Opinion

The Great Debate

World stuck with the dollar, more’s the pity

By J Saft
March 27, 2009

jimsaftcolumn5– James Saft is a Reuters columnist. The opinions expressed are his own –

The dollar is, and will remain, the U.S.’s currency and its own and everyone else’s problem.

The idea of creating a global currency, as espoused by China earlier this week, is interesting, has a certain amount of merit and is simply not going to happen any time soon.

U.S. desire for free access to the cookie jar that being the world’s reserve currency represents will be too strong, especially given its need to finance huge amounts of debt reasonably cheaply. As well practicalities are fearsome, even if consensus was more or less there.

Chinese central bank head Zhou Xiaochuan on Monday called for the creation of a new “super-sovereign” global reserve currency, advocating building on an International Monetary Fund instrument called Special Drawing Rights.

Zhou echoed a call by Russia last week, when it indicated it would raise the issue at the upcoming Group of 20 meeting in London on April 2, saying the idea had support from emerging market economies including Brazil, India, South Korea and South Africa.

There is no doubt that the current system breeds instability, but it enjoys the great advantage of entrenchment and sticking with it allows the U.S., and others, to avoid making hard choices and paying true market prices for their economic decisions.

No surprise then that President Obama knocked the idea down in blunt terms. “I don’t believe that there’s a need for a global currency,” Obama said, terming the dollar “extraordinarily strong right now.”

Exactly. Too strong by some margin, especially when one considers the coming effects of both quantitative easing and a massive long-term need to fund the costs of the debt binge that exploded and the ever increasing bailout to clean up the aftermath.

In fact you could say the dollar’s “extraordinary” strength can only be fully explained when you take into account the fact that foreign central banks keep piling up huge reserves of the thing and that it is the international medium of exchange for commodities and energy, well really for global trade and financial intermediation.

Treasury Secretary Timothy Geithner said on Wednesday the U.S. dollar is still the world’s reserve currency and will remain so for a long time, but expressed openness to greater use of IMF SDRs.

The dollar’s central role has two main implications, both rather ugly but also very seductive for those involved.

For the U.S. it’s a bit of a free ride as far as debt financing goes. People buy and hold treasuries more and the U.S. gets cheaper financing that would otherwise be the case. Of course that’s a bit like an alcoholic bartender getting a discount at work; a real benefit, but not a true one.

It also means that even if the U.S. has the will to take away the proverbial punchbowl or drive the dollar down, it doesn’t always have control, as what it does at the short end of the interest rate curve can be confounded by foreign purchases that keep the long end and financing costs down and the dollar up.

SOVEREIGN OVER US ALL?

The U.S. reserve status also opens up the opportunity for mercantilist countries, like, say China, to keep its own currency cheap, building up huge dollar stocks and force-feeding the American milch cow with cheap credit with which to buy imported goods.

That may not work any more anyway, as all of the cow’s stomachs are full and the milk’s gone thin.
There is a temptation also to build up reserves as protection against bad times and bitter IMF medicine.

Many Asian leaders seem to have vowed after 1997 that they would do what was needed, which often included building up dollar reserves, to avoid having to meet an IMF director’s plane at the airport and accept the accompanying prescription.

That rather indicates that the old system, with the U.S. as global reserve currency, is dying, but I doubt it will do so without a fight and with cooperation among nations willing to cede part of their sovereignty, even for a greater good.

It is amazing and encouraging that China speaks of ceding control of a portion of its foreign reserve assets to IMF management, but I have a hard time seeing it happening widely soon.

So, we will have to get through the next year or two without a super-sovereign currency and with global imbalances being worked out, or around, under the current system.

My best guess is that things actually go in the right direction, more or less. The dollar should weaken as a result of U.S. policy even without a deliberate push downhill from the Chinese. Asian exporting nations will see slowing reserve growth generally, which should translate into diminished flows into the dollar and Treasuries.

That’s going to be painful all around. The Chinese and others will see their investments dwindle, even as they have to resist the impulse to sell into the fall. For the U.S. the process of implementing monetary policy and paying for fiscal policy will be made that much more difficult.

So, goodbye and perhaps good riddance to dollar hegemony, but don’t expect a stable system of global cooperation to rise easily and quickly in its place.

– At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund –

Comments
84 comments so far | RSS Comments RSS

What do we do when the price of gold becomes outragiously high to the dollar?

