ARC's 1st Law: As a "progressive" online discussion grows longer, the probability of a nefarious reference to Karl Rove approaches one

Tuesday, March 14, 2006

After-Effects of Our DPW Hysteria

In addition to the potential loss of Boeing's number 1 customer (Dubai), it looks like there could be significant ramifications in terms of the valuation of the US dollar:

Arab central banks move assets out of dollar
By Philip Thornton, Economics Correspondent
Published: 14 March 2006

Middle Eastern anger over the decision by the US to block a Dubai company from buying five of its ports hit the dollar yesterday as a number of central banks said they were considering switching reserves into euros.

The United Arab Emirates, which includes Dubai, said it was looking to move one-tenth of its dollar reserves into euros, while the governor of the Saudi Arabian central bank condemned the US move as "discrimination".

Separately, Syria responded to US sanctions against two of its banks by confirming plans to use euros instead of dollars for its external transactions.

The remarks combined to knock the dollar, which fell against the euro, pound and yen yesterday as analysts warned other central banks might follow suit.

Last week the US caused dismay after political opposition to the takeover of P&O by Dubai Ports World forced DPW to agree to transfer P&O's US port management business to a "US entity" .

The governor of the UAE central bank, Sultan Nasser al-Suweidi, said the bank was looking to convert 10 per cent of its reserves, which stand at $23bn (£13.5bn), from dollars to euros. "They are contravening their own principles," he said. "Investors are going to take this into consideration [and] will look at investment opportunities through new binoculars."

Hamad Saud al-Sayyari, the governor of the Saudi Arabian monetary authority, said: "Is it protection or discrimination? Is it okay for US companies to buy everywhere but it is not okay for other companies to buy the US?"
[...]
The euro rose a quarter of one percentage point against the dollar to a one-week high of $1.1945, although it retreated in later trading.

Monica Fan, at RBC Capital Markets, said: "The issue is whether we will see similar attitudes taken by other Middle Eastern banks. It is a question of momentum."

Middle Eastern anger over the decision by the US to block a Dubai company from buying five of its ports hit the dollar yesterday as a number of central banks said they were considering switching reserves into euros.

The United Arab Emirates, which includes Dubai, said it was looking to move one-tenth of its dollar reserves into euros, while the governor of the Saudi Arabian central bank condemned the US move as "discrimination".

Separately, Syria responded to US sanctions against two of its banks by confirming plans to use euros instead of dollars for its external transactions.

The remarks combined to knock the dollar, which fell against the euro, pound and yen yesterday as analysts warned other central banks might follow suit.
[...]
The governor of the UAE central bank, Sultan Nasser al-Suweidi, said the bank was looking to convert 10 per cent of its reserves, which stand at $23bn (£13.5bn), from dollars to euros. "They are contravening their own principles," he said. "Investors are going to take this into consideration [and] will look at investment opportunities through new binoculars."

In addition to the whole hyperbolic reaction by the press and Congress, it's not good business practices to reverse course on a deal that has already been inked. While I wouldn't be surprised for the People's Republic of China to step in and cancel a deal, that isn't supposed to happen in the US. Of course, domestic political considerations seem to trump common sense and a rational discussion at every turn these days.

Your Co-Conspirator,
ARC: St Wendeler