> On Oct 13, 2008, at 2:00 PM, Marvin Gandall wrote:
>> The diollar gain is reportedly due to the repatriation of foreign assets
>> by
>> US financial institutions needing to shore up their balance sheets, and
>> the
>> hoarding of USD's by European banks unwilling to lend to each other or
>> to
>> their corporations needing access to the currency. The dollar easing
>> back
>> down is, as you suggest, a measure of relief that the total collapse of
>> global capitalism may have been averted. But I'd bet against the dollar
>> reverting to it's hegemonic position. There has been a slow but steady
>> diversification out of the depreciating USD for the past several years
>> which
>> has been due to fundamental shifts in the world economy. The US
>> originated
>> crisis can ony lend impetus to that movement. Gordon Brown's call for
>> another Bretton Woods conference today can be read as another straw in
>> the
>> wind.
>
> The U.S. and its dollar may not be what they once were, but as for a loss
> of hegemony, well compared to what?
==================================
Most speculation turns on the dollar being replaced as the sole anchor
currency by a basket of currencies, including the euro, yen, and
in due course a full-floating renminbi. Although such talk has always been
heard when the dollar has shown weakeness, this time it is underpinned by
structural factors: the relative decline of US global economic power; the
role US dollar hegemony has played in contributing to the destabilizing US
current account deficit; the expansion of the eurozone economy; and the
increasing reluctance of the fastest-growing economies in Asia and the
Mideast to maintain their dollar pegs for domestic reasons.
A single reserve currency appears, in fact, to be an historical anomaly rather tnan the norm:
"Barry Eichengreen, a professor of economics at the University of California, Berkeley, argues that there is no reason why a single currency should dominate reserves as the dollar has. Before the era of the dollar standard, he points out, reserves were in a handful of currencies. On the eve of the first world war, when Britain was the greatest trading power, the pound's share in official currency reserves was all but matched by the combined share of the French franc and German mark. After the war a three-way split was maintained, with the dollar replacing the mark.
"If the dollar's dominance is to end, two or more currencies are likely to share the crown. Those who take a grand sweep of history are backing China's yuan as a big reserve currency of the future. The dollar's immediate rival, however, is the euro. In several important respects—the euro area's size, the depth of its capital markets and its share of world trade—it has the attributes of an ideal reserve currency. Unlike America, the euro area has the added attraction of a broadly balanced current account."
("Losing faith in the greenback", The Economist, November 29, 2007)