Hypothetical: No Mo Dollar?

We have rehashed the negotiations involving the Congressional standoff from last week, as well as apocalyptic scenarios for the fallout–but what would a world without the Dollar mean for the US in practical terms?  Eduardo Porter explains:

Today almost two-thirds of the world’s foreign currency reserves are held in dollar assets, mostly Treasury bonds. Nearly half the foreign debt securities in the world are in dollars, as are more than half the world’s cross-border loans and deposits.

It made sense for other countries to embrace the dollar in an earlier era, when the United States was willing to act as guarantor of global stability. But today, with Republicans in Congress wielding default as a lever in a vain attempt to kill Obamacare, perhaps it is no surprise that the rest of the world is getting more serious about finding an alternative.

“It is perhaps a good time for the befuddled world to start considering building a de-Americanized world,” said a statement on Monday by Xinhua, the state news agency of China — which holds some $1.3 trillion in Treasury bonds.

The prospect is sending shivers down Americans’ spines. Robert J. Barbera, the co-director of the Center for Financial Economics at Johns Hopkins University, told my colleague Floyd Norris that allowing the dollar to lose its status as the world’s premier reserve asset “would be the single greatest mistake in American economic history.”
via Imagining the Dollar Without Its Privilege – NYTimes.com.


8 thoughts on “Hypothetical: No Mo Dollar?”

  1. While it would be very scary and detrimental to the US economy to have the dollar lose its value, it probably will not be happening anytime soon. Like the article said, the dollar is still the most valued currency in the world. The shut-down in Washington raised some very valid concerns and might worry some, but as a whole, the value of the dollar probably won’t be affected much. Especially since they reached a decision just barely in time.

  2. The dollar won’t lose its value because of a short-term political conflict. Peter Ferrara explains it perfectly: http://www.forbes.com/sites/peterferrara/2013/10/15/failure-to-raise-the-debt-ceiling-will-not-bring-about-federal-default/ In the article he explains the following:
    “President Obama’s own budget estimates total net interest on the national debt for this year currently totals $223 billion. But his budget also estimates total federal income taxes for this year at $1.7 trillion, or $1,700 billion. So just as you use a small portion of your monthly earnings to pay your credit card bill, current federal tax revenues are more than enough to pay the current interest due on the national debt. So not increasing the national debt does not mean defaulting on the national debt.”
    A political disagreement won’t have the catastrophic reflects foretold by President Obama.The Congressional negotiations won’t bring about federal default and therefore will not affect the dollar value.

  3. I doubt that the world will find an alternative for the U.S. dollar quickly, because the U.S. dollar cannot be substituted very easily. Currently, most contracts between the U.S. and other countries in the world are made in US dollars. For example, most crude oil sold by the Middle East is in U.S. dollars. Also, there is a great advantage to having your countries’s currency as the stable currency, because you can borrow money in your own currency. AS a result, it is impossible to default on your loans. The U.S. could be in deep trouble if we do not figure out our budget because we could lose the privilege of being the world’s reserve currency over something as trivial as healthcare.

  4. Thinking about this leads me to very conflicting opinions. On the one hand, the country should focus on fixing it’s own problems first rather than putting more focus on the outside. On the other hand, if our political leaders continue to fight over relatively small problems with big stakes, this is a problem. If we do not think about international consequences, then we continue to bring down the world market which them hurts us further. Fixing our problems, is a way of lifting others, but we need to remember the big picture and not act like what we fear could not happen just because the real threat is far away.

  5. I would agree with the above comments in saying that although the concerns about the US’s place in the world going forward are real, the dollar is unlikely to turn from being the defacto world currency. However, on the note of the Xinhua article, this is extremely interesting. Xinhua is the party mouth piece for China and everything it publishes is either directly reflective of party opinion or is at least party approved. The news article is very interesting because it gives a rare glimpse into what the Standing Committee of the Politboro thinks about the US after the financial crisis and the growing doubts China has about US stability and world leadership. I think China’s view of our declining importance is a much more immediate problem than the dollar no longer being the defacto currency.

  6. I feel as though many of our current national issues have been building slowly over the past few decades and now suddenly we have no idea what to do about them. And this is frustrating, because I’m sure the signs were there in most cases. I understand the difficulty of transitioning to a different stable currency, but frankly I think at this point in time, the country has enough on its plate within our borders to worry about, without the burden of the world economy added to it. Moving to change the current system as soon as possible, even just starting the process, could be a great idea.

  7. This is upsetting and disheartening. I think the prospect of a “de-americanized” world is one that should terrify us as a nation.I don’t think we could survive without being the life of the party so to speak.

    Is there anyone ready to take over? I don’t think so. The international role that the us plays is one that is not for the faint of heart. We really need to rise to the occasion and solve our problems before they become much greater.

  8. This is an important topic because there is a void that has been created by the constant downfall of the dollar. Other countries with their own currency now have the opportunity to start their own markets to sell currency. This could be very important for the development of new economic markets in areas of the world that don’t hold a lot of economic power.

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