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BNY Mellon’s Shankar Says Euro Vulnerable as Reserve Allure Dims

The euro is under pressure as sovereign-wealth funds and central banks move reserves back into dollars or diversify into other currencies, Samarjit Shankar, a Boston-based managing director for the foreign-exchange group at Bank of New York Mellon Corp., said at a round-table with reporters in Tokyo.

The share of euros among global foreign-exchange reserves slid to below 24 percent in the fourth quarter of last year from a high of 28 percent in the third quarter of 2009, according to the International Monetary Fund. Allocations in dollars rebounded to nearly 62 percent after reaching a low of 60.5 percent in the second quarter of 2011.

On dollar as reserve:

“Global central bankers have realized that there is no viable alternative asset to the U.S. dollar as a reserve currency, so the allure of the euro has faded significantly.”

On euro strength:

“Chinese and other Asian FX reserve growth has been a source of support for the euro because global central banks were diversifying away from the U.S. dollar into the euro. However going forward that is all changing. Asian FX reserve growth including China has slowed down, the equity flows we’re seeing into Europe are also slowing down, and as a result we find the euro is likely to remain vulnerable in the coming months.”

On euro alternatives:

“The broad trend does suggest that there will be more diversification” out of the euro into the Australian, Canadian and New Zealand dollars. “The yen might benefit to some extent.”

To contact the reporter on this story: Kevin Buckland in Tokyo at kbuckland1@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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