The Beginning of the End of Dollar Dominance

Australian Treasurer Seeks Orderly Withdrawal From U.S. Dollar

By John Garnaut
Economics Correspondent
10/19/06 "SMH" -- -- TREASURER Peter Costello has called on East Asia's central bankers to "telegraph" their intentions to diversify out of American investments and ensure an orderly adjustment.

Central banks in China, Japan, Taiwan, South Korea and Hong Kong have channelled immense foreign reserves into American government bonds, helping to prop up the US dollar and hold down American interest rates.

Mr Costello said "the strategy had changed" and Chinese central bankers were now looking for alternative investments.

"Of course you can have an orderly adjustment," he told reporters. "And what I would recommend is that these matters be telegraphed well in advance. I think we should begin preparing ourselves for it."

Mr Costello said the "re-emergence" of China as the world's greatest economy "is not something to be feared".

Asked if a muscular China would be a force for good, however, Mr Costello said it would be good for growth and stability. "With the growing economic strength you will see growing influence in diplomacy in the regional architecture, as you would expect.

"I am sure it will be a force for economic development and I am sure that in partnership with other global powers, China wants to see a stable East Asian region."

Earlier, in a speech to open the Australian National University's East Asian Bureau of Economic Research, Mr Costello said Australia's involvement in the region was broader than economics.

"It is a key ingredient of who we are as a people," he said. "While Australia has its own unique culture, we are also a people who confidently enjoy the cultures of Asia, with seven of our top 10 overseas travel destinations being in the region."

Ahead of next month's G20 meeting in Melbourne, Mr Costello called on regional leaders to reform their anachronistic financial systems.

He said underdeveloped financial markets were to blame for the emerging economies of East Asia sending 94 per cent of outward portfolio investment to "ageing" countries outside the region.

He said the region needed to improve poor macroeconomic frameworks, inadequate regulatory systems, uncompetitive markets and insufficient investment in health and education

Original article posted here.