Truly Bizarre

Countries which loaded up on foreign (US) reserves to in part defend the respectability of their own currencies are instituting various forms of currency controls in order to try to defend the respectability of... the dollar to prevent the value of their reserves from plummeting and their currencies from becoming too respectable.

Nov. 12 (Bloomberg) -- Central banks from Bogota to Mumbai are imposing foreign-exchange curbs to take control of their soaring currencies from traders dumping the dollar.

In Colombia, international investors buying stocks and bonds must leave a 40 percent deposit at Banco de la Republica for six months. The Reserve Bank of India created a bureaucratic thicket to curb speculation by foreign money managers. The Bank of Korea is investigating trading of currency forward contracts to limit gains in the won, now at a 10-year high.

Instead of using currency reserves or interest rates to influence foreign exchange markets, central banks and finance ministries are setting up obstacles to keep the falling dollar from threatening company profits and economic growth. The U.S. currency slumped 10 percent this year against its biggest trading partners, the steepest decline since 2003, while Treasury Secretary Henry Paulson has reiterated that the U.S. supports a ``strong'' dollar.

``Central banks are struggling to find new ways to intervene against their currencies and some of the proposals simply can't work,'' said Mirza Baig, an analyst in Singapore at Deutsche Bank AG, the world's biggest currency trader. Some plans are ``truly bizarre,'' he wrote in a report.