By Douglas Goldstein®

Though there are many reasons for people living in Israel to own dollars, many people have expressed concerns about the drop in the value of the currency. Much of the world uses the U.S. dollar as its “reference currency,” meaning that they measure their wealth in terms of dollars. Americans living in Israel often still have a business and emotional connection to their native greenbacks. As the currency of the world’s most powerful economy, it makes sense for people to have some exposure to it.

But major world leaders have begun suggesting a different paradigm. China, Russia and Brazil have suggested creating a new global reserve currency. China, which has been the biggest buyer of U.S. Treasury bonds, has admonished the United States for lack of fiscal responsibility. And several non-U.S. central banks have announced their goal to diversify their reserves away from the dollar. All these developments have weakened the dollar and have caused a drop in Treasury prices.

Talk is Cheap
With all their declarations, though, it’s interesting to note that some of these big talkers are not putting their money where their mouth is. For example, in June, the Treasury sold $100 billion of bonds to foreign entities, a new monthly record [Source: Department of Treasury, Haver Analytics, FMRCo (MARE) as of 7/31/09]. If China, for example, and the other big Treasury buyers were no longer interested in U.S. bonds, shouldn’t we have seen an abatement in the size of their investments? That being said, with changes in U.S. economic policy, it would be responsible for foreign banks to diversify to some extent.

Should You be Like a Central Bank?
Though an individual’s concerns are not the same as those of a government, it’s important to examine your own diversification. No matter what currency you choose to be in, you are making a bet. For those people that want to limit their risk, though not eliminate it, it often makes sense to spread out the risk using a variety of different types of asset classes and currencies. Speak to your financial adviser to examine your situation.

Douglas Goldstein, CFP®, is the director of Profile Investment Services. He is a licensed financial professional both in the U.S. and Israel. He offers securities through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services LLC. Member NYSE/SIPC, a Fidelity Investments company. His book is available in bookstores, on the web, or can be ordered at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.