The US dollar is down 20% since 2002 on a trade weighted basis. Other world economies like China are dynamic, with growth rates of 8 and 9%. With that kind of clout, countries like China, India and Brazil, can choose where to place their reserves.

Slowly, developing countries are shifting their reserves away from the dollar into the euro and yen. Neil Mellor, strategist at Bank of New York Mellon Corp (NYSE: BK), which has some $20 trillion dollars in assets under custody said: "I don't think there will be an imminent move, but it is quite clear there's a plan to shift reserves to a more balanced portfolio."

Barclays Capital Research reported that central banks placed 63% of new cash in non US currencies between April and July.

The US dollar is cascading downward. This move is causing banks, especially central banks, to shift reserves out of the dollar into the euro and yen.

A Bloomberg survey reports that policy makers boosted currency holdings by $41.3 billion dollars in the last quarter. Nations reporting currency breakdowns put 63% of this new cash into euros, and yen. The dollar's share fell to 37% from 63% in 1998.

How is this affecting the dollar on the commodity futures markets? The dollar fell to 75.77 last week on the Intercontinental Exchange Inc. (ICE). This is the lowest level since March 4th, when it was at 89.62 (The dollar is traded against a basket of currencies.)

Is a 'super-currency' – one that could for all intents and purpose replace the dollar as the world's reserve currency – possible?

Well, it is possible, but in this case the aforementioned switch would certainly be super, as it would represent a gargantuan task and adjustment period for members of the global financial system.

The dollar fell to an eight-month low versus Japan's yen Monday, down about one-quarter yen to 89.37, and placed into the currency market spotlight the season's most compelling question to-date: will the Bank of Japan intervene to stem the yen's rise versus the buck?

Those who say central bank officials will intervene to weaken the yen argue that export-dependent Japan will be hurt if the yen appreciates more against the dollar. The yen has already risen about 20% versus the greenback in the past 12 months, and further yen increases, assuming Japan's exporters raise prices to protect their dollar-denominated profits, will result in lost sales, as Japanese goods --- particularly autos --- become too expensive for American consumers.

Those who follow the U.S. economy and the financial markets are accustomed to hearing investors and holders of U.S. assets complain about the weak dollar.

'The federal budget deficit is going to lead to a weak dollar and rampant inflation.' 'The Fed is going to inflate the economy to help the U.S. pay its debt, undermining the value of my portfolio.' 'The weak dollar is causing inflation, forcing up the price of oil and other commodities.'

On a day when the United States committed up to $2 trillion more in government financing and programs to unlock credit markets -- probably the federal government's largest, one-day implied commitment in history -- the dollar rose against the euro and British pound.

The dollar strengthened 1.2 cents to $1.3821 and a gargantuan 4 cents to $1.4488 versus the British pound. The dollar also rose about one-half cent to $1.1584 versus the Swiss franc.

Now, in theory, increasing dollar commitments by the U.S. government means more dollars in circulation, which means every dollar is worth less -- a sequence that should cause the dollar to fall against the world's other major currencies. Not Tuesday, and really, when you review it, not since the financial crisis took hold in October 2008, so says economist David H. Wang. And the reason is basic: the dollar's status as a reserve currency, and as a safe haven.

The dollar, despite the prospect of back-to-back trillion dollar U.S. budget deficits, continues to hold its own against the world's other major currencies. What's more, provided the fiscal stimulus package is passed, the national debt ceiling will increase to $12.1 trillion from the current $11.3 trillion.

The dollar strengthened about 1.5 cents to $1.2867 versus the euro Wednesday, and rose about 1.4 cents to $1.1586 versus the Swiss franc, while remaining essentially unchanged at 89.62 yen and $1.4490 versus Japan's yen and the British pound.

At times, a set of complex factors come to bear on a country's currency; sometimes these factors are seemingly illogical. Such is the case of the Japanese yen. The Japanese economy, along with the rest of the world, is getting weaker; the Japanese stock market is falling; exports are dropping; and the Bank of Japan warned this week Japan's economy probably will contract this year.