Posted by Ara Horasanian | Report as abusive
 

The biggest problem with a world currency and a mega-strong IMF is who will be in charge after all, whom will the IMF be responding to? Without democratic supervision, IMF may turn into the worst type of Frankensteinian monster ever created. And let us keep in mind that IMF is actually ruled by the US.

Posted by Cristi Barbu | Report as abusive
 

The US Government has been exploiting the status of the Dollar as a global reserve Currency to the hilt. The low Interest and quantitative easing Policy followed is ensuring that the pain of US fiscal profligacy is spread to Countries and people across the World. These people are a lot poorer and can ill afford to subsidise American consumption of Global resources.
In the absence of alternatives,might is right. The ramifications of the US throwing more

Posted by F.Daruwala | Report as abusive
 

The world is littered with examples of reserve currencies being toasted – a simple look at history will tell you that…

Posted by Evaluator Speculator | Report as abusive
 

Sorry for the earlier truncated posting!

The US Government has been exploiting the status of the Dollar as a global reserve Currency to the hilt. The low Interest and quantitative easing Policy followed is ensuring that the pain of US fiscal profligacy is spread to Countries and people across the World. These people are a lot poorer and can ill afford to subsidise American consumption of Global resources.
In the absence of Currency alternatives,might is right. The ramifications of the US throwing more Money at Wall Street to cover their gambling Losses is fraught with danger and bound to fail as a Tiger cannot change his colour nor can a Gambler change his habits. Such opportunistic decisions are unethical,fiscally irresponsible and morally hazardous. That the Costs of this folly will be mostly borne by the poor and innocent across the world is both sad and disturbing.
Be prepared for a drastic drop in American influence across the World and very tough times for American citizens. The ordinary peace loving,tax paying American citizen may not want to remain a serf forever.

Posted by F.Daruwala | Report as abusive
 

One of the only convincing reasons I have ever read about the real motives behind the Bush administration to invade Iraq; (ignoring all the BS about the threat of WMD’s or to foster democracy in the region and Saddam gassing his own people with nerve gas originally supplied the the US) + (ignore all the radical liberal charges that the US wants to control Iraq’s oil reserves where that may be a component of a long-term foreign policy or not); the theory that made the most sense was that Iran, Iraq, Venezuela, and some other minor players were going to refuse payments for oil in USD and only except Euros instead. Indeed Saddam’s regime already had done this while at the same time dumping massive amounts of USD and trading for Euros where he made a very handsome profit as the Euro having been worth less than the dollar rocketed past it between 2000 and 2003. Saddam tried to lead by example I suppose. Look what happened to him. Any other takers on that move? Indeed the US would obviously not give up the role of reserve currency without being dragged away kicking and screaming. As entrenched as the dollar is, I fail to see how that could be possible without a systemic collapse. Are we there yet?

Posted by J | Report as abusive
 

James, and at what point do you expect the Amero to replcae the US dollar?

Posted by Joe McTavish | Report as abusive
 

It’s high time for US to get sober. It is only possible when there is some sort of global currency. Then US will consume liquor as much as it can afford; not, as of now, by merely printing more dollars.

Posted by Sajid | Report as abusive
 

Of course Geithner, the one holding the reserve currency is gonna say that it will exist forever but in the end it’s not the one to decide.

China is in a Faustian situation in which buying more dollar treasuries could be suicide in the end but not buying will harm the dollar as well. That’s why they’ve come up with an idea to get them out of this Faustian trap.

But as long as the dollar is in a “still value” situation this will not be done lithely. This situation will change when the dollar really loses it’s value which will make the discussion about a new world currency much more easier.

Posted by Youri Carma | Report as abusive
 

It is true that there is nothing alternative to dollars. Certainly, the world is not going back to gold and silver exchange.Also, there is not any other country has good credibility. Every country is a trouble. So go dollars go. who has power to prevent you. Your are powerful trade machine. Dollars, dollars and dollars

 

The fact that so many countries around the globe are questioning the validity of maintaining vast reserves of the US$ is not a promising sign for the once mighty greenback. My guess… withing 2 years or less, the Euro will become the world’s reserve currency as the US$ is now beginning the slide down it’s self induced slipery slope. Pretty difficult to spend your way out of this.

