Central banks losing faith in the US dollar

A report by Barclays has shown that governments across the world boosted their foreign currency holdings by a huge US$ 413 bn during the September quarter. Needless to say that lending to the US government accounted for the majority of it. However, here comes the shocker! A full 63% of the new money that has come in has been invested into Euro and Yen denominated assets, thus setting a new record. Well, this potentially means that central banks are losing faith in the US dollar and want to diversify their holdings. However, there’s a problem here. If they diversify too fast, they risk depreciating the dollar to unreasonable levels, a scenario which is not too ideal for their export driven economies. Hence, the process will have to be gradual. But one thing cannot be denied. As things stand today, the dollar is headed towards a continued long-term decline