Monday, 19 May 2014

Reserve Currency Threat To US

As the US dollar is the reserve currency, the United States has benefited from lower transaction costs than any other country in the world as it doesn't need to exchange currency for trading purposes.
The US has had this luxury since the end of World War II but the recent turmoil with Russia and the constant sniping at China could make this about to change.
As the US continues to poke Russia with a stick, Vladimar Putin has decried allowing the United States to 'live like parasites off the global economy' while China’s central bank has floated the idea of the creation of a new international currency to replace the dollar, an idea agreed upon by France who joined in condemning the dollar's monopoly and America's 'exorbitant privilege'.
Harvard of all places have now issued a report that things may be about to change with a shift away from dollar based trading, especially in the Middle East and oil transactions.
In the Harvard worst case scenario, a drop in demand for dollar assets would cause the interest rates to skyrocket, sending ripples through the US economy as the value of the dollar plummets.
The alternative currency threatening the US dominance is the Chinese renminbi and although the Harvard report states that a serious challenge to the dollar by the renminbi is still a long way off, but it's time will come and America will then have a big problem.
I can't begin to understand what all this means but as China moves closer to Russia and America continues to poke at both countries, Russia especially, whatever it means it will happen a lot quicker than it otherwise would.

1 comment:

Anonymous said...

Lucy, it was the worst case scenario... In other words, less likely than zombies.