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A Move Toward an Alternative Currency

The U.S. dollar is now the laughting stock of the world. Just ask a bunch of Chinese students, to whom U.S. Treasury Secretary Tim Geithner tried to re-assure, regarding the "safety and soundness" of the greenback.

But the saying goes, "You can't beat something with nothing." For the time being, therefore, the U.S. dollar remains the world's reserve currency. But "for the time being" is a relatively short period of time.

A number of countries including the emerging "BRICs" (Brazil, Russia, India, and China) want to move to an IMF-based currency. That's kind of a neutral solution. The United States is still a dominant force at that global agency. But at least it does not have a monopoly on power, as it would at home. So some countries might support that kind of a solution.

China proposed a more radical solution: that the United States start issuing Treasury security in yuan; i.e., the Chinese, rather than the American currency. That would link the two currencies, and thus the two economies, like Siamese twins. But it would mean that the U.S. would have major debts in a foreign currency. If the dollar fell against that currency, ther Americans would eat the resulting loss. It would also give both sides an incentive to keep the yuan down.

The dollar is dying as a reserve currency. The only reason is that it is not dead is because its replacement hasn't been found.