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.