Dollar replaced as world reserve currency?

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shnaek

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Will the dollar be replaced as the world's reserve currency? With Mr Bernanke talking about a third round of quantitive easing, surely all holders of US dollars must be worried about their investment.
It would seem to be the sensible approach to diversify out of US dollar holdings, particularly for the likes of China.
And it appears to be US policy to continue running huge deficits. How long can the US dollar survive as a reliable reserve in the eyes of investor nations and companies?
 
The suggestion that the US Dollar is to be phased out by 2018 has been in the news since 2009 and not contested since then AFAIK

http://www.marketoracle.co.uk/Article14243.html

http://www.forexblog.org/category/us-dollar

http://www.independent.co.uk/news/business/news/the-demise-of-the-dollar-1798175.html

http://findarticles.com/p/articles/mi_m0JZS/is_23_25/ai_n42162631/

http://americasfinancialmeltdown.blogspot.com/2010/12/russia-and-china-discuss-abandonment-of.html

It was mentioned a week or so ago on CNN or Bloomberg.

Astonished no one replied to this post.

Its on the way.
 
The only viable future alternative is the Chinese Yuan.

The pound was the reserve currency in the 19th century, the 20th belonged to the dollar, the 21st century will likely be the Yuan.

The reserve currency follows economic power.

Many on here think it impossible that the dollar will be replaced but with the USA's economic fundamentals being so dire and getting worse by the year, there is very little chance that the dollar can stay as the global reserve currency over the longer term (15 years plus).

Possibly a commodity backed basket or grouping of sounder currencies will replace the dollar over the next 20 or so years and following that the Yuan becomes the dominant currency.

A global reserve currency has to be backed by solid fundamentals so the dollar or euro have no chance over the long term. It won't happen over night but a gradual decline of power. There are already discussions of the likes of China and Russia doing trade outside of the dollar. Hong Kong is stepping up use of the Yuan for international trade.
 
ringledman said:
The only viable future alternative is the Chinese Yuan.

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Nobody is going to use a currency controlled by a dictatorship as a reserve currency. All it takes is a political revolution and its all worthless. There is also the danger that the dictatorship will make poor economic decisions and stick to them - at least in democratic countries, if the economy crashes, the government gets the boot.
 
The Euro is not in decline.

Several countries have lived well beyond their means - this is being rebalanced.
Greece was a poison pill a bit like the sub-prime mortgages designed to limit European cohesion.

A conspiracy theorist might think that the against thiscurrent kerfuffel was a ploy to get the 17 countries to agree more mutually closely binding financial policies
Whatever the cause, the Euro will not fail long term and with no large standing armies to support, Europe can support both its aging population and welfare entitlements.

I see the Yuan forging ahead with the other BRICs countries' currencies and the Euro being maintained as a basket of currencies in which to trade.
 
ringledman said:
Possibly a commodity backed basket or grouping of sounder currencies will replace the dollar over the next 20 or so years and following that the Yuan becomes the dominant currency.

A global reserve currency has to be backed by solid fundamentals so the dollar or euro have no chance over the long term. It won't happen over night but a gradual decline of power. There are already discussions of the likes of China and Russia doing trade outside of the dollar. Hong Kong is stepping up use of the Yuan for international trade.
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I agree, but think that a basket of currencies and precious metals will be a more likely scenario than a single currency. There is still very much distrust of the yuan, but with China's increasing economic dominance, trade in yuan will increase. There have already been many reports of China getting oil from Russia in return for non US$ credit, and there was some sort of barter agreement with I think Venezuela.

onq said:
The Euro is not in decline.

Several countries have lived well beyond their means - this is being rebalanced.
Greece was a poison pill a bit like the sub-prime mortgages designed to limit European cohesion.
Click to expand...
Actually, all fiat currencies are in decline, but they are in decline at different paces. The most vulnerable are £, US$ and €. The levels of debts in the countries and regions is not manageable and not sustainable.

Simply looking at a chart of the EUR/USD says absolutely nothing about the future of the €, it is like a beauty contest in reverse. What you are doing here is comparing one item which has no fixed value with another thing that has no fixed value. This would be like calculating the exchange rate of globs of bananas with blobs of oranges without setting a fixed value for globs and blobs.

If you want to judge currency's strengths then you need to measure it against something that cannot be easily adjusted by politicians. Precious metals are the best for this exercise, but any raw material does a better job than another fiat currency.

You say that some countries lived beyond their means and that this is being rebalanced. Could you elaborate on this, please? There is not a single country in the western world that has got decreasing levels of actual debt. There is no default or reduction of debt taking place which means that even the € is on an unsustainable path to self destruction. The question is which currency will fail first.
 
It is a beauty contest and that means the Euro will sustain itself, second in place to the Yuan, while the dollar declines to the influence of a second world country. America has over extended itself in the face of overwhelming sustainable levels of growth everywhere else. Took too much too soon, and has placed its faith in the military to keep it pre-eminent. All it will take is one sea change in renewable and/or low-carbon energy technology to topple America now - its geared around oil. Poor judgement IMO. As for commodities, America controls those through rogue trading. Time to put manners on their traders, then America will lose traction globally, and not before time.
 
