Is the US dollar losing it’s mojo?

July 18, 2010

(To increase the font of this essay – hold down the Ctrl key and keep pressing +) Is it time to junk the idea – the US dollar is the best reserve currency of choice?

I know living without those greens seems impossibly hard to imagine. As the US dollar since time immemorial has always been synonymous with the global currency of choice – for starters the US dollar is still the currency most economies favor relative to other currencies. Not to mention the triads, Yakuza and Mafia still have loads of greenback underneath their floor boards.

As much as 65% of the world’s currency reserves are held in greenbacks according to the International Monetary Fund. And though no reliable data exist on how much greenback is sloshing around the market (especially the black market) – it’s fair to assume the figure has to be so high as to pose an intractable problem to most who may be debating whether it’s time to switch to another preferred world currency.

One reason why some central bankers (these are basically very fat folk who get paid a lot of money to do absolutely nothing and they work for the banks of their countries when they are not pretending to work) have been toying around with the idea of switching to any other currency besides the US dollar is due to the recent volatility of the US dollar. These concerns raised by central bankers is hardly new – the debate has been raging for at least a decade, but it’s only recently that it’s gathered momentum in the mainstream.  

The Arabs for example have been secretly hoarding physical gold since the financial crisis begun in 2008. And the communist Chinese have done the same switching partially to the Euro and to fertilizers will 10 year shelve life’s.

So this is by no means a new subject. However one perennial concern that has thrown a spanner into the works of how to make the switch has been the question: what else do we switch too?

One promising substitute are special drawing rights (SDRs), the international reserve created by the IMF some 40 odd years. SDRs are like bearer bonds. They aren’t legal tender. And you can say use it like cash to pay for a plate of char kueh teow. Just think of them like IOU’s. One reason why SDR’s make such a compelling case for substituting the US dollar is unlike the dollar that is based exclusively on the economic wellbeing of the USA – the value of SDRs is based on a basket of the world’s major currencies (U.S. dollars, yen, euros and pounds), that means it’s no as volatile as a single currency. As the risk is spread out across different time zones and land masses.

These ideas are unlikely to take off anytime soon, but it appears on-going concerns about dollar volatility is at least gaining a renewed interest in the subject of a new global currency. The debate acquires an added edge when one considers how in the last decade alone the dollar has lost more than a quarter of its value. This is particularly worrisome for emerging-market nations that hold larger quantities of dollar-denominated debt mostly in U.S. Treasury securities and bonds. To exacerbate matters, the US is running an all time stratospheric high deficit and there are still no plans in the pipeline by the FED to plug that giant blackhole.

Meanwhile central bankers don’t seem to be waiting for the IMF to put their act together to roll out the SDR’s. Many have already put into place measures to divest themselves further from the greenback amid growing concerns over soaring U.S. deficits and slow recovery. Some have already raised their allocations of other currencies – chiefly the Australian and Canadian dollars. Others have turned to the yellow metal, silver and even uranium as hedge instruments.  

Eventually, the dollar will bow out. This may take some time though anywhere between 10 to 200 years.  

Meanwhile for the home investor, it may be a good time to research further on diversifying your  investment portfolio by putting your nest egg in a basket of denominations other than the greenback.

Darkness 2010 – The Brotherhood Press 2010

Singaporedaddy, what do you think about the US dollar?

I am sorry Darkness, I don’t understand the question…are you asking me whether I think it can hold its value or whether it’s good to go for a spot of origami?

Don’t be like that lah…you know what I really mean.

Put it this way, Bernanke only really has one strategy – he doesn’t have a real monetary policy except maybe to print his way out of this recession. I wouldn’t listen to the ASDF, If I were you Darkness.

No shit SD!

No shit Darkness. That’s what those crooked Americans have been doing all along. They are trying to print themselves out of this recession. And the only reason why they can afford to do that is because the Chinese and Japanese seem to be gobbling up all their federal bonds up – so they’re already sitting on mountains of paper – and since they don’t want to see all these paper turn into hell notes, they have no choice but to buy more paper which encourages Obama and his gang to print yet more. Get it? It’s the perfect scam. The world’s biggest Ponzi scheme.

Go on.

No I am going stop here Darkness. I’ve already said enough as it is.


Darkness we could both die just knowing what we already know.  Black helicopters could swoop down on us at this moment and do us in with a few lightning bolts…

Where did you get that from?

Our Russian friends told us.

And how would they know?

How would they know Darkness? Does a duck know how to quack? Does a dog know how to bark? FYI Darkness, debasement of a currency isn’t new, it’s a national hobby in Russia – did you know the only place you can buy 40% proof Vodka is outside Russia? Those Russians learnt it from the Romans. Did you know the Romans were the first to try to print themselves out of the shit pot? In the beginning around Marcus Aurellis, the Denarius was 100% pure silver. They eked it out from this silver mine called Vallarium. By the time Nero learnt to make his own mistakes, it was only 50% silver and by the time Gauls marched in, silver content was less than 2%. And we know what happened after that. They keep adding lead to it and the silver content all but finally disappeared. And now the Americans are doing exactly the same thing Darkness. Coming to think of it by then everything was made from lead, including goblets and cutlery.

That could be why Italy these days isn’t a super power.

Coming to think of it Darkness,that could be the reason why they may not even make it to the quarter finals this world cup.

Conversation captured by an obscure listening post in Prima Maritima and archived by an auto-bot crawler – The Brotherhood Press 2010.



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