Tuesday, March 24, 2009

Last Call for the Almighty Dollar?

The American dollar has been the currency of international trade for most, probably all of your lifetime. That may be about to change.

At last year's OPEC summit, a mistakenly live microphone transmitted a discussion about dropping the exclusive use of the US dollar for pricing oil in favour of a basket of currencies, including the Euro and others.

Some Europeans have been musing recently about ditching the greenback. Now it's the Chinese. From the Associated Press:

China is calling for a new global currency controlled by the International Monetary Fund. Ahead of a London summit of global leaders, the country is stepping up pressure for changes to a financial system dominated by the U.S. dollar and Western governments.

[Chinese central bank] Gov. Zhou Xiaochuan's essay did not mention the dollar by name.
But it said the crisis showed the dangers of relying on one country's currency for international payments.

In an unusual step, the essay was published in both Chinese and English, making clear it was meant for an international audience.

The world's acceptance of the United States dollar as its reserve currency has helped America cope with its crushing debt situation. China, for example, holds a trillion dollars worth of US reserves which gives it a compelling interest in maintaining the health of the American economy. If a distinct global currency emerged, America could suddenly feel the sting of exchange fluctuations and a weakening of foreign support for its economy.

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