Mar 3, 2011

The Slow Death of the Dollar

Jerry RobinsonBy Jerry Robinson
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In section C of yesterday’s Wall Street Journal, the paper spent several pages on the topic of global currencies. There were several good articles but it was the opener that is making its rounds on the web today. The piece is called, "Why The Dollar’s Reign is Near an End" by Barry Eichengreen.

In his WSJ article, Mr. Eichengreen gives three reasons why he believes that the U.S. Dollar is in a long term downward trend.

  1. Changes in technology are undermining the U.S. Dollar monopoly on global trade.
  2. The dollar is not the only game in town anymore. He specifically points to the Yuan and the Euro as rising competitors. (Yes, the Euro.)
  3. The waning perception around the globe of the Dollar as the ultimate safe haven. (Again, this points back to the competition factor.)
I agree with Mr. Eichengreen’s assessment. I have been saying since 2007 that the Dollar will be replaced as the world’s key reserve currency by 2020.

Some have suggested that the Dollar will collapse virtually overnight. I disagree, as does Mr. Eichengreen. While there are some events that could drastically impact the dollar, like a shift in the petrodollar system (see our recent video on this topic here) or a massive sell-off of government bonds, the Fed has shown that it stands ready to pump more money at a hint of the slightest problem. The primary reason is that there is no currency that can currently replace the Dollar ... yet.

China has been aggressively seeking to internationalize its currency. And Europe is quickly laying the groundwork for a government bond market that will compete with the U.S. So rest assured, the dollar’s reign as the world’s primary currency will end.

Related Links
Why the Dollar's Reign Is Near an End - Wall Street Journal
Dollar's Dominance to End: Hedge Fund Titan Dalio - CNBC
China says yuan could become a reserve currency: report - Reuters
Dollar Pummeled By Euro As ECB Signals Rate Hike - RTT News
Ben Bernanke Opposes Spending Cuts - The New American (Thomas R. Eddlem)