Dollar to Lose Reserve Status - But Is There an Alternative Currency?

From Bloomberg:

Pacific Investment Management Co., which runs the world’s biggest bond fund, said the dollar will probably fall as it loses its status as a reserve currency.

The dollar will especially drop against emerging-market counterparts, Curtis A. Mewbourne , a Pimco portfolio manager, wrote in a report on the company’s Web site. Investors should consider cutting their holdings of the U.S. currency, he said.

“While we have not yet reached the point where a new global reserve currency will arise, we are clearly seeing a loss of status for the U.S. dollar as a store of value even in the absence of a single viable alternative,” Mewbourne wrote.

Though I agree that the US dollar is losing status and will continue to fall against currencies of fast-growing emerging nations, it is difficult to see any alternative to the dollar as a reserve currency in the foreseeable future.

Having said that, I am long gold, and expect to see gold hit new highs as all fiat currencies lose value relative to real assets.

Comments

[manya05:]

The flaw in the thinking is that there will be "A" reserve currency. The fact there has always been one does not mean there needs to be only one. I see the dollar and the euro coexisting as reserve currencies in the near future. But I also see a rise in the number of bi-lateral agreements in which trade will be carried out without going through either major currency. I see a strong China-Brazil axis emerging (and now Mexico getting into it too), and these countries will trade in their own currencies, no dollars, no euros. As a result, central banks will have to start using multiple currencies as part of their reserves.

Aug 19 03:50 AM

[Jiang Nan:]

I see Euro playing a bigger part with RMB / Real rising in importance too.

Aug 19 05:10 AM

[Asbytec:]

The euro? Not a chance, aging demographics and inability to support severe trade deficits preclude the euro as a major contender for the world reserve currency. Now, it might (and is) be a significant basket of reserve currencies, as manya asserts. But, the dollar will remain the major reserve note.

The RMB/Yuan is a joke as a reserve alternative. The Yuan is severely undervalued and worthless.

As for devaluing the dollar to such levels, you'd be begging for a collapse. It's isn't gonna happen, in my view. The only rational I can see for devaluing the dollar is to pay off debt. But, it might be hard to devalue the dollar when global liquidity has been falling off dramatically.

Aug 19 09:36 AM

[USisCorrupt:]

The U.S. Dollar will soon be looked upon as nothing more than monopoly money. Milton Bradley is working a deal now to use the dollar on their board game.

Just be thankful you can still use the worthless currency to buy Gold!

Aug 19 09:38 AM

[USisCorrupt:]

The U.S. Dollar will soon be looked upon as nothing more than monopoly money. Milton Bradley is working a deal now to use the dollar on their board game.

Just be thankful you can still use the worthless currency to buy Gold!

Aug 19 09:38 AM

[chap08:]

What we will see is a new understanding of a "reserve currency" and whether we really need one.

Traditionally, one currency has acted both as a means of trade and as a store of value (central banks hold it "in reserve"). In the future we will see multiple currencies act as a means of trade and only idiots will hold the dollar as a store of value. The world will become multi polar and more diversified. It will be better off for it.

Aug 19 11:26 AM

[RG2009:]

We all agree that some currencies are undervalued as we speak, and in some cases the comparative value of such currencies are intentionally kept low, such is the case of the RMB and even the HKD and MOP to some extent. I believe that with time, one of two things will happen. Either a new currency will emerge as the new reserve currency after a revision of the "reserve currency" definition or general acceptance, or currencies will beging their upgrading towards real valuation.

A compromise between both is also plausible, and it that case, i would favor the RMB on the long run, even if some disagree. In either cases, i agree that the USD will lose value, even though some "analysts" have said there will be a bull-run on the USD (once we accept that past patterns will repeat themselves).

Therefore, trading your USD for Gold is to some extent a good plan to hedge against this devaluation, since in the end, no matter which currency we look at as our "reserve currency", people will still look at the shiny golden metal in the same way as we have always did since the dawn of civilization.

We have to keep in mind that the USD used to be redeemable in Gold, characteristic which has been taken off the bills a long time ago. It is now "legal tender". Fascinating, isn't it?

Aug 19 11:58 AM

[FDNY RET:]

As long as we pursue a course of monetizing an impossible debt by increasing our currency numbers anyone would be a fool holding depreciating paper as a reserve.

Eventually, to insulate it against tampering, an international credits system based on a basket of tangible commodities will probably be adopted, if nothing more than to stabilize future trade in the commodities themselves.

These may even filter down to national commerce, with the FED kicking and screaming every step of the way. They're making their bed--they may have to lie in it-----like the rest of us.

Aug 19 12:24 PM

[HA65MPH:]

BUY GOLD , VERY QUICKLY , NO ETF`S....AND SILVER ....

Aug 19 12:41 PM

[Donald Ingram:]

Deflation is alive and doing very well. There is a wage/price deflation spiral taking place. Check out my two latest articles on SA dealing with this subject. There are many, many statistics and facts presented that confirm deflation.
The Fed has run out of 'wriggle' room. Interest rate ammo is gone. Monetization of debt is going nowhere. How else to inflate? Devalue the dollar. Draconian? Yes. Going to happen.


