Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Try The “Compounding Capital Gains” Strategy Today - 26th Oct 20
UK Coronavirus Broken Test and Trace System, 5 Days for Covid-19 Results! - 26th Oct 20
How the Coronavirus is Exacerbating Global Inequality, Hunger - 26th Oct 20
The Top Gold Stock for 2021 - 26th Oct 20
Corporate Earnings Season: Here's What Stock Investors Need to Know - 25th Oct 20
�� Halloween 2020 TESCO Supermarkes Shoppers Covid Panic Buying! �� - 25th Oct 20
Three Unstoppable Forces Set to Drive Silver Prices - 25th Oct 20
Car Insurance And Insurance Claims and Options - 25th Oct 20
Best Pressure Washer Review - Karcher K7 Full Control Unboxing - 25th Oct 20
Further Gold Price Pressure as the USDX Is About to Rally - 23rd Oct 20
Nasdaq Retests 11,735 Support - 23rd Oct 20
America’s Political and Financial Institutions Are Broken - 23rd Oct 20
Sayonara U.S.A. - 23rd Oct 20
Economic Contractions Overshadow ASEAN-6 Recovery - 23rd Oct 20
Doji Clusters Show Clear Support Ranges for Stock Market S&P500 Index - 23rd Oct 20
Silver Market - 22nd Oct 20
Goldman Sachs Likes Silver; Trump Wants Even More Stimulus - 22nd Oct 20
Hacking Wall Street to Close the Wealth Gap - 22nd Oct 20
Natural Gas/UNG Stepping GAP Patterns Suggest Pending Upside Breakout - 22nd Oct 20 -
NVIDIA CANCELS RTX 3070 16b RTX 3080 20gb GPU's Due to GDDR6X Memory Supply Issues - 22nd Oct 20
Zafira B Leaking Water Under Car - 22nd Oct 20
The Copper/Gold Ratio Would Change the Macro - 21st Oct 20
Are We Entering Stagflation That Will Boost Gold Price - 21st Oct 20
Crude Oil Price Stalls In Resistance Zone - 21st Oct 20
High-Profile Billionaire Gives Urgent Message to Stock Investors - 21st Oct 20
What's it Like to be a Budgie - Unique in a Cage 4K VR 360 - 21st Oct 20
Auto Trading: A Beginner Guide to Automation in Forex - 21st Oct 20
Gold Price Trend Forecast into 2021, Is Intel Dying?, Can Trump Win 2020? - 20th Oct 20
Gold Asks Where Is The Inflation - 20th Oct 20
Last Chance for this FREE Online Trading Course Worth $129 value - 20th Oct 20
More Short-term Stock Market Weakness Ahead - 20th Oct 20
Dell S3220DGF 32 Inch Curved Gaming Monitor Unboxing and Stand Assembly and Range of Movement - 20th Oct 20
Best Retail POS Software In Australia - 20th Oct 20
From Recession to an Ever-Deeper One - 19th Oct 20
Wales Closes Border With England, Stranded Motorists on Severn Bridge? Covid-19 Police Road Blocks - 19th Oct 20
Commodity Bull Market Cycle Starts with Euro and Dollar Trend Changes - 19th Oct 20
Stock Market Melt-Up Triggered a Short Squeeze In The NASDAQ and a Utilities Breakout - 19th Oct 20
Silver is Like Gold on Steroids - 19th Oct 20
Countdown to Election Mediocrity: Why Gold and Silver Can Protect Your Wealth - 19th Oct 20
“Hypergrowth” Is Spilling Into the Stock Market Like Never Before - 19th Oct 20
Is Oculus Quest 2 Good Upgrade for Samsung Gear VR Users? - 19th Oct 20
Low US Dollar Risky for Gold - 17th Oct 20
US 2020 Election: Are American's ready for Trump 2nd Term Twilight Zone Presidency? - 17th Oct 20
Custom Ryzen 5950x, 5900x, 5800x , RTX 3080, 3070 64gb DDR4 Gaming PC System Build Specs - 17th Oct 20
Gold Jumps above $1,900 Again - 16th Oct 20
US Economic Recovery Is in Need of Some Rescue - 16th Oct 20
Why You Should Focus on Growth Stocks Today - 16th Oct 20
Why Now is BEST Time to Upgrade Your PC System for Years - Ryzen 5000 CPUs, Nvidia RTX 3000 GPU's - 16th Oct 20
Beware of Trump’s October (November?) Election Surprise - 15th Oct 20
Stock Market SPY Retesting Critical Resistance From Fibonacci Price Amplitude Arc - 15th Oct 20
Fed Chairman Begs Congress to Stimulate Beleaguered US Economy - 15th Oct 20
Is Gold Market Going Back Into the 1970s? - 15th Oct 20
Things you Should know before Trade Cryptos - 15th Oct 20
Gold and Silver Price Ready For Another Rally Attempt - 14th Oct 20
Do Low Interest Rates Mean Higher Stocks? Not so Fast… - 14th Oct 20
US Debt Is Going Up but Leaving GDP Behind - 14th Oct 20
Dell S3220DGF 31.5 Inch VA Gaming Monitor Amazon Prime Day Bargain Price! But WIll it Get Delivered? - 14th Oct 20
Karcher K7 Pressure Washer Amazon Prime Day Bargain 51% Discount! - 14th Oct 20
Top Strategies Day Traders Adopt - 14th Oct 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

