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Suddenly, Amazon Doesn't Love Its Moms AnymoreIt could be, if present trends driven by corrective measures taken to stem the global financial crisis continue, in the view of one monetary official.
European Central Bank council member Ewald Nowotny believes a 'tri-polar' global reserve currency system is developing among Asia, Europe and the United States.
"What I see is a system where we have more centers of gravity," Nowotny said Monday in an interview with Austrian state broadcaster ORF-TV, Bloomberg News reported Monday. "I see for the future a tri-polar development, and I don't think that there will be fixed exchange rates between these poles."
The dollar has served as the world's reserve currency for more than 30 years. A reserve currency is one which financial institutions -- and nations, for that matter -- seek to own during times of financial crisis, stress, or uncertainty. The reserve currency attracts investors in a phenomenon called a 'flight to safety.'
The euro, the currency of the euro zone, this decade has challenged the dollar's reserve currency status, following its introduction into global financial markets in 1999. (Physical euro banknotes and coins began to circulate on January 1, 2002.) A series of U.S. fiscal policy and trade policy errors, among other factors, has caused the dollar to weaken against the euro from about 82 cents per euro in 2001 to the present $1.3317 per euro.
Big guns bought dollar during crisis
However, the global financial crisis revealed "what no one could have predicted, regarding institutional investor behavior," so says economist Richard Felson. Namely, that despite the dollar's decreased value, and despite the fact that the financial crisis originated in the United States, the big financial players still want to hold dollars when fear pervades the markets.
"It's really quite extraordinary," Felson said. "Here we had the buck [dollar] being beaten up and maligned all decade, people calling for oil to be priced in euros and that sort of thing, and then when the chips were down, everyone makes a mad rush into the dollar. More than anything, I think it's a testament to the American system of government and the enormous protections and advantages for capital that it provides."
Those protections form "the foundation, the base for the dollar's reserve currency status," Felson said, but a fundamentally sound economy must accompany it. If the U.S. does not reform its economy and gets on the track to sustainable growth, the dollar will decline further, "with institutional investors considering other places to park their money, longer-term, such as the euro and yen," he added.
Monetary Policy / Economic Analysis: The United States has been awarded a gift -- a financial pass, if you will -- regarding the financing of its rescue effort. Investors' flight-to-safety has pushed interest rates below where they should be had the dollar not been the reserve currency. As such, it will cost the U.S. less than it should to finance repairs to its economy. That luxury will not occur again, many economist agree. Hence the U.S. must get its financial house in order and get back on the path to sustainable economic growth, starting now.
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Reader Comments (Page 1 of 1)
10-21-2008 @ 4:41AM
tune said...
1 bail out money should be directly to the people with cashchecks in
direct ratio to tax they paid in the last five years or zero tax zero
welfare for five years - zero tax will take care of zero welfare in
spending & jobs. zero middle-man-governments/corporations -
spending/waste/redistribution. no need to have so many gov/corp army
maning the tax/redistribute inefficent unnecessarily created posts
that gets in the way of a decent life. mr-harvard-mba-bush can put
that in place today. see the economy boom like magic. global golden
years.
2 we are not electing a debate/plan/promise/speech - that's all talks
& by lawyers too. we are electing a
president/person/character/experience/record - mccain 08.
3 only black man can freepass to harvard/wealth/whitehouse.
freepass/affirmativeaction/blackracecard makes this housing/financial
crisis - jail them - treason.
10-21-2008 @ 1:46AM
BHarrison said...
It would appears that the U.S. dollar may have one last chace to maintain it's position in the world currency market.
As is said: "When the USA gets a cold, the rest of the world comes down with penumonia."
If the U.S. government cannot stabalize our economy, world economic powers WILL come up with an alternative revamped currency standards, replacing the pivatol standard using the U.S. dollar as the reference currency.
A pervasive problem that still persists in these problems is the monies still being skimmed from the corporations by the excessive exorbitant compensations to the corrupt corporate managment.
The German governments restrictions and stiuplations of the use of bail out monies by corporations is a key component to restoring confidence in the market. Why hasn't the U.S. government issued the same stipulations for corporations that are being provided the $700 BILLION Bail Out monies.
The value of the U.S. dollar is dependent on the faith and confidence in our economy. The Federal government is not providing the safeguards to ensure this integrity.
10-21-2008 @ 5:52AM
al coholic said...
Folks, the dollar is the 800lb gorilla of currencies and is in no danger of being dethroned in our lifetimes. People may hate America but they love our money.
Keep betting against it, Soros, and you will be a pauper.