OpEdNews » The Rise and Fall of the US Dollar as the The World Reserve

In letting the yuan appreciate, although maddeningly slowly, China is responding to demands for action from US officials, especially in Congress. Another demand is that China stop just letting its huge stash of foreign-currency reserves sit around earning interest. They should go out and buy American stuff, preferably goods and services, so that the trade balance can start to equalize.

But as the Greek gods warned, be very careful what you wish for.

Basically, it seems that many of the countries that lately have accumulated huge foreign-exchange reserves exporting to the United States are getting bored with just having their money sit around earning interest at US Treasury rates. China and the other big exporters, which until recently were seemingly happy at lending back to the US the dollars to continue to buy their stuff, now see the need to earn greater rates of return than the 5% that US Treasuries currently earn.

Many of them are facing demographic time-bombs consisting of their growing elderly populations needing eventual pension support, and, for all the glamour and glitz of today's Shanghai, going beyond China's big cities still reveals grinding rural poverty that the central government knows it must address.

Sovereign Wealth Funds, or SWFs, will act as super-hedge funds, in that they will look for opportunities all across the investment spectrum. China is in the process of setting up its own SWF, which reportedly will be funded with some $300 billion of reserves.

And that's $300 billion that will not make its way into the market for Treasury securities.

In March 24, 2006, Julian wrote an article that the US is living on borrowed time - and money. She introduced readers to the US Treasury's monthly TIC (Treasury International Capital) report, the data that enumerate just how much foreign capital the US is importing every month to finance its extravagant lifestyle. During much of 2005, the US was net-importing more than $100 billion of investment capital every month, but the bottom line net number is falling sharply. Last December, the US actually failed to attract any capital at all.

One TIC data set of particular interest to bond players is just how great the investment in US government securities by foreign governments is each month. These numbers are the core of the flows that constitute Bretton Woods 2, for they derive mostly from US dollar reserves held at foreign central banks.

They've been falling, too. From averaging more than $6 billion a month in 2006, foreign government purchases of US Treasury have fallen to average just over $1 billion a month for the first four months of 2007.

As the Daily Reckoning reported in an article in 2006, "In the 18th century, Britain was the largest economy of the Western world, London was the center of international trade and finance, the currency was convertible, and so sterling became the world's reserve currency. By the late 19th century, the United States had become the world's largest economy, a position solidified by Europe's repeated attempt at self-annihilation from the 1880s to the 1940s. By the 1960s, the dollar had usurped sterling and was the world's new reserve currency, with 60% of total central bank reserves being held in dollars, twice the level of sterling reserves.

"But time doesn't stop. By the mid-21st century, the United States will no longer be the world's largest economy. By then, China and India will have overtaken the United States, Western Europe and Japan, on purchasing power parity terms at least, which should represent where exchange rates are likely to be in the long run. Indeed, optimistic measures of sustainable growth in China and India suggest this will be the case in 20 years time. Ladies and gentlemen, within my lifetime, the dollar will start to lose its reserve currency status, not to the euro, but to the renminbi."

If you remember back to the beginning of this piece, I mentioned the former leading monetary funds and their duration as top dog. A closer look at their reign reveals that they all lasted around 100 years. The centennial for the dollar will occur in about 20 years time. If history is to repeat itself, that's when the renminbi or euro will officially surpass the US dollar as top dog.

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7 comments

Kent State, Graduate work in philosophy of logic, of science, Ph.D. SIU neuroscientist, forensic neuropsychologist, PostDoc Medical College of Ohio, Preferred activities: Restoring British motorcycles, cars, Matchless, Austin Healey, Triumph, Jaguar, building an engine, programming a computer. Other stuff: SDS 1968, antiwar,911 truth advocate, anticorporatist, anti-classist, anti-neocon, pissed off. Best thing: Father. Blessed.
richardKent State, Graduate work in philosophy of logic, of science, Ph.D. SIU neuroscientist, forensic neuropsychologist, PostDoc Medical College of Ohio, Preferred activities: Restoring British motorcycles, cars, Matchless, Austin Healey, Triumph, Jaguar, building an engine, programming a computer. Other stuff: SDS 1968, antiwar,911 truth advocate, anticorporatist, anti-classist, anti-neocon, pissed off. Best thing: Father. Blessed.

very very informative...

I have downloaded it to my own archive so I can reread it.

Thanks so very much for your time and effort.

medicis

by richard (0 articles, 5 quicklinks, 2 diaries, 976 comments) on Thursday, August 28, 2008 at 10:13:30 PM

Margaret Bassett is an 86-year old, currently living in senior housing, with a lifelong interest in political conumbrums. She hopes to hold out for one more presidential election. Bachelors from State University of Iowa (1944) and Masters from Roosevelt University (1975) help to unravel important requirements for modern communication. Early introduction to computer science (1966) trumps them. It's payback time. She's been "entitled" so long she hopes to find some good coming off the keyboa...

to see more of bio, click on member name
Margaret BassettMargaret Bassett is an 86-year old, currently living in senior housing, with a lifelong interest in political conumbrums. She hopes to hold out for one more presidential election. Bachelors from State University of Iowa (1944) and Masters from Roosevelt University (1975) help to unravel important requirements for modern communication. Early introduction to computer science (1966) trumps them. It's payback time. She's been "entitled" so long she hopes to find some good coming off the keyboa...

to see more of bio, click on member name

I read this article with so much interest

and no little trepidation. After living through Dust Bowl days and a depression which was anything but great, I hope to live long enough to see some way of keeping the wheels of productive commerce from a breakdown. Experience of having little, except a spirit to remember others in the same boat, makes me work in my community (the happier edge of Appalachia) now.