Posted by W. Finn | Report as abusive
 

Yes, It’s true the gold and silver standard will not come back, but there is a new currency out there. It’s called the Amero. This could be why the U.S. is in this spending frenzy. Print as much paper money as possible. Flood the market with paper which value comes from the “faith” of it’s people. Cause ungodly inflation, which will enflame the people which will be the vehicle to the Amero!! U think?

Posted by JB | Report as abusive
 

Special Drawing Rights are derived from “Paper Gold” In other words,gold has intrinsic value,not papers. Gold is a precious metal as silver,copper et al. I have reason to believe that the price of gold is going up especially in Asia when folks have the tradition to value Gold as the standard of wealth. Currency is usually paper and papers are papers per se!

Francis Shieh, a lifelong student of economics to search for knowledge and wisdom and to add Gold for its intrinsic value as known to all folks. March 27, 2009

 

Skilled labor isthe source of wealth. When people have a marketable skill,they can earn income and accumulate wealth. “The Wealth of Nations” may be the people with skills as human capital or human resource to be the

factor of production i.e. labor.

“Keys for Economic Understanding” http://www.Amazon.com online book catalog may be a useful reference to learn the true wealth of an individual or a nation or a human capital in the global economy.

March 27, 2009

 

That China is beginning to phase out of dollars is a good thing. This trend will end a number of problems. The first is the inability of the US Congress and the US consumer to spend within their means. It will end the failed notion of the US being able to dominate the world militarily, since funding its military at its current size will become ever more difficult and unstainable. By moving to a basket of currencies approach, we will also see the demise of the foreign currency markets as they will be largely unnecessary since central bankers/governments will keep the mix of currencies within narrow ranges for political reasons. This is a good thing, as foreign exchange markets have been little more than extortion rackets for a long time, where exorbitant tolls have been extracted by money changers for international trade.

Although the Chinese may seem as though they have a lot of dollars that will become worthless if they do phase out use of their dollar reserves, they will actually have an equally large gain in the appreciation of their own currency. For a country like China, which will soon overtake the US as the world’s largest economy and where they are heavily dependent on manufacturing, this will be a good thing as their own currency will buy more raw materials. In the near term, the Chinese can grow their economy by growing their domestic economy by using their dollar excesses, which should quickly wind down their dollar portfolio. Inflation will only be much of a problem in the US, which has decided to base its economy on further oil consumption and on shifting its negative assets from one asset class to another. Although Obama has a strategic vision to get the US out of its current quandry, their are too many republicans who own a disproportionate share private capital and as a consequence they will be able to block sufficiently rapid progress for the strategy to work, even though the average American will suffer greatly for the obstructionism.

The notion that Americans can continue its profligate spending because others are trapped into supporting it through the dollar is illusory. As the global dollar phase out begins, it will rapidly change the international monetary order. Although the IMF is currently dominated by the US, as the dollar wanes, the Chinese and others will be calling the shots as only they will have money to pump into the IMF to support it. Again, they will be able to liquidate their dollar valued assets for their contributions. In 5 to 10 years time, the glut of dollars problem will be resolved, although the internal domestic consequences for the US will only then begin to command the attention of the American political classes.

Posted by sgp | Report as abusive
 

Good for you James Saft. Not many mainstream journalists are willing to bring up the description of the style of the emperor’s missing clothes. My understanding is that there is not much actual US$ currency out there. At the rate that it is being diluted, how can it possibly stay strong? Especially now that the emperor’s naked body comes into view and it is covered with infected wounds and cancerous tumors. We begin to understand why the Fed does not share much information about its internal workings. Bernanke may have made a big mistake in trying to transform it into a Fantasia where everything is done with the best interests of the American people and the American economy. This banker’s club has used the good professor’s elevation to conceal it’s coup of the world economy.

Posted by Jonathan Cole | Report as abusive
 

A query about the disclaimer
“”"At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund –”"”

>> Does’nt our friend Saft have USD currency in his pocket ?

:)

Posted by karuna | Report as abusive
 

@ karuna
LOL
GOOD POINT!

Posted by PwlM | Report as abusive
 

It is clear to much of the world that US has got drunk the past decade, and is drinking even more now trying to get out. Significant *further* depreciation of the USD in the next few years is all but guaranteed. The irresponsibility demonstrated by the US means it is unsuitable for managing a world reserve currency. Russia, China, BRIC, and (silently) oil producers have decided it is time to create a competing reserve currency beside US & Euro.

