Et tu, Indonesia

First, Russia decides it wants to hold more Euros and fewer dollars. And now Indonesia?

"Indonesia’s Aslim Tadjuddin, deputy governor for monetary policy at the central bank, said on Nov. 26 that the country may trim its U.S. holdings should the dollar keep dropping."

While Korea has not said -- to my knowledge -- that it wants to hold more Euros, its central bank clearly would prefer not to be accumulating quite so many dollars. But it seems to be having a hard time getting out of the Bretton Woods two cartel; Korea intervened again on Monday. The consequences of truly floating, at least when China is still pegged to the dollar, seem to be a bit too dire ... given the state of Korea’s own economy.

An argument could be made that Japan was the first to defect from the Bretton Woods two dollar financing cartel: it stopped intervening to support the dollar back in the spring, and while it has not diversified its existing reserves, it has not been adding to them. That could be considered a form of defection. Full membership in the cartel requires two things: a) holding on to your existing stock of dollar assets, and b) buying more dollar assets to keep your currency from appreciating, and in the process provide the ongoing vendor financing the US needs to consume more than it produces.

It is hard to say that Japan is really out of the cartel, though, when there is such a strong expectation that they will step back in should the yen rise above a certain threshold ...