Today the US dollar is the world's reserve currency. That means many necessary commodities, including oil, are priced exclusively in dollars. Since every nation that conducts trade must accumulate dollars, our currency maintains its value.
The world has to buy our money.
That's how we finance our massive trade and budget deficits. This has allowed us to live well beyond our means for a generation, wage our wars, and avoid the consequences of our dysfunctional economy. If the US dollar were not the de facto global currency, our present economic debacle would be much worse.
Wall Street's implosion has created the worst economic disaster since the Great Depression. Yet the Obama administration has not been forced to drastically raise taxes and cut spending. The US Treasury Department and Federal Reserve have simply printed trillions to cover the losses.
The rest of the world has watched in disgust as our financial firms were bailed out with what amounts to the world's money.
The recent G-20 summit was part public facade, where such niceties as global warming were discussed. Behind closed doors, the real issue was the stability of the dollar. The world's reserve currency has lost 15 percent of its value this year, and there is a very real prospect of a dollar devaluation.
Russia's Central Bank has abandoned the dollar as a reserve currency in favor of the euro. China's Ministry of Finance held their first auction of treasury bonds on September 28th. These bonds denominated in yuan will allow China's currency to trade internationally.
Robert Zoellick, the President of the World Bank, issued a warning after China's latest move: "The United States would be mistaken to take for granted the dollar's place as the world's predominant reserve currency. Looking forward, there will increasingly be other options to the dollar."