US Dollar to Remain Dominant International Reserve Currency For Many Years

Currencies / US Dollar Aug 03, 2009 - 08:08 AM GMT

By: Global_Research

Currencies

Best Financial Markets Analysis ArticleProf. Rodrigue Tremblay writes: "The empire of the dollar is crashing." Hugo Chavez, Venezuelan President
 
"The U.S. dollar is a worthless piece of paper." Mahmoud Ahmadinejad, Iranian President
 
[The U.S. dollar is] "losing its status as the world currency." Xu Jian, vice director, People's Bank of China,


"It is the policy of the United States and it will remain the policy of the United States to remain committed to a strong dollar." Timothy Geithner, U.S. Treasury Secretary, (July 15, 2009)
 
 [The dollar will remain the world’s dominant currency for] “many years to come.” He Yafei, China’s vice foreign minister, (July 5, 2009)

Presently, there is a vacuum in international affairs coming from the decline in the moral and economic stature of the United States. It is a vacuum because no other country or organization has the credibility, legitimacy and capability to fill the gap. This is particularly true in monetary and financial affairs. By default, the U.S. dollar is de facto the main supranational key currency used to finance international trade and investment.
 
Many countries deplore this quasi monopoly of the dollar, the more so since the financial crisis that originated in the U. S. has spread around the world, and it has profoundly damaged the reputation of the United States and severely undermined the confidence that this country inspired in the past. Add to that the illegal war of aggression that the Bush-Cheney launched against Iraq, a country that had not attacked the United States, and the lack of financial confidence in the USA is reinforced by a lack of political confidence.
 
The table is therefore set for revisiting the international monetary arrangements that were created in the aftermath of World War II. What were they?
 
In June 1944, during a monetary conference held in Bretton Woods, New Hampshire, an attempt was made to create a new world currency, above and beyond the national currencies of particular countries. Let's keep in mind that many decades before, the British pound had been used as the main international currency. A first proposal for reform came from British economist John Maynard Keynes, who advanced the idea of creating a supranational currency, the bancor, to which other currencies would have been pegged and in which countries would have held their foreign exchange reserves. An alternative plan was proposed by U.S. Treasury economist Harry D. White, in view of establishing a “Gold Exchange Standard” whose main characteristics was to use the U.S. dollar as the main key currency, the only currency then that was fully convertible and which had an official value in gold, initially at a rate of one dollar for 1/35 ounce of gold, and later, at a rate of 1/38 ounce of gold. As we all know, this was the plan that was adopted. Nevertheless, Keynes' idea was partially adopted when the International Monetary Fund (IMF) created “Special Drawing Rights” (SDRs) in 1969, to supplement the member countries' stocks of international reserves.
 
On August 15 1971, however, the U.S. Government unilaterally ended its obligations to convert U.S. dollars into gold. A few years later, in the aftermath of the first oil crisis, the rates of exchange of currencies of most of the industrial world were allowed to fluctuate with the state of their balances of payments, thus reducing considerably the need to hold foreign exchange reserves, most of which were still denominated in U.S. dollars. —This is the system that has prevailed until now, that is to say a flexible exchange rate system with the U.S. dollar as the main key currency.
 
It seems nowadays that most everybody who holds dollar-denominated assets is calling for a new international monetary system.  The largest creditors, the Chinese, have initiated the debate, because they have the most to lose from the collapse of the U.S. dollar. Even the Catholic Pope has thrown in his piece of advice.
 
What are the chances that there could be agreement on a new supranational key currency? —Close to none. Essentially, this is because there is no viable alternative to the U.S. dollar as an international currency.
 
It is true that the United States, as a sovereign country, has abused and is still abusing its privileged position derived from the fact that its national currency is being used as the world key currency. So much so that there is presently an oversupply of U.S. dollars around the world. Over the years, the USA has built up huge external debts without having to suffer the full economic consequences of its profligacy. Moreover, it has used it seigniorage gains to deploy troops and military equipment around the world, a move that has created much resentment.
 
