– Neal Kimberley is an FX market analyst for Reuters. The opinions expressed are his own –LONDON (Reuters) – An article in Britain’s Independent newspaper on Tuesday rightly attracted a lot of market attention with its provocative heading “The demise of the dollar.” While subsequent and almost co-ordinated denials from numerous capitals have taken the steam out of the story, the dollar’s role is again under scrutiny.While the geopolitical realities of the Middle East would arguably rule out the re-pricing of oil in non-dollar currencies at this time, that may change in the future.Alarmist conclusions that the dollar is on a swift road to ruin are wide of the mark. The road will be long and at its end the dollar will not be ruined, but it will be less important.The dollar remains, however, on the back foot as the story resonated with a market that was already looking for an excuse to unload the greenback. Sovereign reserve managers, working for future generations, will have taken note. These stories add to the uncertainty of holding vast sums of dollars in trust.It has long been the fate of reserve currencies to depreciate and be displaced. Global reserve currency status has always encouraged the beneficiary nation or empire to live beyond its means, safe in the knowledge that the rest of the world must hold its currency to pay for goods and commodities. The Roman dinar, the Spanish reale and most recently the British pound are all examples of currencies that have gradually lost their reserve status in this manner.The key point is that the process is gradual. Displacement occurs in baby steps, small incremental developments which eventually create an unstoppable momentum. When the European Community first posited the idea of the single currency, the markets (particularly in London) sneered. Yet the euro was born and has prospered.The dollar is entering a process of critical examination. This will take years, probably decades. Sterling retained significant world reserve status throughout the first half of the 20th century, despite clear signs economic primacy had shifted to the United States and despite the crushing financial weight of participation in two world wars.One newspaper article is not a game-changer, but it is a reminder that the dollar’s position is under the microscope.The market remembers only too well the suggestions of China’s Central Bank Governor Zhou Xiaochuan in March 2009. He said then that the world should consider adopting the Special Drawing Right, a basket of dollars, euros, sterling and yen, as a super-sovereign reserve currency.The Chinese suggestion was a baby step toward change but the U.S. reaction was telling. Treasury Secretary Timothy Geithner said he had not read the proposal but added, “As I understand it, it’s a proposal designed to increase the use of the IMF’s Special Drawing Rights. I am actually quite open to that suggestion.” A masterful piece of political deflection but the market recognized the Chinese intent.Even more recently, in September, the United Nations Conference on Trade and Development issued a report calling for a new global reserve currency.It’s like the dripping of a tap. Across the world, institutions, governments and the media are wearing away at the dollar’s dominance. Central banks managing billions of dollars of reserves are not immune to these incremental developments.In the past, Japanese officials characterized the best moment for intervention to be when they could “go with the wind.” In the current debate, reserve managers will consider that a light breeze is blowing against the dollar. They will make a measured and appropriate response. Marginal adjustments in reserves would increase the non-dollar component.The Independent story may have been denied but it chimed with the market. It wasn’t the first such story and it won’t be the last. With the United States perceived to be living beyond its means and facing the challenges of rapidly rising economic and political rivals, the debate will continue. But it will be a long, long debate, and the effects on the value of the dollar will be incremental, not precipitate. To paraphrase Mark Twain, rumors of the dollar’s sudden death have been greatly exaggerated.(Editing by Nigel Stephenson)

– Neal Kimberley is an FX market analyst for Reuters. The opinions expressed are his own –Dollar bears have been disappointed by the G20.Talk of re-balancing remained just talk; the bears can discern nothing substantial. Some risk is being taken off and dollars bought back selectively. While the dollar’s general downtrend is intact, there are risks of a temporary reversal, with some seeing the euro temporarily back to $1.4500/50.Traders can contrast G20 with the Plaza Accord in 1985 which was driven by U.S. Treasury Secretary James Baker’s persistence. But he only had to convince four peers. G20 is and will be a different story. Dealing with the G20 must be like herding cats.Disappointment over G20 has come at an inauspicious moment. Extensive short dollar foreign exchange positions have been underpinned by the unparalleled provision of dollar liquidity by the world’s central banks.The market has used that dollar liquidity to fund purchases of other currencies and assets. Currency speculators raised their bets against the dollar in the latest week to the most since March, 2008, data from the Commodity Futures Trading Commission on Friday showed.But the market is realising that the major central banks are contemplating the initial steps in their exit strategies, which would naturally reverse the dollar-funded carry trade.The liquidity bonanza that has ignited the asset market rallies is going to be pared back. Last week’s withdrawal of some emergency facilities that are deemed to be no longer needed was the first step.Federal Reserve Governor Kevin Warsh added fuel to the fire asserting “policy likely will need to begin normalisation before it is obvious that it is necessary, possibly with greater force than is customary”.Seemingly Warsh is not expecting the “softly softly” approach of former Fed Chairman Alan Greenspan in his post-dot com bust tightening cycle that started in mid-2004 and lasted for two years.Market players who are using the dollar as a carry currency will note Warsh’s comments and may trim back their short dollar positioning.The yen’s strengthening to 88.23 yen against the dollar today should be seen in the same context, as a trimming back in carry trades by Japanese retail investors, who by and large remain wedded to the U.S. currency.The market will ultimately want to target the year’s low of 87.15 yen and ultimately the all-time low of 79.80 yen, seeking to tempt Japan’s Ministry of Finance into a reaction.In an atmosphere where the new Japanese government seems somewhat indifferent to yen appreciation, the market has delivered general yen strength. The headlines focused on dollar/yen but traders reveal that much of the emphasis was on the liquidation of cross yen trades such as euro/yen.Risk trades have buoyed equity markets as well as fuelling short dollar positions on the foreign exchanges. Risk trades are predicated on the assumption that government economic stimuli will promote self-sustaining recoveries. If that assumption is faulty, then the positions will need some unwinding.However, traders are now realising that programmes like “cash for clunkers” are merely cannibalising future purchases. Consumers will respond to incentives, but without those incentives they prefer thrift. Lengthening job queues are keeping purse strings tight.There is therefore a growing belief that the dollar may find passing strength as positioning is adjusted, which traders would see as an opportunity. Proprietorial traders will welcome the unwind and look to take advantage of any such move. Their longer-term view of further dollar weakness is undimmed.The U.S. national interest remains focused on re-balancing. The exclusion of Mexican trucks from U.S. roads and the imposition of tariffs on cheap Chinese tyres may be dismissed as sops to President Obama’s union backers.Yet they betray a wider agenda to revive American industrial activity. A lower dollar, even if that hasn’t worked in the past, will be an integral part of that re-balancing act.While the dollar may therefore draw some transient strength from position adjustment, dollar bears will see the euro around $1.4500 as opportunities to buy the single currency. Moves above $1.5000 are still envisaged.