Central Bankers Shifting Funds From U.S. To Eurozone

Central banks have shifted reserves towards the eurozone in a move that could make it harder for President Bush to finance the record U.S. current account deficit, the Financial Times reported Monday.

"The U.S. cannot take support for the dollar for granted," the report said, quoting Nick Carver, one of the authors of a study by Central Banking Publications that surveyed 65 central bankers who were not identified. According to the study, 70% of those questioned said they had increased euro-denominated reserves, and the report sent Europe's single currency higher against its U.S. counterpart in morning trades.

Together, the 65 bank chiefs control assets worth $1.7 trillion, "and the results showed a marked change in attitude over the past two years," it added. Shifting central bank reserves would increase pressure on the United States, which relies on foreign investment to fund a current account deficit that grew to $164.7 billion in the third quarter of 2004, a new record.

The report said that the U.S. would have to raise interest rates if foreign investment decreased significantly, dampening economic growth. At the end of 2003, central bankers held 70 % of their official reserves in dollar-denominated assets, and their purchases of U.S. securities had financed 80% of the current account deficit.

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