First, we had the breathless The Demise of the Dollar piece from the Independent’s Bob Fisk claiming that several Gulf countries, developing nations and Russia have been in ‘secret talks’ to discuss dumping the greenback. And now we have the New York Post joining in with an article announcing the dollar has lost “reserve status to the euro and yen.”
With Fisk — a journalist who has no economics background – the UK Independent didn’t even seem a jot red-faced when virtually every country mentioned denied flatly being involved in such talks. Fisk had no sources on the record and no details of where and when such talks were held. At least the New York Post had some currency traders on the record spouting off.
So what evidence does the Post’s Paul Tharp have for the claim. Well, apparently banks (which ones?) put 63 percent of their new cash in euros and yen in the past three months and Tharp says that is a “complete reversal of the dollar’s onetime dominance” when it comes to reserves.
Hmmm. So no longer the world’s reserve currency despite the fact that 62 percent of all currency reserves in central banks are in dollars?
A reality check is needed here. Yes, the dollar is going to have to share the stage with euros and yens and some other currencies in the future. This will mark a decline for the U.S. Sure, there is an evolving change in the order of power and developing nations such as China, the Gulf states, Brazil and India want more influence at international institutions and on the global financial system. And sure too there has been a long debate about pricing oil against a basket of currencies. But that is all a long way from how Fisk or Tharp write.
None of this is going to happen overnight. The last thing any of the developing countries want is a further decline of the U.S. dollar as they hold so many in their reserves. China and developing nations need an economically vibrant U.S. as a market to sell to. The U.S. will recover — so even will the UK (!) — and there will be in economic terms an even more multi=polar world — that is no bad thing for the world or the U.S.