On Aug 19 09:36 AM Asbytec wrote:

> The euro? Not a chance, aging demographics and inability to support
> severe trade deficits preclude the euro as a major contender for
> the world reserve currency. Now, it might (and is) be a significant
> basket of reserve currencies, as manya asserts. But, the dollar will
> remain the major reserve note.
>
> The RMB/Yuan is a joke as a reserve alternative. The Yuan is severely
> undervalued and worthless.
>
> As for devaluing the dollar to such levels, you'd be begging for
> a collapse. It's isn't gonna happen, in my view. The only rational
> I can see for devaluing the dollar is to pay off debt. But, it might
> be hard to devalue the dollar when global liquidity has been falling
> off dramatically.

Aug 19 01:16 PM

[Jimbo:]

Deflation now, Stagflation later.

Aug 19 03:25 PM

[nmelendez:]

Dang, i said that last 2 years. Rates will be based on debt versus GDP. The bigger the number the less the value of the money. After all, China needs more from Brazil/Mexico than either of these need from China. US will become a major MAJOR arms exporter. That's what we do best, WMD!


On Aug 19 03:50 AM manya05 wrote:

> The flaw in the thinking is that there will be "A" reserve currency.
> The fact there has always been one does not mean there needs to be
> only one. I see the dollar and the euro coexisting as reserve currencies
> in the near future. But I also see a rise in the number of bi-lateral
> agreements in which trade will be carried out without going through
> either major currency. I see a strong China-Brazil axis emerging
> (and now Mexico getting into it too), and these countries will trade
> in their own currencies, no dollars, no euros. As a result, central
> banks will have to start using multiple currencies as part of their
> reserves.

Aug 19 05:44 PM

[nmelendez:]

13 trillion debt dollars/(300 million person) =
43,333 debt dollars/person
8236 tons of US Reserve gold = 262 million ounces gold
26200 =.87 ounces/person


43,333 debt dollars/person/(.87 ounces/person) ~ 50,000 debt dollars/ounce of gold jejeje


WOW i'm rich :)

Aug 19 06:00 PM

[KIT:]

Never underestimate the governments ability to suprise.

They can at will ban US ownership of non US currencies or to raise money by taxing profits made in euros or any specific currency.

The US will force the use of USD if it needs to

Aug 19 09:49 PM

[Dave Wrixon:]

Yes, their ability to think up novel ways to screw up the US economy is almost unlimited. It is their willingness to adopt that is a little puzzling. If you have an uneducated electorate democracy is never going to function effectively. But, hasn't that also been part of the strategy?


On Aug 19 09:49 PM KIT wrote:

> Never underestimate the governments ability to suprise.
>
> They can at will ban US ownership of non US currencies or to raise
> money by taxing profits made in euros or any specific currency.<br/>
>
> The US will force the use of USD if it needs to

Aug 20 01:09 AM

[Asbytec:]

Economy? Who said we have an economy? We make a few aircraft, some tractors, and have a failing auto industry. Most of the wealth today is made by wall street suits trading derivative paper and flipping burgers for the little guy. We have no real productivity, compared to decades past.

It's those deflating synthetic wealth dollars that are drying up and creating deflation, thank goodness. This alone should strengthen the dollar since the Fed can never print the 10's of trillions needed to plug the hole in the dam. If inflation is a monetary phenomenon, then we're a long way from inflation and a doomed dollar.

And folks think the recession is over. Not by a long shot.

Aug 20 03:38 AM

[Asbytec:]

I meant the little guy flips burgers (in our service economy), not wall street suits flipping them for us to eat...LOL

Ah, supporting the dollar always earns a few thumbs down. :-/

Aug 20 03:41 AM

[Jabalong:]

We're entering a period of flux in which we'll see a multipolar currency world, which isn't a problem in itself but will be somewhat more difficult to navigate. It's within this environment that a real opportunity will open up for gold and other precious metals as stable stores of value.

Aug 20 06:50 AM

[nmelendez:]

Oh really? And then how do you think you will have growth when China, India and UAE are 50% of the world population(read consumers) while the US is only 5% of the population? If you want growth you NEED to get involved in other countries. Besides with all the IPO's in dollars don't you think other countries have a stranglehold over US? Oop's, 80% of the companies you invested in in China went bellyup!!!! jejeje. So where's the money?


On Aug 19 09:49 PM KIT wrote:

> Never underestimate the governments ability to suprise.
>
> They can at will ban US ownership of non US currencies or to raise
> money by taxing profits made in euros or any specific currency.<br/>
>
> The US will force the use of USD if it needs to

Aug 20 10:25 AM

[5142152-337:]

As events are continuing to unfold, IMHO, it appears more and more that the perceived "overthrow" of the USD is not at all what the powers that be (BRIC countries) have on their minds. Quite on the contrary. What the BRIC wants is to create a Super Alternative Currency to run roughshod over the USD. You see, the BRICs have WAY TOO MUCH USDs to get rid of, so they need it to stay viable (just enough) so they can wean theirselves off the USD and pump up the alternate currency.

In any case, the USD will become just another paper drill to contend with. It won't go away, but no power nation will be caught dead with it in their reserves....

Buy gold and silver NOW!

Aug 20 08:23 PM