Thursday, April 16, 2009

The Dollar Is Still King

Hantu Laut

In November 2008 I wrote on the dominion of the US Dollar in world trades and currency reserves after some pundits predicted the crash of the dollar and its eventual replacement with other currencies. Below is the relevent article:

Will The US Dollar Crash And Be Gone ?

Hantu Laut

Will the US dollar crash and become an insignificant currency? Some pundits have predicted that the use of the dollar would decline and eventually be abandoned as an international currency.

At the moment the dollar is the most important international reserve currency.Many countries pegged their currency to the dollar and some even used it as their de facto currency.It is the currency used most in international trade transactions.Most countries kept their international reserves in dollars.

I believe the world is not yet ready to abandon the dollar or move to a multi-currency monetary system.The next most important currency after the dollar is the Euro which had taken over some of the dollar's role but were not big enough to displace the dollar significantly.Even Airbus, a consortium of European corporations still uses the dollar in its pricing. Read more.........

Below is a recent article written by Philip Bowring of Asia Sentinel:

Hostage to the Dollar
Although everybody would like a different reserve currency, the once-almighty dollar will probably prevail

Positioning and propaganda in the lead-up to the recent G20 meeting in London are at last focusing attention on the role reserve currencies play and the dollar in particular. But change is going to be very hard to achieve.

China has been in the forefront of this by arguing for a greater role for International Monetary Fund units of account, Sor pecial Drawing Rights (SDR) and a big new issue of SDRs. It has also begun to prepare the ground for its currency, the yuan, to play a role by agreeing currency swap deals with central banks of several countries including Malaysia , Indonesia and Argentina. And it has publicly raised concerns about the safety of its US investments in the wake of massive bank bail-out and stimulus deficits to which Washington is committed.

The US, for obvious reasons, is less than keen on changes that would reduce the role of the dollar and hence its ability to fund its deficits in its own currency. Europe may like to see a greater role for the euro but is worried that any move out of the dollar would push the euro too high and damage its trade, and the cautious Germans in particular are worried that a big SDR issue would simply boost future global inflation.Read more.......

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