Politically, thus, but also financially, the rest of the world finds it increasing difficult to have to rely mainly on the U.S. dollar to finance international trade and international capital movements. It is therefore understandable that many countries would like to free the world from the obligation to use the U.S. dollar.
 
The most natural complement or substitute to the U.S. dollar as an international key currency would be the euro. After all, this a currency backed by fourteen strong European countries; a currency that is fully convertible into other currencies and a currency that is supported by large money and capital markets.
 
The euro's major weakness comes from its political base. If the entire 27-country strong European Union (EU) were backing the euro, its long-term international standing would be considerably enhanced. With only half of the E.U countries backing it, the euro zone is vulnerable in the future to a possible dissolution under the pressures of economic hardships. This is more so since the statutes of the European Central Bank are unduly rigid, not only freezing exchange rates between member states, which is OK, but also de facto freezing their fiscal policies, while the central bank itself has the goal of fighting inflation as its only objective. It seems that the objective of supporting economic growth was left out of its statutes, with the consequence that it may be unable to ride successfully future serious economic disturbances. For example, how long do you think countries like Spain are going to tolerate 17.9 percent levels of unemployment? —Nevertheless, already one quarter of the world's official reserves are in euros, as compare to a bit less than two-thirds in U.S. dollars. Baring any mishap, the dollar and the euro should share a more equal proportion of international finance in the future.
 
It is also said that the Chinese renminbi (its main unit is the yuan ) could be called to play the role of a global currency. Since 2005, China has adopted a managed floated exchange rate system for its currency, allowing the yuan to slowly appreciate vis-à-vis other currencies, as a partial reflection of its large foreign trade surpluses. It is pointed out that by 2020, China intends to designate the city of Shanghai as an international financial center, and that would mean that the renminbi could become fully convertible into other currencies. Already, some transactions between Hong Kong and Macau, and Mainland China, are being settled in renminbis.
 
Realistically, however, it is most unlikely that a Chinese currency could play a large international role, at least not for decades to come. Indeed, even though the Chinese government has some $2 trillion in official foreign reserves, China, itself as a country, has a very limited moral international stance. It is still a totalitarian, authoritarian and repressive state regime that does not recognize basic human rights, such as freedom of expression and freedom of religion, and which crushes its linguistic and religious “minority nationalities”. It is a country that imposes the death penalty, even for economic or political crimes. —This is not an example to the world. Only a fundamental political revolution in China could raise this country to a world political and monetary status. This is most unlikely to happen in the foreseeable future and, therefore, no Chinese currency is likely to play a central role in financing international trade and investment.
 
It is one thing to wish to replace an international key currency, it is quite another to implement such a wish. It's not that a series of bad policies has weakened the U.S. economy and the U.S. dollar, possibly for many years to come. But the requirements for a national or international currency to be used as an investment vehicle are such that there is currently no credible successor to the U.S. dollar as a key currency. There are three fundamental characteristics that a reserve currency must have: it must inspire confidence, it must be fully convertible into other currencies, and it must have a high degree of liquidity. With the possible exception of the euro, no other currency meets these criteria, although creditor countries will likely increase the share of gold in their official reserves, pushing the price of gold way up in the coming years.
 
Therefore, for better or for worse, the world economy needs the U.S. dollar and will keep using the U.S. dollar for the foreseeable future, before a new international monetary system can be designed many years down the road. —Therefore, you may ask where do I think the U.S. dollar is heading? With $2 trillion fiscal deficits under Treasury Secretary Geithner' watch, a zero interest rate (negative real interest rate) and an open bar printing monetary policy by the Bernanke Fed, there is currently an oversupply of U.S. dollars. This should herald a period of continued weakness for the U.S. dollar, possibly for a year or two. Then, the U.S. dollar should reach an important and secular climax low vis-a-vis the other fiat currencies, but not vis-a-vis gold whose future looks brighter by the day.
 
Rodrigue Tremblay is professor emeritus of economics at the University of Montreal and can be reached at rodrigue.tremblay@yahoo.com.

He is the author of the book The New American Empire. Visit his blog site at www.thenewamericanempire.com/blog.

Author's Website: www.thenewamericanempire.com/ 

Check out Dr. Tremblay's coming book The Code for Global Ethics at: www.TheCodeForGlobalEthics.com  The French version of the book is now available. See:  www.LeCodePourUneEthiqueGlobale.com  or: Le code pour une éthique globale  

Global Research Articles by Rodrigue Tremblay

© Copyright Rodrigue Tremblay , Global Research, 2009

Disclaimer: The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of the Centre for Research on Globalization. The contents of this article are of sole responsibility of the author(s). The Centre for Research on Globalization will not be responsible or liable for any inaccurate or incorrect statements contained in this article.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules