Asian central banks not financing US deficit, says IMF

Washington, Oct 30 | Updated: Oct 31 2005, 07:35am hrs
Asian central banks, including those of India, are among the top holders of US treasury securities but the widely held view that they are effectively financing the massive US current account deficit is flawed, the IMF says.

India, Japan, China, Taiwan, South Korea, Hong Kong, Singapore and Thailand are among the major foreign holders of treasury securities, according to the latest figures released by the treasury department.

Another perception the International Monetary Fund (IMF) wants to debunk is that Asian central banks scramble to buy US dollars because they desperately want to keep their currencies low and exports more competitive.

The theory goes that by purchasing huge amounts of dollar-denominated us government securities, the regions cash-flush central banks are not only pushing up the value of the greenback to keep their exports competitive but also financing the current account deficit of the worlds richest economy.

The US current account deficit in 2004 was a record $666 billion and the IMF expects the gap to rise to $759 billion this year and $805 billion in 2006 6.1% of the US gross domestic product.

Overall, the bulk of US assets sold to foreigners are still to the private sector, said IMFs chief economist Raghuram Rajan.

Some of you may be surprised because it is often said in the financial press that the US current account deficit is being financed by foreign central banks, he said.