Is the dollar going out as the currency of choice throughout the world?
In the aftermath of the Great Financial Crisis, the confidence on the dollar as a dominant world reserve currency had eroded substantially. Based on the exhaustive study, the United Nations Conference on Trade and Development (UNTAD), which champions for the cause of the poor nations, concluded that the current system of currencies and capital rules binding the world economy was largely responsible for the financial and economic crises. On the same ground, it recommended on the need of replacing dollar with a global currency. Even the International Monetary Fund (IMF) last year issued a statement indicating the need for replacing dollar as the world’s reserve currency with a system of Special Drawing Rights (SDR’s). However, it could not stand with this for long due to strong objection from the US. Parallel to this, a momentum to move away from the dollar with alternative payment arrangements picked up in many countries. The BRICS nations officially decided to establish mutual lines of credit in local currencies. In the backdrop of these developments, an influential American economic daily newspaper on April 20, 2012 had indicated that the hegemony of the US dollar as a global reserve currency may end within the next ten years.
Now, the scenario has changed dramatically. The dollar has gradually appreciated and peaked up markedly in recent months. What are the principle reasons? What is the implication on the global economy? Does it mean that the demand for alternative currency should subside now?
There are five-six main reasons for the steep rise in value of the dollar as against other major currencies. First, after a policy of quantitative easing by the US as a move to devalue dollar and enhance export competitiveness, among others, a competition to devalue own currency against dollar escalated among countries worldwide.
The massive rise in the property prices and thereby the creation of bubble amidst larger capital inflows due to high interest rate in developing countries compared to almost zero interest rate in the US led to fueling of prices and erosion of export competitiveness compelled the countries to retaliate against US’s unilateral move. Second, continuing crisis in peripheral and some other European countries and slowdown in some fast growing economies like China, India together with worsening current account balance also enhanced dollar scarcity. Third, along with the rise in petroleum prices, the demand for dollar increased massively as most of the transaction of trade in petroleum product takes place in US dollars. Fourth, the sharp fall in gold prices also prompted speculators to switch to carry trade in currencies more aggressively. Fifth, the improvement in the US economy compared to many other advanced countries attracted capital inflows to the US from the global investors.
Finally, the recent hint of Federal Reserve that it may start tapering its policy of quantitative easing is generating fear of liquidity problem, contributing to appreciation of the dollar more sharply.
Theoretically, one may argue that, ceteris paribus, with the appreciation of the dollar, the export competitiveness of developing countries vis a vis US should rise leading to gradual reversal in the present trend. With similar expectation across the countries amidst global competition, the internal condition makes a lot of difference. As many developing countries are facing stagflation type problems, the policy space is very limited.
The interest rate rise as an option for attracting capital inflows is not feasible, as this may jeopardize domestic investment and thereby growth further adding more inflationary pressure.
At the same time, many export-oriented industries depend on imported raw materials.
Now, the rise in petroleum prices is becoming a major destabilizing factor on both the prices and trade front along with nullifying effect on the likely advantages of dollar appreciation. Dollar control and other direct measures may have more dampening effect including very adverse effect on revenue and fiscal balance. The debt rise is particularly emerging a big problem again. Despite similar adverse effects more so due to very limited export capacity, countries like Nepal may be partly advantaged by remittances inflows.
At the same time, economic recovery in US is not strong enough. Debt is very high at every level added by huge liability to Federal Reserve due to quantitative easing. If quantitative easing is actually phased out, more aggressive cheap interest rate policy has to be pursued under present financial capitalism to ensure a huge profit amidst structural problems in real economic and labor market front as without this the financial system will collapse. By implication, bubble followed by bust cycle will intensify along with widening of trade deficit.
Thus, in the serious policy space restricted by the dollar to the developing countries as pointed out above, the US policy of beggar thy neighbor will pose more risks and uncertainty to the global economy in the days to come. This means that the need of alternative global currency driven by the principle of more stable exchange rate regime has increased markedly today than the past.
Nothing is going to stop this man from his fishing!
This is over a year old, so I wonder if this bounty is still in force?
The New Black Panthers are offering a $10,000 reward for killing George Zimmerman, even though he was acquitted of all charges after shooting black teen Trayvon Martin.
Yes, you read that correctly.
On camera, a New Black Panthers spokesperson said they are going to give $10,000 “for the capture of George Zimmerman. We’re going to force our government to do their job properly, and if they don’t we will.”
“We’re saying to President Obama, you gotta do your job on this one buddy… So white America, we have given you 400 years to get it right and you still have failed black people. We’re not even citizens in this country. We’re still third class citizens. Today as black men, we must stand up. We must say to white America, ‘Your time is up.’”
Offering a $10,000 reward for a law-abiding, free citizen is not only wrong, it is a felony in most states. It is also a disgusting hate crime with ethnic motivation. With so much evidence, here on video, this should be a slam dunk for any prosecutor.
But where are the protestors now, demanding “justice?” Where are the Sanford politicians and prosecutors who were demanding George Zimmerman’s arrest and prosecution? Where is Eric Holder? Where is Obama.
July 17, 2013 – Piers Morgan clearly has no qualms about inviting people on his show who fiercely disagree with him or even attack him personally, and tonight’s opening interview with radio host Larry Elder did not disappoint. Elder told Morgan his interview with George Zimmerman trial witness Rachel Jeantel was horrendous and “condescending,” and even told Morgan that he was being “stupid” for his assessment of Jeantel’s character. Elder went on at length about underreported crime in Chicago, which Morgan agreed with, but he kept going on, even calling Morgan a “bleeding heart liberal,” until Morgan nearly shouted, “If I could just get a word in, that’s be great.” He attempted to call Elder out for “ridiculous things” he said about Jeantel, but Elder went on the warpath again, leading Morgan to remark he’s not in a competition for the “greatest filibuster in my show’s history.”
“We’re getting ever closer to discovering that the White House through its counsel’s office was involved in, and probably directing, the abuse of citizens who were organizing to speak out against the Obama agenda. Catherine Engelbrecht’s case indicates that the IRS abuse is just one line of attack; the Obama government unleashed the full alphabet soup on her after she founded True the Vote.
That’s part of why Eric Holder has been unleashed on George Zimmerman. The right hand is hammering an innocent man while the left hand tries to wave Obama’s most dangerous scandal away. They’ll risk civil unrest to keep this particular scandal off the front pages.” –Bryan Preston