The weakening dollar and increasing prices have not effected or resulted in the slowing down of growth of world reserves. Inspite of the declined dollar value, currency reserves of global central banks’ have seen a major upsurge in the first quarter of 2008, according to media reports. The increasing oil prices have not affected the reserves that much as far as saving is concerned. The increasing reserves are a clear indication of the strength of the world economy against whatever market analysts may say about the negative impacts of the escalating oil prices.

According to a recent report published by the International Monetary Fund (IMF), the world premier in controlling and monitoring global monetary health, about 7.4 percent of currency reserves have been increased from the previous three months. This makes the current currency reserve to almost $6.873 trillion.

The revealing of such data by IMF is significant, as about two-thirds of world’s foreign exchange reserves are directly or indirectly being watched and controlled by them. World leaders may now take the report seriously and stop fuelling speculation about a feeble economy.

With revelations of IMF’s data, all speculations should come to an abrupt end about the central banks possible intention of trimming extra cash reserves on their currency holdings. An increased reserve does not necessitate implementing safety guards against the declining value of dollars. Although, the dollar economy was very erratic during the recent past, the increasing currency reserves by the central banks, has once again brought it into the forefront that the dollar alone cannot restrict the growth of the world economy. According to the financial details of the last few years, it can be easily seen that after the launching of the Euro in 1999, the dollar’s share has been reduced from about 71 percent. Also, during the last few years it has not shown any spectacular improvement from its usual value.

The present reduction of the dollar’s share was never at such a low other than during the last decade. If you remember, it was in 1996 when 62.1 percent for the dollar’s share was recorded. In the previous quarter the share was 64.0 percent and then suddenly it dropped to 63.0 percent giving way to the speculations about a fallen economy. However, making all supposition meaningless, allocated reserves have increased by a huge 6 percent, thereby taking the net value to almost $4.322 trillion. At 63.0 percent, dollar reserves have touched the figure of $2.7 trillion - a comfortable reserve indeed!

According to Ashraf Laidi, New York based CMC Markets’ chief currency strategist, “the impact of the falling value of the dollar on composition valuations did play a factor in dragging down the dollar’s share of FX reserves versus the Euro”.

Increased currency reserves can be equated with the increasing value of the Euros, said a market analyst. Euro is increasingly becoming stronger against the value of the dollar. During the first quarter of 2008, the Euro’s share of allocated reserves have reached to 26.8 percent against 63.0 percent that of the dollar’s. Though, the growth of the Euro’s share is very marginal - it is only 0.4 percent hike from the previous quarter - even such minute changes have a greater impact for other complex socio-economic reasons.

A London based market analyst from Citigroup, Michael Saunders, observed, “The rise in the Euro’s weighting in Q1 mostly reflected the fact that the Euro appreciated sharply in that quarter — hence raising the value in dollar terms of existing Euro assets”. Of course, it has now been accepted worldwide that the currency value does not always determine status of the reserves. Though, the dollar and the Euro share major allocations of the reserves, other significant players in this regard are the Pound Sterling (4.7 percent), Swiss franc (0.1 percent), and the yen (3.1 percent) etc.

In consideration of the increasing oil prices which pose a substantial economic threat for sustaining growth and controlling food prices worldwide, finance ministers of G-8 countries have come out strongly favoring enhanced oil production, this strategy they hope will eventually curb the uncontrolled increase of prices and thereby stabilize fuel demands across the globe.

Finance ministers of G-8 countries constituting Britain, Canada, France, Germany, Italy, Japan, Russia and the U.S have recently concluded a two days brain storming session of talks in Osaka, Japan on ongoing trends of economic growth in view of the rising oil prices and increasing market demand for energy and food grains.

Terming the present situation as dangerous, the most powerful finance ministers of the world have appealed to the oil producing countries to boost productivity in order to avoid major economic crisis in very near future.

In a joint statement, they stated “We will remain vigilant and will continue to take appropriate actions, individually and collectively, in order to secure stability and growth in our economies and globally.” Simultaneously, they have also issued a warning saying “the world economy continues to face uncertainty and downside risks persist.”

Of course, market has seen a recent comeback after the great setback received from the U.S. housing fiasco and following credit crunch. But since the newly developed oil crisis, the world economy is once again facing “headwinds”, and this is giving rise to instability of the world economy.

The Osaka meet had expressed great concern regarding the deprecating economic front. “Elevated commodity prices, especially of oil and food, pose a serious challenge to stable growth worldwide, have serious implications for the most vulnerable and may increase global inflationary pressure,” stated reports.

Earlier, the United States, a major world economic player, had played a crucial role in averting the potential threat of dropping dollar values against the euro. Henry Paulson, the U.S. Treasury Secretary, had encouraged the possible intervention in the currency market for the best interest of U.S. economy saying, “…a strong dollar is in our nation’s interest.” Incidentally, the dollar saw an immediate comeback after the strong stand taken by the U.S.

However, there are many questions as to how exactly the U.S. plans to combat the challenges imposed by the short supplies of oil and food grains. Paulson has already warned against imposing of any “short-term solutions”, as that will not help fighting oil crisis in the long run.

The primary reason for the ongoing economic “headwinds”, as observed in the recent Osaka meet is the imbalances created out of the tight supplies of oil against the high market demand. Some ministers present in the meet had also expressed concern over the volatile geopolitical scenario and termed the same as major cause for the steep rising of oil prices. Another factor that has contributed greatly in the increasing oil prices is the weaknesses recently observed in the U.S. dollar. Although the dollar has recovered, the oil prices and food crisis continues to grow, giving a new challenge to the world leaders, particularly those present in the G-8 countries.

According to Paulson, the oil production capacity of the world has not changed for the last ten years while cost of oil has increased five times since 2002. Watching the trend, he has advised the lowering of government subsidies on oil and urged all oil producing countries to make higher investments in locating new oil fields and oil production. Warning against considering the problem as “the speculators’” view, Paulson has added, “We don’t want to misdiagnose the problem. And if you look at the problem, I think it’s pretty clear. We have not had an increase in production capacity in oil for the last 10 years.”

In spite the high pressure to increase oil supplies, Chakib Khelil, president of the Organization of Petroleum Exporting Countries (OPEC), has not revealed any ray of hope for immediate relief as far as the meeting of the high oil demands are concerned. Though rumors have it that Saudi Arabia may soon start producing an extra 500,000 barrels per day taking the country’s oil production to 10 million barrels a day.