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The World's Reserve Currency

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PostPosted: Sun Jan 25, 2009 1:14 pm    Post subject: The World's Reserve Currency Reply with quote

Plunder: to rob of goods or valuables by open force, as in war; despoil, or fleece; to take wrongfully, as by pillage, robbery, or fraud; loot.

BEIJING (Reuters) - The United States has plundered global wealth by exploiting the dollar's dominance, and the world urgently needs other currencies to take its place, a leading Chinese state newspaper said.

"The grim reality has led people, amidst the panic, to realize that the United States has used the U.S. dollar's hegemony to plunder the world's wealth," said the commentator, Shi Jianxun, a professor at Shanghai's Tongji University.

Shi, who has before been strident in his criticism of the U.S., said other countries had lost vast amounts of wealth because of the financial crisis, while Washington's sole concern had been protecting its own interests.

Shi suggested that all trade between Europe and Asia should be settled in euros, pounds, yen and yuan, though he did not explain how the Chinese currency could play such a role since it is not convertible on the capital account.

My comment:

The U.S. is the only economy that can expand with huge negative net exports. Even the E.U., which is a group of countries, would fall into recession attempting to be the main engine of global growth, trying to pull Asian economies, e.g. Japan, China, the "Asian Tigers," etc. In Europe, there are no Microsofts, Ciscos, Intels, Apples, Googles, Genentechs, etc., while their emerging industries generally continue to lag the U.S. badly, and their older industries are much less efficient. So, it'll continue to be a U.S.-centric world, until a country or group of countries can compete with the U.S.

Also, export-led economies will need to exchange their goods for more U.S. goods (consumer and capital goods) rather than exchange their goods for U.S. assets (e.g. Treasury bonds). That means export-led economies will need to produce less and consume more, while the U.S. produces more and consumes less.

The U.S. dollar remains the ultimate hard currency, and the only universally accepted currency (when Saddam was captured, he wasn't carrying Euros, Iraqi Dinars, Yen, Swiss Francs, or gold. He had U.S. dollars).
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