Beyond The Dollar – Nations Considering Reserve Currency Options
Sharon L. Secor
June 30, 2009
Nations throughout the world are casting an uneasy eye over the American debt situation, the value of the dollar, and how that affects the worth of their holdings. As the value of the dollar falls, so too does the worth of their reserves, and with losses mounting, some of the world´s nations are looking for options beyond the US dollar as the primary global reserve currency. This potential is worrisome for the United States government because it could further weaken the dollar and increase the strain on the faltering American economy, slowing recovery.
While the individual American citizen is more concerned with debt reduction, the United States government is taking on record levels of debt as it tries to stabilize the economy. Other nations worry that the huge amount of debt could lead to inflation, which would eat away the value of their US dollar holdings, as mentioned in a June 28, 2009, Wall Street Journal article. China, according to the article, holds most of its $2 trillion foreign exchange reserves in the dollar and is becoming increasingly concerned and the central bank of China has "reiterated its call for the creation of a new international currency that could replace currencies like the dollar in countries' official reserves."
China is not the only nation ready for other reserve currency options. The Russian central bank recently declared its intention to reduce its US Treasury holdings and took steps to do so by investing in International Monetary Fund notes, something that Brazil and China have also expressed an interest in doing. According to an Associated Press report published on June 10, 2009, Russia, India, Brazil, and China are engaging in talks "to discuss alternatives to the U.S. dollar as the global reserve currency."
A June 25, 2009, article published on FinanceAsia.com , gave further detail about the US dollar concerns and strategies of the BRIC nations – Brazil, Russia, India, and China. According to that article, "the BRIC countries together hold 42% of the world's currency reserves and 33% of US Treasury debt. The US debt value in their foreign reserves has fallen sharply so far this year as bond yields have risen and the dollar has fallen and China has complained about the US monetising part of its debt." Because of such things, these nations "are sending out signals about shifting away from dollar assets" and exploring ways of cooperating that can help to protect their assets.
Moving away from the American dollar as a reserve currency may help to protect the financial assets of other nations from being affected by a struggling dollar, but it could have a significantly negative impact on the currency of the United States, which is why such murmurings are a bit nerve racking for some members of the government and for some investors. There are some that say there is little cause for worry because there really isn´t a truly viable alternative to the US dollar. However, even if that is true right now, that doesn´t mean that it will always be true. And, even if the dollar does remain supreme in reserve currency indefinitely, that still doesn´t ensure that nations will continue to basically extend loans to the United States by buying their debt and risking significant loss if the dollar continues to lose value.
It is perfectly understandable that the nations of the world are concerned and that they are seeking alternatives to the US dollar. The economic circumstances that the United States currently finds itself in are primarily the result of corporate greed and irresponsible spending, lending, and borrowing, not merely on the part of its citizenry, but also on the part of its financial institutions and its government. If the dollar is eventually replaced as the primary reserve currency, it is a change that the United States has earned by its own fiscal actions.
While the individual American citizen is more concerned with debt reduction, the United States government is taking on record levels of debt as it tries to stabilize the economy. Other nations worry that the huge amount of debt could lead to inflation, which would eat away the value of their US dollar holdings, as mentioned in a June 28, 2009, Wall Street Journal article. China, according to the article, holds most of its $2 trillion foreign exchange reserves in the dollar and is becoming increasingly concerned and the central bank of China has "reiterated its call for the creation of a new international currency that could replace currencies like the dollar in countries' official reserves."
China is not the only nation ready for other reserve currency options. The Russian central bank recently declared its intention to reduce its US Treasury holdings and took steps to do so by investing in International Monetary Fund notes, something that Brazil and China have also expressed an interest in doing. According to an Associated Press report published on June 10, 2009, Russia, India, Brazil, and China are engaging in talks "to discuss alternatives to the U.S. dollar as the global reserve currency."
A June 25, 2009, article published on FinanceAsia.com , gave further detail about the US dollar concerns and strategies of the BRIC nations – Brazil, Russia, India, and China. According to that article, "the BRIC countries together hold 42% of the world's currency reserves and 33% of US Treasury debt. The US debt value in their foreign reserves has fallen sharply so far this year as bond yields have risen and the dollar has fallen and China has complained about the US monetising part of its debt." Because of such things, these nations "are sending out signals about shifting away from dollar assets" and exploring ways of cooperating that can help to protect their assets.
Moving away from the American dollar as a reserve currency may help to protect the financial assets of other nations from being affected by a struggling dollar, but it could have a significantly negative impact on the currency of the United States, which is why such murmurings are a bit nerve racking for some members of the government and for some investors. There are some that say there is little cause for worry because there really isn´t a truly viable alternative to the US dollar. However, even if that is true right now, that doesn´t mean that it will always be true. And, even if the dollar does remain supreme in reserve currency indefinitely, that still doesn´t ensure that nations will continue to basically extend loans to the United States by buying their debt and risking significant loss if the dollar continues to lose value.
It is perfectly understandable that the nations of the world are concerned and that they are seeking alternatives to the US dollar. The economic circumstances that the United States currently finds itself in are primarily the result of corporate greed and irresponsible spending, lending, and borrowing, not merely on the part of its citizenry, but also on the part of its financial institutions and its government. If the dollar is eventually replaced as the primary reserve currency, it is a change that the United States has earned by its own fiscal actions.
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