Whether this will happen is mostly a function of these countries, not the US. They are the ones who must propose a workable model for the IMF SDR, and implement that model. They are the ones who must then transfer a suitably large chunk of their reserves to the SDR, and let the IMF manage it. They are the ones who must trade and settle using the SDR.

A good start is to make the SDR substantially non-fiat. Base it on a basket of commodities in addition to the major currencies. This will give it some real meat, and function as a meaningful reserve currency.

While the US will fight tooth and nail for the USD as reserve, failure is good for its own sake. Because the country has got drunk over it, addicted to the free lunch economy as a result. But holders of USD also bears major responsibilities – because they too got addicted to holding USD and the ‘free’ trade benefits as a result. In the end, this is a question of will power.

Posted by The Real Thing | Report as abusive
 

CreditCrunch!Finacial Crunch!! the latest economic terror unleased by the American Market economy.To stae the truth the system was not based on morals and is doomed to die. There is an ethical crunch in their system and in its hypocritical advocacies.Americans have a penchant for consuming beyond their means all these years which I should say in no uncertain terms that they have just sucked the blood of the less priviliged of world under the guise of elitism. Please spare the world its last breath America and pay your debts and live within your means.please do not invent another malaise with your recovery plans!!

Posted by mohamed ayub | Report as abusive
 

I found the Chinese statements interesting as a significant symbolic moment with respect to their rising power, and as a first marker being placed on this issue. For the moment I would suspect that marker is intended to tip the present balance a bit, but also to begin to crystalize thought at a world scale with respect to this issue.

For any power other than the United States it is not clear to me at this point that the benefit of the USD as the world’s reserve currency with respect to standardization, (past) stability, etc outweighs its present and rapidly growing future liabilities.

The US, bear in mind, launched a massive campaign against the proposal and the launch of the Euro, declaring it pointless, unnecessary, threatening to the existing international currency regimes, and doomed to fail.

We know the outcome of that campaign.

The present US posture is also, I feel, doomed to fail, and with far greater consequence.

The Chinese are not yet the determinative factor here, but they are rapidly approaching that point, and they have served notice.

I suspect we will indeed evolve internationally along the lines suggested by the Chinese and that this will on the whole be a good thing.

Posted by atomikweasel | Report as abusive
 

instead of china trying to end the US$ it should try and boost the value of the dollar.

 

Just think how easy counterfeiting would become.

Posted by Vaughn | Report as abusive
 

sooner or later,,, ppl will realize that the true gold standard is … gold.

but again US will benifit,,, because only US has sizable gold reserves unlike others who have sizable $ reserves :)

 

Why is everyone is freaking out about the Dollar collapse. Japan, UK and soon Europe are printing money like crazy, even more than USA, compared to the size of their economies. Yet no one is concerned about those currencies collapsing.

Posted by Sam | Report as abusive
 

Much ado about nothing. If your holding your breath on this happening any time soon, be prepared to pass out.

Posted by J | Report as abusive
 

Today the world’s monetary system is uni-polar, centered on the dollar. Rather than creating a new “super-currency,” I believe it is more practical to gradually move towards a multi-polar world. As two steps in this direction, China can make the yuan fully convertible, and the world’s central banks can increase their holding of non-dollar currencies and gold.

Posted by David Levner | Report as abusive
 

hey XIE SHIHAO, the chinese economy will never pass the u.s nor will any other country for that matter. all of you other countries are so dependent on the americans it is rediculous. the united states will always dominate the world in every aspect. get it thorough your heads!!!! talk all you want but you are dreaming.

Posted by I HATE LIBERALS!!! | Report as abusive
 

The move to a super-sovereign currency unit will stabilize the world market but greatly reducing the potential profits of currency manipulators/speculators such as banks and hedge funds. Forex and derivatives becomees simple gambling vehicles and guess who owns the casino. Casino owners do go bankrupt too, if they spend beyond their means trying to dominate the world as “I HATE LIBERALS” had said.

Posted by Silverback2009 | Report as abusive
 

As an idea to provide an alternative currency is really good. US$ has lost its fairness to be the global currency. Rather than having “super-sovereign” currency, why not create a multi-polar currency or use gold as a standard for medium of exchange, value storing.

Lets see the rise of new system.

Posted by Joe | Report as abusive
 

The answers can be found in the story of France’s John Law 1729.

Bretton Woods II = Global Coordinated Currency Realigment.

