Could the dollar be challenged and replaced by another world currency? Will something that until recently was "unthinkable" become a reality? The global financial slump is challenging long-held assumptions.
by Darris McNeely
Two recent headlines in the Financial Times illustrate a continuing thought among world financial leaders. The first headline says, "Brazil and China Challenge Dollar." The second spotlights the lack of confidence in American financial leadership: "Dollar Falls as Geithner Hails Recovery Hopes."
A warning shot is being fired across America's bow. Many want an end to the era of the dollar as the world's reserve currency. If that happens, your financial world will be forever altered.
Could this happen?
Similar remarks from Russia and a comment by Chinese Premier Wen Jiabao in March publicly expressed "worries" over China's significant holdings of U.S. government bonds. The Chinese have a stock of about $769 billion of U.S. treasuries. This ties China to America's good times and its bad times.
By calling for the creation of another reserve currency, China, Russia and other nations seek to create an insurance for their economy against the problems generated when one country's economy goes bad. It also seeks to end the American dominance of the world economy. America's decline and China's rise fit their geopolitical ambitions.
Ending the dollar's role in the world economy is not an easy matter. The Wall Street Journal wrote, "The technical and political hurdles to implementing China's recommendation are enormous, so even if backed by other nations, the proposal is unlikely to change the dollar's role in the short term. Central banks around the world hold more U.S. dollars and dollar securities than they do assets denominated in any other individual foreign currency. Such reserves can be used to stabilize the value of the central banks' domestic currencies" ("China Takes Aim at Dollar," March 24, 2009).
