Central banks have shifted reserves towards the eurozone, according to a study published Monday, in a move that could make it harder for President George W. Bush to finance the record US current account deficit. "While central banks will continue to some extent to finance the American current account deficit, the United States cannot rely on this source of finance to the same extent as in the past," said the study by Central Banking Publications that surveyed 65 unidentified central bankers.
According to the survey, more than two-thirds of those questioned said they had increased euro-denominated reserves since November 2002.
"Diversification from dollar-denominated to euro-denominated assets appears to be taking place more rapidly that had been anticipated two years ago, although this result may to some extent reflect revaluation changes," it said.
The study's findings sent the European single currency higher against its US counterpart on Monday. The euro was being traded at 1.3063 dollars in afternoon European trading, up from 1.3044 late on Friday in New York.
Most of the central bank directors "thought eurozone money and debt markets were as attractive a destination for investment as the US", the study said.
Shifting central bank reserves would increase pressure on the United States, which relies on foreign investment to fund a current account deficit that grew to 164.7 billion dollars in the third quarter of 2004, a new record.
The current account measures trade in goods and services, investment returns and one-way financial transfers. US officials would have to raise interest rates if foreign investment decreased significantly, dampening economic growth.
At the end of 2003, central bankers held 70 percent of their official reserves in dollar-denominated assets, and their purchases of US securities had financed 80 percent of that country's current account deficit, the study found.