This lesson of history is too intricate for some young people to comprehend, I fear. Is there a way for venues like OEN to promote electronic teachins, similar to what happened in the Sixties?

Thank you so much for your work.

by Margaret Bassett (38 articles, 2204 quicklinks, 30 diaries, 1501 comments) on Thursday, August 28, 2008 at 10:29:31 PM

Live in Northern California, with my husband Mark and two cats. Retired activist, the world is now in your hands so go on -- get some things changed!!
Carol SterrittLive in Northern California, with my husband Mark and two cats. Retired activist, the world is now in your hands so go on -- get some things changed!!

I think it has been said that if Gold had not gone up

So much in value, then we wouldn't be paying so much for oil.

Your suggestion about teach-ins regarding the facts of life inside a Depression is an excellent suggestion.

The fact that people belonged to a community and cared mostly about their families and their friends, not the sttus objects and their getting one step higher up the ladder - those things enabled the survival of entire generation of people forced to endure the Depression.

Much of that has changed. My girlfriends and I look at our children, who are now in their thirties, as they seek more and more goodies, even if it means less time for family. people don't know their neighbors, and many big cities and suburban areas are anti-community in spirit.

by Carol Sterritt (0 articles, 0 quicklinks, 0 diaries, 6 comments) on Friday, August 29, 2008 at 2:14:58 PM

53 year old Californian male - I've lived in three different countries, USA, Switzerland, Mesico - speak three languages fluently, English, French, Spanish - parttime journalist for Empower-Sport Magazine
John Little53 year old Californian male - I've lived in three different countries, USA, Switzerland, Mesico - speak three languages fluently, English, French, Spanish - parttime journalist for Empower-Sport Magazine

Thank you very much for the kind words

I cannot speak for OpEdNews, but I think your request is a very valid one. There are a lot of areas in modern society where most people are very ill-informed.

Would you be able to cite some examples from that time period to get a better understanding of what you are requesting??

by John Little (23 articles, 0 quicklinks, 0 diaries, 78 comments) on Thursday, August 28, 2008 at 11:05:35 PM

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TomK .

Well written!

An excellent article, easy to read and understand on a fairly complex subject.

Your conclusion is interesting in that it does not not reflect the 'conventional' wisdom - USD will loose much of its reserve power to the Euro. Instead, it will loose it to the RMB. The key difference is that the RMB is defended by a sovereign power with a population of thursty 1.4 billion people. The Euro was created and is managed by a central bank without sovereign powers. Once the RMB becomes convertable and China's economy achieve self-sustaining 5% - 8% growth without exports, watch out! To stop the USD loosing its sole reserve status is to stop China and Europe from growing. Ain't going to happen.

by TomK (0 articles, 0 quicklinks, 0 diaries, 254 comments) on Thursday, August 28, 2008 at 11:55:25 PM

I have achieved nothing of consequence apart from raising children in a way that they would excel where I failed. And they are on good tracks.
ramsheyiI have achieved nothing of consequence apart from raising children in a way that they would excel where I failed. And they are on good tracks.

Everything Is Under Control. Surprises Are Accounted For

The US Dollar's demise is being acceleratd by US bankers in order to pave the way for Amero, the currency of the Super Empire,the North American Union.

It is true that the dollar is almost worthless compared to other solid currenceis, worth even less than the paper it is printed upon. It is because too much of it has been and is being produced by irresponsible wayward mafios at the Federal Reserve. The only viable solution is its replacement with something ele.

As nothing happens through accident in politics, the US government is going to use this argument- dollar's loss of value- in order to create the super state NAU. It is going to be painful as a catalysing event, a new Pearl Harbor, a WWIII, a new choc and awe fearmongering event, will have to be staged to make people swallow the project, the way they were forced to swallow the PNAC.

The gangsters at the Federal Reserve are smart enough to see into the future a century ahead. They have experience, and plenty of it.Whatever happens to world's ecomony is perfeccly orchestrated by them or somehow under control. For us the laypeople, the naive, things are hazy and blurred. We see through smoke. But to them bandits in power , everything is crystal clear. It will be only later, after fait accompli, that we will realize what had been going on and how we came at it.

by ramsheyi (0 articles, 0 quicklinks, 0 diaries, 641 comments) on Friday, August 29, 2008 at 8:21:37 AM

I am a senior citizen tremendously interested - and alarmed - at the way the world is turning.
Jean BraunI am a senior citizen tremendously interested - and alarmed - at the way the world is turning.

Rise and Fall of the U.S. dollar

This is an article packed with valuable information. Thank you. It is surprising that John Little does not have credentials as an economist or something similar.

Teach-ins were a great idea, too, in the sixties, but in this decade, they are probably being replaced with Internet articles like this, or by DVDs or videos such as those on basschecktv.

Because the collapse of the dollar has so much impact on the prices of basic commodities like oil and food, and because there is so much talk of further deficit spending like single payer health care to underwrite exorbitant medical industry charges, and of bailouts of mortgage lending institutions like Freddie Mac and Fannie Mae, this matter urgently needs national discussion during this election season.

The major candidates are ignoring it. The media is ignoring third party candidates. And election fraud, unless it is curbed, will elect a major party candidate.

It is still within the purview of the the Supreme Court, in the context of an election fraud lawsuit against George Bush (which would require the recusal of Justices Roberts and Alito) to issue a writ of mandamus on Boards of Elections, requiring them to implement the conditions of true election - voter receipt and public witness to immediate, precinct level, counting and reporting.

In this time of widespread home foreclosures, Election Day Registration is a must!

With U.S. warships bearing multiple nuclear missiles in both the Black Sea and the Persian Gulf, we cannot let the present situation on Election simply rest.