Overseas Market's View of the Dollar

The world’s elite in financial matters have started hedging their bets if in case the U.S. dollar comes to a full blown crisis. For example, many finance ministers and central bankers, are open about speaking about the evolution of a tricurrency international monetary system, a retreat from the present dollar-based system. Asian trade would be dominated by the Yen, the Euro, a recently introduced common European currency, would dominate the European trade, and the United States dollar would dominate trade in western hemisphere. The vast majority of Americans are not aware that these types of discussions are happening between moneymen all around the world. Americans are made to believe that everything is going well with their economy and their currency.

Academics and politicians of a high level speak of how well the economy of the world made it through the fall of the British pound sterling in the early twentieth century by replacing it with the dollar, and that replacing the dollar with another currency could very likely be handled as judiciously. Putting it another way, a large amount of the world’s elite financiers and politicians are cordially and politely insinuating that the dollar is going to soon be challenged as the worlds sole reserve currency, and following up those statements with action. A wide amount of countries have already started to replace most of their reserves in dollars to Euros, a trend which will very soon move fast as the problems with the dollar expand.

We must come to the conclusion that it is in the best interest of all the nations of the world to let the U.S. dollar down gradually if at all possible, and definitely the highly publicized national interventions in the currency markets represent attempt to reach that goal and objective. Nobody – not the world’s financial centers, not the central bankers, not the politicians – wants an international monetary crisis. However this can be mentioned in the “best laid plans” list. What the free market provides and what the world’s financial stalwarts want could be two different things.

A Swiss based investment counselor, sums up concisely the international view of the U.S. dollar:

• The U.S. dollar is still the world’s reserve currency, although its dominance has substantially waned since the mid nineteen seventies. The number of countries that peg their currencies to the dollar is down by half to twenty four. As a reserve currency, the dollar is supposed to be a reliable store of value, yet successive American governments have failed to fulfill this role until the early 1980s, America continued to boast the largest net foreign assets in the world. A decade of massive current account deficits, however, has turned America into the world’s largest debtor. As such, the government may be tempted to allow inflation to nibble away at the value of the debt and use devaluation to reduce its deficits. Hardly desirable properties for a reserve currency.

In case you haven’t realized the importance of such conclusions, take notice that Lattman is not the only one in this sentiment. This is exactly how many investment economists and professionals saw the Mexican peso in the months and years previous to its breakdown in by the end of December of 1994, the Asian currency precipitous falls of 1997 to 1998, and even to now, the not-settled Argentine peso debacle that got to serious crisis proportions in 2002, it would be advisable to pay attention to and acknowledge the steady drumbeat just before an open attack begins. If we are about to face the demise of the U.S. dollar it will be an open question that will be debated strongly in the coming weeks and months. Its enough to say that the symptoms and potentials are present for a quick change in the dollar’s advantage as a reserve currency. If that happens, a currency crisis in the United States could change from one night to the next day.