Dollar losing status as world reserve currency

Posted on October 13, 2009

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 Troubling news on the strength of the dollar as a report comes out showing that banks are moving away from using it as their reserve currency. Central banks increased their foreign currency holdings by $413 billion last quarter to a global total of $7.3 trillion. The bad news for us is that 63% of the new foreign currency being sought by banks is in euros and yen. The dollar accounted for only 37% of new reserves, down from a 63% average since 1999.

The finer subtleties of foreign currency shifts may be lost on the majority of Americans (and I’m no expert by any means), but it’s undeniably a bad sign for the American economy. International finance experts are pointing to an influx of dollars into the world market by the Federal Reserve as one reason for the decline of the value of the dollar. Ben Bernanke printed up tons of them to help stimulate the economy, which has driven up inflation concerns and caused the NY Post to call him “the man who killed the greenback on the operating table.” Many people, including myself in June, warned this could happen as our monetary supply rapidly expanded.

Ed Morrissey points out that this couldn’t have come at a worse time as our government prepares to take on more new spending and more new debt. He also points out that this could become a very big political problem for President Obama as 88% of Americans believe the dollar should remain the dominant global currency.

The administration appears to be taking the stance that a reduced dollar is just fine to stabilize our trade imbalance – provided it doesn’t hurt our standing with creditors. There’s a good chance that it will, particularly as we look to finance ever-widening budget deficits. It’s another reason we should be doubling down on fiscal responsibility and not on growing our federal bureaucracy with all the debt it entails.

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Posted in: News, Politics