Lessening Capital Flow Support For the Dollar
July 16, 2008
The latest monthly U.S. portfolio capital flow data released by the Treasury today revealed a $2.5 billion net outflow for May on the broadest of three definitions included in the report. The narrowest definition showed an inflow of $67.0 billion, 20% smaller than the monthly average over the three prior months. The net inflow, measured by the middle of the three definitions, contracted by 55% in May. I’m not a huge fan of the Treasury capital flow statistics, because they are very volatile from month to month and do not always explain well movements in the dollar. The Bureau of Economic Analysis at the Commerce Department releases a much more comprehensive compilation of the balance of payments in the final month of each calendar quarter for the previous quarter. The disadvantage of these other figures is timeliness. Below I summarize the latest Treasury data trends. All figures are expressed on a monthly basis, so that yearly results in 2006 and 2007 can be compared to the trend over the latest four reported months to May.
The narrowly-defined net inflow in the third row of figures is the algebraic difference between net U.S. securities (Treasury bonds and notes, government agency bonds, corporate bonds, and equities) shown in the first row of data and net U.S. purchases of foreign securities shown in the second row. Direct investment transactions are excluded from all three definitions of net capital inflows shown in the table.
| Bln of US$ per mth | May | Feb-May | 2007 | 2006 |
| Fgn Buying of U.S. Securities | 92.4 | 85.9 | 84.7 | 95.3 |
| U.S. Buying of Fgn Securities | 25.4 | 6.5 | 18.7 | 20.9 |
| Net Inflow-Def’n #1 | 67.0 | 79.4 | 84.7 | 95.3 |
| Def’n #2 | 44.4 | 61.1 | 46.4 | 59.8 |
| Def’n #3 | -2.5 | 13.7 | 51.7 | 88.5 |
One final observation is that the share is rising of foreign net demand for U.S. securities by official institutions. Their share of the total was 17.2% in 2006 and 18.5% in 2007 but 32.9% in the latest four reported months to May.
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