Latest yen intervention format burnishes dollar's status, say Goldman

"Having facilities like this, even if not originally intended for this purpose, is unique to the US Dollar", and so demonstrates the "depth of capital markets that allows for reserve accumulation in calm markets, and liquidity assistance in the capital markets that allows for reserve access in times of stress".

Lastly they say that other reserve managers, such as Turkey, faced operational hurdles after diversifying holdings into less-liquid assets like gold.

In short, in their view, "Treasury’s actions and the availability and utility of the FIMA facility help demonstrate that no one else can come close to competing with the U.S. Dollar’s usefulness, network effects, and supporting infrastructure right now".

(Alun John)

One view has been presented among others by Barry Eichengreen, professor at the University of California Berkeley. He wrote in the FT that the fact the U.S. seemingly wanted to prevent the Bank of Japan from selling some of its Treasury holdings dents the appeal to reserve managers of holding them, indicating "the dollar is not the attractive reserve currency it once was".

However, Goldman analysts disagree with this view, and make a few points.

Firstly they say that earlier in the year a range of reserve managers sold significant quantities of Treasuries to support their currencies, and the U.S. Treasury did not object, suggesting that this is not part of a broader trend.

Then they say Japan’s ability to access the Fed’s FIMA facility actually "highlights a key structural advantage of Dollar reserves".

The unusual format of U.S.-Japanese coordinated intervention to prop up the weak yen demonstrates the U.S. dollar's usefulness, Goldman Sachs said in a note, pushing back against the view the last week has undermined the appeal of dollar reserves.