Deficit nations = currency devaluation

Surplus nations= currency revaluation

 

yesh, some modest inflation, difficult to pull off but the fed is working on it will raise the value of toxic assets by decreasing the dollars purchasing power against everything (called inflation). it also helps asia finally become more consumerist as the purchasing power of even the everyday rice farmer goes up. as for cold metal, that does nothng but sit there…. have fun hoidng on to it, cold metal sitting in vaults reminds me of corpses. gold isn’t the only non-dollar asset, some non-dollar assets really sing. even now.

Posted by Steve | Report as abusive
 

this guy must be smoking something china is or can run the show now, who has been footing the bill so far does he really think they will go on forever, the dollar is toast and so is this country all great empires have fallen at one time or another you can not cure debt with more debt you can not borrow your way out of debt does any one realize just how much a trillon dollars is??? welcome to a 3rd world country formerly known as the united states

Posted by dale | Report as abusive
 

USA IS #1. You people in Europe, France, England and China and Japan and Asia and other places, don’t know how powerful we are!! We have the biggest military and great hard-working people here. We don’t have corruption and we have a real system that works. We have the creativity and we make all the movies and tv shows that everyone of you people watches. When did you last watch a Chinese tv show? We still make the best airplanes and computers and all electronics. Who makes all the hi-tech items. Not China and not India. In fact, in those countries and even in Europe, they don’t even have indoor plumbing. In our country, we have the best universities and the best businesses in the world. Frankly, we give billions of dollars to all the poor countries in the world, and we Americans are the most generous people in the world. Our churches also help everyone in Africa and Asia. So, the dollar is # 1 and we are #1. Don’t be jealous. Just work hard and you can be successful like us.

Posted by Pauperville | Report as abusive
 

moderate inflation is simply wishful thinking, don’t be an ass and try to fool anyone. At the aftermath of the Vietnam war, even home mortgage rates had gone up to some 24%!!! You can’t wink it.

Posted by Silverback2009 | Report as abusive
 

The Chinese will eventually get burned by the U.S. dollar. It is being held up only by quasi-derivatives, created by the Federal Reserve’s primary dealers, on behalf of the Fed and U.S. Exchange Stabilization Fund. Thus, the U.S. Treasury controls the value of the dollar, day to day, now, and it is a fiction that speculators or sentiment have anything to do with it. The dollar IS NOT a safe haven, and everyone knows that. If the Chinese were smart, they would be buying gold and silver, right now, during this “calm” before the storm. But, they are not smart, as evidenced by how so many big Chinese banks were taken in by the primary dealers, like Goldman Sachs, JP Morgan, etc., who took the short side of the dollar, just before the derivatives-based pump started, back in mid-July 2008. The Chinese banks lost $10′s of billions to the primary dealers, who knew, in advance, that the big dollar pump was about to begin.

One should not feel sorry for the Chinese however. They’ve gotten what they wanted. They are currency manipulators themselves, although they use brute force, rather than the sophisticated techniques utilized by the Fed’s primary dealers.

The Chinese gained a lot by vitue of America’s prolificacy. They industrialized their country, put men in space, enhanced their technology and military, etc. None of it would have been possible without the import of American and European technology. They did it all at the expense of hollowing out the economy of the USA and the European nations.

Soon, when the time is ripe, Chinese brute force currency manipulations will meet Helicopter Ben’s Helicopter dollar drops, and the Chinese will lose. The dollar will crash, when the Fed wants it to crash, and not a moment before. It won’t happen for many months — not until the U.S. Treasury manages to sell most of its bailout bonds to innocent fixed income buyers.

Once we are finished sucking up money from foolish domestic and foreign bond investors, we will stop the charade. The dollar will be dropped from Helicopters. China will be allowed to have its SDRs, if it wants, as a new international currency, and Americans will never again succumb to the siren song of cheap Chinese goods, which will become much more expensive, due to the incredible inefficiencies in the Chinese economy (there is a good reason why they constantly seek to devalue their currency).

China and, also, our allies in Japan, Taiwan, Thailand, S. Korea, etc., will be forced to rely on internal demand. The tradition of parasitically tapping into American consumer’s willingness to put himself into unrepayable debt will have to end, and the global imbalances will even out, as a result.

