Will the failure of the dollar's financial status then worsen its devaluation?
*Barron's, by Randall W. Forsyth, May 19, 2009:
"New Dilemma for the Dollar
Greenback's status challenged for trade as well as financial
transactions.
CHINA ISN'T JUST TALKING ABOUT supplanting the dollar as the center of
the international monetary system. It is taking concrete steps away
from the greenback for both finance and trade.
The Financial Times reports China and Brazil have discussed using their
own currencies for trade, a marked shift away from the use of dollars,
the norm for the conduct of international trade.
There have been proposals over the years to use currencies other than
the dollar for trade, most notably by the Organization of Petroleum
Exporting Countries. OPEC has made noises about pricing its oil in a
basket of currencies or perhaps the euro to offset the cartel's
currency losses when the greenback would take one of its periodic
headers.
But nothing ever has come of those threats. And even with the
introduction of the euro as the first, real potential rival, world
trade continues to be conducted overwhelmingly in dollars.
The global use of dollars has been an enormous advantage to the U.S.,
affording the nation the ability to spend and borrow nearly without
limit. As long as the rest of the world wanted and needed dollars for
trade in goods and financial transactions, America could effectively
just reel off greenbacks to pay its bills.
As noted here previously, the rest of the world quite simply is getting
its fill of dollars. The head of the People's Bank of China, that
nation's central bank, has called for a 'super sovereign' international
currency that would take the place of the dollar. More recently, a
Japanese official called on the U.S. to issue Treasury bonds
denominated in yen, which couldn't simply be repaid by the printing of
dollars.
Now, talks between China and Brazil on setting up bilateral trade in
their own currencies moves the possible supplanting of the dollar out
of the financial realm.
The euro has captured a greater share of central banks' currency
reserves. And, for a time a couple of years ago, the euro became the
predominant currency for issuance of global bonds.
In trade, however, the dollar had been virtually unchallenged. No other
currency had sufficient size and capacity to accommodate massive
imports and exports. But now other currencies and economies have grown
in importance.
It is no coincidence that the U.S. has been replaced by China as
Brazil's biggest trading partner. As such those two nations see less of
a need to use dollars for their bilateral trade. Moreover, China and
Argentina last year entered an agreement to transact trade in their
respective currencies, cutting out the dollar as an intermediary.
Not since the breakdown of the Bretton Woods system with the suspension
of the dollar's convertibility into gold at a fixed price of $35 an
ounce by President Richard Nixon on Aug. 15, 1971, has the dollar's
status been so threatened."
*This information is solely a highlight of the opinion of a third-party publication and is incomplete. Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.
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