70% of China’s $US 1.4 TLN worth of foreign exchange assets.

Vladimir Osakovsky, economist at Aton Capital, says China is lagging behind Russia when it comes to reserves and is doing what Russia did a couple of years ago and for the same reason.

“China has a much stronger exposure to the dollar,” Mr Osakovsky said.

The chief economist at Deutsche Bank, Yaroslav Lissovolik, says Russia should now be switching the 50% of its reserves still in dollars to other currencies.

“If the Russian Central Bank doesn’t want to bear capital losses, as was the case with some of the Asian Central Banks, you will see continuing diversification away from the dollar to more appreciating currencies – euro, sterling, possibly some Asian currencies,” he said.

The mood on Wall Street remains is grim, with some of the biggest firms from Merrill Lynch to General Motors posting record losses.

Billionaire investor George Soros has predicted “a very serious economic correction” for the entire U.S. economy.

And with a Fed rate cut shortly expected to sink the greenback further, Russia’s Central Bank is unlikely to sit on its hands for long.

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