Tags: UK | Dollar | US | Power

UK View: End of the Road for Dollar, US Global Power?

Tuesday, 15 Oct 2013 06:25 PM

By Michael Kling

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Washington's deadlock could prompt the end the U.S. dollar's status as the top global currency — as well America's role as the world's major power, says one British observer.

The dollar's position as the world's go-to currency may be coming to an end as foreign investors tire of Washington's political quagmires, warns Jeremy Warner, an editor at the U.K.-based Telegraph.

"That this position — what Giscard d'Estaing referred to as 'America's exorbitant privilege' — could so casually be put at risk by politicians on Capitol Hill is an extraordinary spectacle that may be indicative of a great power already seriously on the wane," Warner writes.

Editor’s Note: 5 Reasons Stocks Will Collapse . . .

As the world's top currency, the dollar is heart of America's economic leadership. The dollar is like a linchpin for global trade, a clearinghouse of currency exchange. Seeing the dollar as extremely liquid and safe, investors around the world put their money into dollar-based assets, particularly U.S. Treasurys.

Great empires from the Greek to the British have employed dominant currencies as part of their economic arsenals. The U.S. dollar replaced the British pound in the 20th century, following Britain's devastation and huge debts piled up during World War I.

Now, it might be America's turn to decline and fall, Warner says.

The hunt is on for alternatives, he says. "Regrettably, there aren't any, or not for the time being in any case. Everyone can only look on in horror as the U.S. commits apparent economic suicide."

Only the lack of a credible alternative is stopping the dollar from losing its mantle as the top currency. The Chinese yuan? Despite enormous economic progress, China's economy's is still much smaller that America's and still not financially ready to assume the role.

The euro? Don't bother, says Warner says, calling it a "one-time pretender to the throne."

"Yet rarely before has international dissatisfaction with the dollar's role as reserve currency to the world been as great as it is now," he says.

Washington's standoff seems to have motivated China, the largest holder of Treasurys, to seek an alternative to the dollar.

"It is perhaps a good time for the befuddled world to start considering building a de-Americanized world," stated an editorial in Xinhua, the state-controlled news agency.

The editorial called for introducing an international reserve currency to replace the dollar "so that the international community could permanently stay away from the spillover of the intensifying domestic political turmoil in the United States."

Editor’s Note: 5 Reasons Stocks Will Collapse . . .

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