The Euro has lost 80% of its purchasing power since inception when compared to a stable currency like gold -

http://www.marketoracle.co.uk/Article30920.html

Marginally better than the other flawed fiat papers but not much.

Comparing one independent variable flawed currency verses another independent flawed currency is not a valid method of determining the strength of a currency, particularly as a future global reserve currency.

The euro has maintained a relative 'strength' against the other flawed paper due to the reluctance of the ECB to bring in QE and the reluctance to cut rates as much. If the Euro is to survive then the ECB will have to open the floodgates to printing further in order to pay back in a ponzi manner the unsustainable levels of debt.

The Euro may play a role in a future basket of currencies but it won't be a major player.

No nation or group of nations with rising unsustainable debt levels approaching 100% official GDP and 300% unofficial will last long as a global reserve. The euro zones debt is rising year by year. Until the deficits turn into surpluses, the fiscal position of the eurozone is getting worse, not better.

Deficits of 5-10% and growth of only 1-2% per annum and starting 'official' debt of between 60-150% of GDP is not the basis for stability, the prerequiste for the global reserve currency. The UK had stability in the 19th century and lost it, together with the global reserve status of the pound. The USA had economic stability in the early half of the 20th century and then lost it. It is only a matter time before the dollar is replaced by something more stable.

Gold, silver, platinum, Yuan, etc are the prefered stable alternatives. Doubt it will happen quickly with the reluctance of the USA to start being productive instead of relying on Asia to do their productive work for them.

Perhaps a future war over rising debt and commodities will be the instigator for the change.

UK 19th century, USA 20th century. The 21st century's global reserve currency will belong to the next global power.

Hopefully the world will agree to put in place a stable and truely global currency (ie gold) instead but I wouldn't bet on it.
 
In among your well-worded post you seem to not notice the fact that so-called "world-reserve" currencies are entirely relative.

They are held in place by overt and covert means, the removal of any of of which will destablise the currency. Traders don't want stable currencies. They want instability that they create and control, the better to anticipate and exploit the price differentials this creates in both the currency and commodities markets.

The game hasn't been played on a level playing field between governments and banks since Rothschild supported the Bank of England.

From: http://en.wikipedia.org/wiki/Rothschild_banking_family_of_England

"N M Rothschild & Sons financial strength in the City of London became such that by 1825-26, the bank was able to supply enough coin to the Bank of England to enable it to avert a liquidity crisis."

Now the traders control the price of any items on the world market - currency or commodities simply by trading amongst themselves.The fractional reserve banking system is a means to create wealth out of nothing according to banking agreed rules,.
Traders affect price by creating artificial demand peaks for currencies and commodities.

The recent rise in the price of oil was a good example of this, cited elsewhere in AAM on a thread last month IIRC.
 
onq said:
In among your well-worded post you seem to not notice the fact that so-called "world-reserve" currencies are entirely relative.

They are held in place by overt and covert means, the removal of any of of which will destablise the currency. Traders don't want stable currencies. They want instability that they create and control, the better to anticipate and exploit the price differentials this creates in both the currency and commodities markets.

The game hasn't been played on a level playing field between governments and banks since Rothschild supported the Bank of England.

From: http://en.wikipedia.org/wiki/Rothschild_banking_family_of_England

"N M Rothschild & Sons financial strength in the City of London became such that by 1825-26, the bank was able to supply enough coin to the Bank of England to enable it to avert a liquidity crisis."

Now the traders control the price of any items on the world market - currency or commodities simply by trading amongst themselves.The fractional reserve banking system is a means to create wealth out of nothing according to banking agreed rules,.
Traders affect price by creating artificial demand peaks for currencies and commodities.

The recent rise in the price of oil was a good example of this, cited elsewhere in AAM on a thread last month IIRC.
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None of your post stands up to facts or the way markets operate.

Traders do not control the price of anything. First of all traders only deal in futures contracts, and futures contracts' prices are ultimately dictated by the spot market price. Now for the important part, he spot market price is dictated by supply and demand of the actual commodity, which means that on the expiry date the price of the futures contract and spot market will match.

Traders buy low and sell high or short high and sell low. If they get it wrong then they lose money. That means that if the futures contract is bid in the wrong direction to actual future supply and demand they lose money.

What traders actually do is provide several immensely important services to the market. Firstly they reduce volatility by buying when prices are too low and selling when they are too high. This smoothes out the curve, not the opposite. Secondly they ensure that imbalances of future supply and demand are acted upon now, by showing price expectations in futures contracts. Thirdly, and maybe most importantly they allow producers and consumers of commodities to hedge risk. Imagine you are a baker and your annual business plan tells you that at today's price of wheat you will make a good profit. But if the price of wheat went up by 20% then you would be in trouble to meet your bills. You could then buy a futures contract to reduce your risk, and the other side of that bet will be a speculator or trader who takes on the risk.

Rather than vilify speculators and traders, and blaming them for economic problems, we should be embracing the services they provide.

Now I do agree that there has not been a level playing field in banking for centuries and that politicians and bankers are disgustingly intertwined in a totally corrupt system. But it is precisely because of government control, intervention and interference in a mandated fraudulent fractional reserve fiat money banking system that the playing field is not level. The answer is not more government but less, much much less.
 
Hi Chris,

Credit where its due, the piece you quoted was from post #9 by ringledman and not me, onq.

:)
 
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