Asians will get burned, along with domestic investors who put money into U.S. dollar based bonds and other fixed income investments, like CDs. The American stock markets will seem to rise magnificently, but only in nominal terms. They will continue to fall in inflation adjusted, or gold adjusted terms, because the profits from the China trade will no longer puff up the balance sheets of companies as diverse as JP Morgan and Hewlett Packard.

Helicopter Ben will “save” the nation by hyperinflating American debt away. The prime victims will be retirees, savings oriented investors in CDs, bonds, etc., and the Asians. The prime winners will be American banks, domestic manufacturers, and previously over-spending consumers who had intractable debt burdens. It will be much cheaper to pay down old debt when the dollar is worth 1/5th of its present buying power value. The U.S. government, of course, will benefit greatly, as all the unfunded entitlements suddenly become funded by cheap dollars. Of course, the people getting those entitlements will get the number of dollars originally allocated to them, but it won’t buy very much.

Posted by John Maynard | Report as abusive
 

As atomikweasel says, the Chinese are making symbolic positioning statements about a replacement for the U.S. $ as world reserve currency – as is the U.S. in response.

But movement on this may not be so far away. The Chinese have weight as lender of first and last resort and the rest of the world have no interest in seeing available resources sucked in to feed U.S. debt habits.

Transition looks tricky but the G20 central banks could agree to hold their currencies within set bands in relation to each other and to ban various forms of speculative currency trading. This would damp down market movemements and give time for the details of a currency basket to be thrashed out. On any basis, the two main currencies would still be the US $ and the Euro but presuumably with others given some weighting. The mechanisms of the 1960s and 70s – with bands and crawling pegs restraining exchange rates – could return.

Provided the big central banks remained united, they coudl quash any Soros style attempt to break the emerging system. For the U.S. to refuse to cooperate would be a very risky strategy as the U.S. $ would be forced down and U.S. interest rates up against other currencies

 

The question is not anymore if there will be or not a global currency replacing the dollar. The question is whether the replacement of the dollar by an international reference currency will be done smoothly in the coming 1/3 years, organized by the G20 countries; or whether it will happen brutally, with the breakdown of the existing international monetary system during Summer 2009 because of Dollar and US T-Bonds collapse. Time is running short for alternatives to chaos.
See what these guys who predicted accurately the current crisis said in an open letter to G20 leaders published on march 24th in the Financial Times.
http://www.leap2020.eu/Open-letter-Londo n-G20-Summit-Last-chance-before-global-g eopolitical-dislocation_a3010.html

Posted by Raider999 | Report as abusive
 

Just to give an idea of how much 1 Trillion $ debt means. The interest that USA pays to China for that amount of debt roughly covers China’s annual total military expenses — even when the interest rate is so low at the moment.

Posted by Panda | Report as abusive
 

The real inflation is population. Both China and India face immense problems pushing income down the ladder fast enough to prevent a violent explosion.

Both will need a dollar to smooth international trade, but both will also need to keep more of their currency in country for the huge income challenges they face.

America will turn inward, as will other countries because resource shortages and population imbalances will force everyone to self-evaluate and make changes. Trying to come up with a new language of commerce is a distraction right now.

 

The decline of the imperial greenback has long been anticipated and whilst this is undoubtedly the end of the US$ as the global reserve currency of first and last resort, there are no easy alternatives either. The IMF SDR route might appear attractive at first glance but there is simply no guarantee that such an approach will create the stability that sovereigns and investors are desperately searching for, particularly in the current crisis. This is after all not a recession per se, it is the re-calibration of global capital relations at a particularly complex moment in history. The excessive indebtedness of the West alongside the rise of the second world has forced the hands of Western leaders, best evidenced by the sudden evolution from G8 to G20; reflective of the fact that G8 can no longer fund its own future. A bigger club means more voices and more voices only lead to a less cohesive economic ideology, perhaps even one that tends towards pretectionism. Either way, unless the US faces up to the fact that poor fiscal and monetary policy at home effects every dollar holding household globally, calls for its replacement will likely continue for some time. This is afterall what globalisation is about! If the SDR route eventually emerges as the most likely replacement, then accomodating such a process will also change the very nature of the IMF itself, which is long overdue, and such a move will doubtless afford emerging economies at least a seat in the economic theatre within which they are forced to act!