So then, why is the yen so strong? Well, first, Japan did not suffer large losses from the sub prime crisis, leaving Japanese banks in relatively good shape. Second, Japanese investors are deleveraging their overseas investments, creating large cash inflows into Japan. Third, the yen is now seen as a "safe haven" currency.

When trading against the dollar, the yen reached a thirteen and a half year high. It reached a seven year high against the euro. The downside of the yen's strength is that it is hurting Japanese exports. There is talk in Japanese banking circles that the Bank of Japan may intervene to curb the rise of the yen. While this move is not imminent, there could be action taken by this March.

Would you buy the Japanese yen?

These days, the only thing worrying the economists and analysts more than the U.S. economy is the United Kingdom economy.

The U.K.'s situation is worrying currency traders, too. The dollar vaulted 5 cents Tuesday versus the British pound to $1.3890 -- an almost unprecedented move in the currency market -- as traders sensed a deepening recession in the U.K.

The dollar also strengthened 1 cent versus the euro to $1.2940 and 1.2 cents versus the Swiss franc to $1.1422. The dollar was essentially unchanged versus the yen at 90.45 yen.

Currency Trader Andrew Resnick told BloggingStocks Tuesday that with the United Kingdom's decision Monday to allocate an additional $142 billion to support the nation's banks, currency traders "have put the British economy in a time-out chair."

The U.S. Federal Reserve continues to expand its balance sheet. Further, the U.S. government is piling on debt and public borrowing at almost a faster rate than Mexico and Argentina did during "the bad old days" decades ago.

And yet the dollar continues to hold its own against most of the world's other major currencies. The dollar strengthened about 2 cents against the euro and British pound Tuesday at mid-day, to $1.3190 and $1.4538, respectively. Just as significant, the dollar has strengthened about 11% versus the euro and about 22% versus the pound since October 2008.

Big factor: first in, first out

What's going on here? BloggingStocks asked economist Peter Dawson to provide some clarity.

"Three factors are at work. Most important is the economic cycle. The U.S. was the first to enter a recession and it will likely come out of it sooner than Europe and the U.K., so that's supporting the dollar," Dawson said. "Second, there's still considerable flight-to-safety by stock-shy investors, which almost always increases purchases of U.S. Treasuries, another dollar plus."

Record-high U.S. budget deficit? Declining corporate earnings? Unemployment likely to rise through at least May?

Don't mention those potential scenarios to the foreign exchange, as currency traders sent the dollar rocketing higher versus the euro early Monday, up 3 cents -- an enormous move in the currency market -- on the belief the Obama Administration's fiscal stimulus package will help the U.S. economy recover from the recession.

The dollar strengthened 3 cents to $1.3566 versus the euro and rose 1.64 yen to 93.50 versus Japan's yen. The dollar has rose 3 cents to $1.1097 versus the Swiss franc, and strengthened about one-half cent to $1.4494 versus the British pound.

Currency trader Andrew Resnick told BloggingStocks Monday trading desks are back at full strength after the holiday and they're clearly signaling that they expect the worst of the U.S. recession to be over by mid-year.

Free markets? Unfettered capitalism? Government getting out of the way so that businesses can operate?

Not exactly. Try mercantilism, national industrial policy, and monetary protectionism.

Japan's finance minister jolted currency markets early Thursday after he signaled that the Japanese government is prepared to intervene in the foreign exchange to support the dollar and euro and drive the yen lower.

The yen Thursday weakened 1.25 yen to 88.39 yen versus the dollar on the news. The yen also weakened 1.5 yen to 128.70 versus the euro. Both pairings had spiked significantly higher immediately after the finance minister's comments were published.

Finance Minister Shoichi Nakagawa said he has "the means" to limit the yen's advance.

