The Fading yet Dominant Dollar


"The dollar’s dominance as the world’s premier currency
isn’t likely to end anytime soon, but it is seeing some of its status
chipped away."

Wsj_global12092004192530_1So says the WSJ, observing that "For most of the last century, the dollar has enjoyed an unparalleled position, beloved by central banks and big companies as the most solid and convenient way to hold money. That has provided enormous benefits to the U.S. Recently, though, the U.S. currency has at least seen its untouchable reputation questioned as some central banks lighten up their dollar holdings in favor of Europe’s upstart currency, the euro."

More important than the Euro is whether Asia’s big buyers of US Treasuries — Japan & China — will maintain doing so. There is evidence of a slowdown in U.S. Treasury  accumulation:

"Analysts also point out that China’s holdings of U.S. government securities, their main way of holding dollar-denominated assets, hasn’t kept pace this year with the growth in its total foreign-exchange reserves, which equal $515 billion. That implies it is building up reserves in other currencies. Indeed, since its launch in 1999, the euro’s share of central-bank reserves has grown to 19.7% from 13.5%."

What else accounts for the dollar’s preeminence?

"America’s "strong and sustainable economy, its "transparent policy-making process," its democratic political system anchored in the rule of law, and strong military, says Stephen Jen, head of currency research at Morgan Stanley.

As long as the dollar remains the dominant currency, it confers political and economic benefits to the U.S. 

Its hard to imagine what the US economy would look like  if the Euro, for example, replaced the dollar as the global currency staandard. Slower growth, higher taxes, lower employment —

Kinda like Europe . . .


Dollar, Losing Luster, Keeps Premier Status
Euro Makes Some Gains, But U.S. Currency Is Likely To Continue Dominance
WSJ, December 9, 2004; Page C14,,SB110254210992294803,00.html

Print Friendly, PDF & Email

Posted Under