 

not only is the dollar the reserve currency now , it will be in the future as it is adopted by nation after nation as their defacto currency–starting with east europeans–think poland. The argument about currency risk is eliminated if there is no need for conversions, so loo for trading partners to adopt 1 currency for all. In the end it will be USD and yen/yuan and the third currency will be for the countries no one wants to play with anymore–ven,rus,kor etc

Posted by dominick speziale | Report as abusive
 

I think everybody should be forced into taking finance and economics at school, beginning at the lowest possible grade and continuing until at least College. I have no idea what this is about; and of course my lack of understanding is colored by my anger as to why some of the people who got us where we are aren’t taken out and shot. That’s an effective Chinese solution. You’d be amazed how fast things would turn around. I admire Mr. Seft’s work but sometimes I don’t understand the subject matter.

Posted by Andrew Franks | Report as abusive
 

Tthe global currency exchange market operates with ruthless efficiency in determining currency exchange rates as seen by the rapid adjustments to measures introduced such as “quantitative easing” that resulted in devaluation of currencies such as £ and $.

The IMF acting as a currency “market maker” is loaded with possible negative implications that exceed the benefits of an international currency. One world government and one world currency is a utopia not likely to occur in the near future.

My vote is for retention of current system of currency exchange markets.

Posted by Gregory | Report as abusive
 

You get to be the reserve currency by being the biggest trader around. It’s not something determined by governments, really. Prior to the US$, the reserve currency was the British pound which lost its primacy between the two world wars because Britain lost its empire and all the trade that represented as well as becoming impoverished by both world wars. My guess is that the Chinese are trying to forestall their currency from becoming the world’s reserve currency because they are the biggest trader right now and they’re the producer – a position the US held decades ago. Now we’re merely the biggest consumer but, since we’re approaching bankruptcy we probably will lose the biggest consumer distinction.

So the US$ will be around as the reserve currency for a while but not, I think, for the foreseeable future.

Posted by jeff | Report as abusive
 

I have to echo the comments from a previous writer about not understanding all the intricacies of the idea of a global currency.

But what I do understand is that it is extremely short-sighted to base any kind of economy on industries with only one or two big players taking way too much of the pot. If we should become a less dynamic and less powerful economic force, it might be the best thing for us. Let us have to watch other countries get the goodies for a while. Maybe, and I am certainly hoping, that would force all of us to have a country-wide discussion about a fiscal policy that is not dependent on politics and a 100-year plan for creating a stable economy that was future-oriented, sustainable, exciting, and inclusive.

What would our country look like in 2109? I am hoping for cleaner, leaner, and certainly viable on the world stage. We can set the ground work now. Wouldn’t that be a great legacy?

The idea of global currency wouldn’t be so scary or mysterious then, because we would be ready for whatever came.

Posted by erin Van Tassel | Report as abusive
 

someone here commented that China should boost the value of the dollar. How if the Fed just keep on turning the printer churning up more green paper? To devaluate the RMB? Then they will accused of exchange rate manipulation. Left, right or center, they will be accused of doing something bad. Just like the media accusing China of producing craps and import to US and Europe, they never blamed the real culprits >> the US and European merchandisers who compressed margins to extract more profits to boost their tens/hundreds of millions (each,individually) of executive bonuses and stock prices.

Posted by Silverback2009 | Report as abusive
 

Re: Andrew Franks Comment

Hi. I would respectfully suggest you simply wade into the subject, as you already are, and give yourself time to become acclimated. Courses, if available, can be helpful, but also have their limitations.

This is fairly complex stuff, and it simply takes a while to wrap your head around it.

I’m sure you’re intelligent, and I think your outrage is entirely appropriate. Wade in, though, learn, take time to form your opinions — one wants to allocate those executions carefully, after all ;)

Posted by Not Silent Not Bob | Report as abusive
 

Does Saft ever have anything positive to say about the economy of the United States? I have not seen one yet. It is doubtful if the U.S. will give up its currency anytime soon, just as Great Britain did not give up its Pound for the Euro.

Posted by Ted | Report as abusive
 

The us dollar is not the “strongest” currency. As of today, one US dollar equals to .75 “cents” of a euro. One us dollar equals to .69 “cents” of a british pound. Just last year, one US dollar equaled less than a Canadian dollar.

Most americans don’t even know this. They all think “we are the supremacy of the world”.

I’ve always said, “What goes up must come down” and that is exactly what happened with the US Economy, and by doing that, also brining down the rest of the world in its crash.

Posted by Benito | Report as abusive
 

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