Dollar is waning

Jun 19 2009 by Iain Laing, The Journal

IHAVE in my sticky little hand a roll of greenbacks, my dollars in readiness for a holiday in the US. It has been a nervous few months, watching the dollar’s see-saw relationship with sterling.

Happily it has turned out to be much more favourable than it threatened to be at the start of the year.

It has not only been my attention focused on the US dollar.

Indeed, this week, the so-called Bric countries – Brazil, Russia, India and China – are holding a summit in Russia, and one of the items up for discussion is the dollar and its role as the world’s dominant currency.

It is the most widely-held reserve currency in the world today and over the past 10 years an average of two-thirds of the total allocated foreign exchange reserves of countries around the world have been in dollars.

This is not a situation that everybody is entirely happy with, at least not China and Russia, both of which have expressed a desire to see the mighty dollar one day supplanted as the world’s main trading currency. China was most specific, calling in March for the dollar to be replaced as dominant reserve currency by the IMF Special Drawing Right, SDR.

They are not being altruistic. China and Russia hold trillions in dollars and, with the US government gleefully printing trillions more dollars, they would like to switch to a supranational currency which is not going to be eroded by inflation. Quite how they are going to engineer that switch is, however, considerably less clear.

This is probably why, in the same week that the Bric countries are meeting, Russian finance minister Alexei Kudrin has contradicted his own president and said it is too early to speak of an alternative to the dollar. He knows talking the dollar down would be a bad thing for Russia’s spending power.

Nothing is likely to happen soon to the dollar’s status, at least not while I’m away. But, have no doubt, its days as number-one currency are numbered.

Peter Jackson is a freelance writer and former business editor of The Journal – p.jackson77@btinternet.com