Canadian Prime Minister was on a radio snippet today saying that there was a lot of talk about the American dollar not being the worlds reserve currency anymore at the G20 and that one day that may happen. (Surprised to hear him say that, instead of denying any suggestion that it could happen at all.)
When he was asked if it was America's fault that this economic crises was spread around the world, he didn't deny it but rather said that he didn't want to blame anyone in particular and that effort instead needs to be put in to solve the problem.
Pretty interesting.
other story,
Dollar may exit, but Gold will stay
It looks like the US dollar is going to lose its status as the world’s reserve currency. There has been talk of the need for a new reserve currency abandoning the dollar and instead putting in place a basket of currencies as world reserve. No final word has come out from the April 2 G-20 Summit in this regard.
Whether dollar is abandoned in favour of a new currency reserve, world’s oldest currency, gold will continue to reign supreme, according to an analysis by Quantum Gold Fund.
U S Dollar losing value
For many decades, the US dollar has been the world’s reserve currency, the one by which all others are measured, and the currency most used for international trade. Over the past six to nine months, as the worldwide recession has deepened, the US Dollar or the ‘greenback’ has been the currency of last resort and has therefore maintained more than its value. However, there are several reasons that may lead to the decline of the greenback.
-The US Government is piling up loads of debt in an effort to bail out the economy out of deepening recession. This increasing debt would surely put downward pressure on a nation’s currency value.
-The US government has opted for printing (more) money, a time-honored means to relieve some of the debt problems. However, this always leads to an inflation problem in the long term, which again places a declining bias on a nation’s monetary unit.
-US. interest rates are at exceptionally low levels. This will reduce the appeal for international investors of holding Treasury Bills, bonds and notes once the need for "safety" starts dissipating.
What is clear, however, is that the economy of the reserve currency of the world is currently facing structural problems, which have been described as serious and unsustainable, and are causing worldwide concern, particularly at the policy level. The low savings rate, the large current account deficit and now also the large budget deficit are the familiar issues, and associated with these is the question of how willing are those economies with surplus savings to continue financing those deficits.
The world has been relying on the dollar as a reserve currency which has to preserve its value, but America, in order to solve its own economic problems, has to now print (more) money, which will devalue the currency in the long term. So there is an essential contradiction there. There’s some light in the tunnel.
Is it the end of the long tunnel or a train fast approaching?
The issue of the world currency reserve is being strongly backed strong forces like China and Russia. China called for a replacement of the dollar, installed as the reserve currency after World War II, with a different standard run by the International Monetary Fund. China and Russia are calling for the creation of a new world reserve currency amid fears that the Federal Reserve's quantitative easing policy (printing additional money) might cause hyperinflation, leading to the eventual collapse of the economy.
China’s version of new reserve currency
Top officials from China used strong language as to enforce the fact that they would want to see a new world reserve currency replacing the dollar. They said: "The global financial crisis reveals flaws in the international monetary system". "An international reserve currency should not be tied to the interests and economic conditions of any one country".
People's Bank of China Governor Zhou Xiaochuan suggested the IMF's Special Drawing Rights, a currency basket comprising dollars, euros, sterling and yen, could serve as a super-sovereign reserve currency, saying it would not be easily influenced by the policies of individual countries.
Some analysts say the move demonstrates China's growing discontent with American dominance of the world economy.
Russia is also planning to propose the creation of a new reserve currency, to be issued by international financial institutions. IMF managing director Dominique Strauss-Kahn said that talks on a new world reserve currency to replace the US dollar were "legitimate" and could take place "in the coming month.
Special Drawing Rights (SDRs)
One solution China is offering to reduce currency-value uncertainty is expanding the use of an instrument called Special Drawing Rights (SDRs). These were devised by the International Monetary Fund about half a century ago. They are based on a basket of currencies.