In the modern era, Japan has periodically intervened in the market to drive the yen lower and support the dollar to prevent the yen from becoming too strong versus the dollar, and the world's other major currencies. A strong yen hurts Japan's export sales, including cars, by making those cars too expensive for foreign consumers.

What's one possible consequence of the major interventions by the U.S Federal Reserve and U.S. Treasury?

The dollar's safe-haven status may end, or at least diminish as the increased dollars in supply lowers the dollar's value and perhaps increases inflation.

On Wednesday, the dollar fell after the Fed Tuesday cut its key, short-term interest rate by 75 basis points to a targeted 0.00%-0.25% basis point range, and also said it would continue to use non-traditional techniques to keep markets liquid. The dollar weakened about 1 cent to $1.4094 versus the euro, about 2 cents to $1.5353 versus the British pound, and about 1.6 cents to $1.1076 versus the Swiss franc. The dollar also fell about one-half yen to 88.46 against Japan's yen.

In one scenario, low interest rates, a recovering global economy and a re-emergence of risk appetite drive institutional investors out of the dollar in favor of stronger major currencies, such as Japan's yen and the Swiss franc. The U.S.'s rising budget deficit also would weigh on the dollar.

However, the above scenario is not guaranteed, so says economist Richard Felson. Under a different scenario, the dollar weakens somewhat on the aforementioned lower interest rates and liquidity actions, but then the dollar firms and rises, as the U.S. economy recovers before the European and Asian economies do.

The dollar and British pound continued to trend lower Monday, as investors large and small once again emphasized the impact of recessions on both continents, and the U.S.'s rising budget deficit.

The dollar fell about 2 cents to $1.3598 versus the euro and about 1 yen to 90.42 versus Japan's yen. Meanwhile, the euro rose 2 pence to 90.10 pence versus the pound.

Economist Richard Felson said the dollar, which prior to last week appeared to be immune to the extra dollars in supply stemming from U.S. Federal Reserve's interventions and U.S. Treasury's TARP borrowing for the bank rescue, now may start to experience the harsher light of day.

"Investors appear to be reassessing how much the dollar will decline as we grapple with the financial crisis and the recession. Earlier, the consensus was that stock, housing, and asset price falls would offset dollar infusions by the Fed and Treasury, but now the calculus appears to be changing," Felson said. "But dollars don't appear to be in short supply right now, and that then turns the focus to the U.S.'s poor economic fundamentals, which is leading to dollar selling."

Further, poor economic fundamentals are at the core of the British pound's slide versus the euro, Felson added. "The pound is being weighed down by weak economic data, risk aversion, and the conviction that the United Kingdom will experience a deeper recession than the European Union, with a broader and longer-lasting housing slump in the U.K.," Felson said.

The dollar plunged to a 13-year low against Japan's yen Friday, as currency traders sensed a further-deteriorating U.S. economy on the heels of the U.S. Senate's rejection of the Big Three rescue package.

The dollar plunged more than 3 yen -- an enormous move in the currency market -- to 88.40 early Friday before recovering slightly to 89.50 yen. The dollar also fell about one-quarter cent versus the euro to $1.3375 and one-half cent versus the Swiss franc to $1.1785.

Currency Trader Andrew Resnick told BloggingStocks Friday traders sense that U.S. stock investments will perform even worse now in 2009, as a disruption / cessation of operations by General Motors (NYSE: GM), Ford (NYSE: F), and Chrysler will further decrease commercial activity, and GDP -- making U.S. investments less attractive.

"Currency traders are running for the hills now. They're running out of U.S. investments, which is bearish for the dollar. The yen is rising primarily as a safe haven and as a risk-aversion play, as it typically has during the financial crisis," Resnick said. "Japan's economy isn't that strong, it's in recession too, but as long as it doesn't contract as much as the U.S., traders will prefer the yen over the dollar," Resnick added that he was presently long with the yen versus the dollar, and long with the yen versus the euro.

Further, Resnick said he expects the dollar to fall to 75 yen, if public policy efforts aren't revived to save the U.S. auto sector.