United State Dollar continued decline

Another in the increasingly steady stream of articles lamenting the state of the US dollar, this one from the Economist, The dollar’s demise: Is the dollar’s role as the world’s reserve currency drawing to a close?. After Alan Greenspan's recent comment (US Federal Reserve Chairman), “Given the size of the current-account deficit, a diminished appetite for adding to dollar balances must occur at some point,” the value of the dollar fell to a new record low against the Euro. Yet Japan, China and wider Asia keep on buying into the dollar. Caught between a rock and a hard place, do they prolong the dollar's supremacy and the US economy or cut and run now?

And what will then happen to the dollar? It is hard to imagine its hegemony remaining unchallenged when so many will have lost so much. And doubly so given that America has abused the dollar’s reserve-currency role so egregiously that its finances now look more like those of a banana republic than an economic superpower.

As noted in a comment to a recent post here, The US Dollar as global reserve currency, "if the U.S. economy collapsed, Europe's economy would probably collapse too. The EU would like to see a powerful euro, but that doesn't mean that they are willing to have a second Great Depression to achieve this." The same goes for Asia and elsewhere yet the short term solution of buying more and more dollars doesn't seem to be in anybody's interests, perhaps least of all America's.

Posted by Paul in Global Finance Politics at November 25, 2004 07:48 PM