WWRR Vol.2.017

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US$ billion US$ billion India Strategy Note | January 1, 2019 It appears the rest of the world, which has been financing the US, is turning its back on the country Until now, the rest of the world and trade deficits (true trade deficits) have been financing the US budget, and the American consumer has been living the “American dream” of low inflation, low interest rates and state-funded social security. Figure 4: Foreign holdings of US treasuries are at the same level as they were in CY14. While China and Japan are reducing their holdings, new buyers, such as India, have stepped up. 6,000 5,000 China Japan Ireland Brazil UK Switzerland Luxembourg Hong Kong Taiwan Cayman Islands Saudi Arabia India Singapore Belgium Russia Korea Others 4,000 3,000 2,000 1,000 0 882 1,058 1,111 1,183 1,231 1,122 1,091 1,062 766 626 690 670 623 580 1,160 1,152 1,220 1,270 1,244 1,246 551 318 318 378 727 895 1,058 1,185 223 310 397 478 CY00 CY01 CY02 CY03 CY04 CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 SOURCES: CIMB RESEARCH, Bloomberg, IMF and world bank data As such, the incremental deficit is being financed by the American public and institutions at large The impact of the financing of budget deficits by US institutions has been the crowding out of private investment. It is possible that President Trump’s repeated criticism of the US Federal Reserve and his unhappiness over what he perceives to be unnecessarily high interest rates stems from the fact that the US Government deficit has been crowding out private investments (Please see the link). Figure 5: The chart below shows the incremental purchases of US bonds by various entities. Foreign buying of US treasuries and long-dated bonds has declined significantly over the years. 3,000 2,500 Private Depository institution US Saving Bonds Private State and Local Governments Insurance compnaies Mutual Funds State and Local Governments Foreign Holdings Other Investors 2,000 1,500 1,000 500 0 -500 -1,000 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 Mar- CY18 June - CY18 SOURCES: CIMB RESEARCH, Bloomberg, World bank and IMF 3
% of Reserve % of Trade in USD 2004Q3 USA 2005Q2 Italy 2006Q1 Germany 2006Q4 Spain 2007Q3 France 2008Q2 UK 2009Q1 Australia 2009Q4 Switzerl… 2010Q3 Norway 2011Q2 Sweden 2012Q1 Japan 2012Q4 Canada 2013Q3 Poland 2014Q2 Iceland 2015Q1 Thailand 2015Q4 Isreal 2016Q3 Turkey SK 2017Q2 Brazil 2018Q1 Indonesia India % of Reserve % of reserves 2004Q3 2005Q1 2005Q3 2006Q1 2006Q3 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3 2016Q1 2016Q3 2017Q1 2017Q3 2018Q1 % of reserve India Strategy Note | January 1, 2019 US$ is losing its premier reserve currency status; however, the position has not been taken by euro; Asian currencies are the preferred bets Figure 6: Chinese yuan has made a remarkable entry as a world reserve currency and now has a 1.8% share. Yen has also been regaining its lost market share. Figure 7: Both yen and renminbi are making their presence felt as US$ and euro have seen their dominant positions deteriorate, albeit at a very slow pace. 5.5 5.0 Japanese yen ( LHS) Chinese renminbi ( RHS) 2.0 1.8 1.6 68 67 66 Title: Source: 28 U.S. dollars ( LHS) euros ( RHS) 26 4.5 1.4 1.2 65 24 4.0 1.0 64 3.5 3.0 0.8 0.6 0.4 0.2 63 62 61 22 20 2.5 0.0 60 18 SOURCES: CGS-CIMB RESEARCH, IMF data SOURCES: CGS-CIMB RESEARCH, IMF data US$ has been the premier currency in global trade Figure 8: Even the developed world trades primarily in US$. For countries like India, almost its entire trade is US$ denominated. Figure 9: The 2015 data by Prof. Gita Gopinath show the world’s preference for US$. 120% USD Imports USD Exports Title: Source: 100% Please fill in the values above to have them entered in your 80% 60% 40% 20% 0% SOURCES: CIMB RESEARCH, Research paper on https://www.nber.org/papers/w23988 SOURCES: CIMB RESEARCH, Research paper on https://www.nber.org/papers/w23988 Oil trade is dominated by US$ All Gulf Corporation Council (GCC) countries peg their currencies to the US$ and most of them run current account deficits; hence, trading in US$ becomes a priority for them. The lower the oil price, the greater is the propensity to bolster reserves to avert a crisis. While most of the GCC countries have progressed (in terms of withstanding the oil price shock) since 2015, their vulnerability is still high 4
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Assessing the Cycle - 2019 in Bette
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Conditions in H1FY2019-II Exhibit 8
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Asset Class Wise Growth and Outlook
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WWRR Vol.2.017

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