Why the Dollar's Reign Is Near an End
THE WALL STREET JOURNAL: For decades the dollar has served as the world's main reserve currency, but, argues Barry Eichengreen, it will soon have to share that role. Here's why—and what it will mean for international markets and companies.

The single most astonishing fact about foreign exchange is not the high volume of transactions, as incredible as that growth has been. Nor is it the volatility of currency rates, as wild as the markets are these days.

Instead, it's the extent to which the market remains dollar-centric.

Consider this: When a South Korean wine wholesaler wants to import Chilean cabernet, the Korean importer buys U.S. dollars, not pesos, with which to pay the Chilean exporter. Indeed, the dollar is virtually the exclusive vehicle for foreign-exchange transactions between Chile and Korea, despite the fact that less than 20% of the merchandise trade of both countries is with the U.S.

Chile and Korea are hardly an anomaly: Fully 85% of foreign-exchange transactions world-wide are trades of other currencies for dollars. What's more, what is true of foreign-exchange transactions is true of other international business. The Organization of Petroleum Exporting Countries sets the price of oil in dollars. The dollar is the currency of denomination of half of all international debt securities. More than 60% of the foreign reserves of central banks and governments are in dollars.

The greenback, in other words, is not just America's currency. It's the world's.

But as astonishing as that is, what may be even more astonishing is this: The dollar's reign is coming to an end.

I believe that over the next 10 years, we're going to see a profound shift toward a world in which several currencies compete for dominance.

The impact of such a shift will be equally profound, with implications for, among other things, the stability of exchange rates, the stability of financial markets, the ease with which the U.S. will be able to finance budget and current-account deficits, and whether the Fed can follow a policy of benign neglect toward the dollar. >>> Barry Eichengreen | Wednesday, March 02, 2011

Dr. Eichengreen is the George C. Pardee and Helen N. Pardee professor of economics and political science at the University of California, Berkeley. His new book is "Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System." He can be reached at reports@wsj.com.

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Dollar Plummets to an All-Time Low
THE TELEGRAPH: The dollar has plummeted to all-time lows against both the euro and a basket of global currencies amid growing fears of a disorderly rout as the US property slump spreads to the broader economy.

The greenback dived after the US 'Philly' business index dropped 10.9 to 6.8 in October, with a shock fall in new orders and inventory, raising the chances of further rate cuts by the Federal Reserve this month.

The dollar crossed the barrier of $1.43 against the euro; the broader dollar index fell to 77.478, the lowest since the series began in 1973.

The plunge follows data released this week by the US Treasury showing a record $163bn (£80bn) exodus from all forms of US assets, led by unprecedented levels of US bonds sales by Japan, China and Taiwan.

Bundesbank chief Axel Weber gave the euro an extra lift by hinting strongly at more rate rises in Europe to head off inflation, expected to reach 2.6pc in Germany.

The growing belief the European Central Bank may keep tightening despite the credit crunch has caused traders to shift gear, renewing bets on the euro. But the surging currency has hit confidence in Europe, where industries in France, Italy and some German firms are warning of serious knock-on effects. Dollar dives as US slump spreads (more) By Ambrose Evans-Pritchard and Joe Moulds

FINANCIAL TIMES:
Dollar falls to fresh record low against euro By Peter Garnham


FINANCIAL TIMES:
Oil jumps above $90 a barrel By Javier Blas

Mark Alexander

Dollar in the Doldrums
THE GUARDIAN: · Wall Street threatened by crumbling housing market
· Pound hits its highest value in 26 years
The dollar remained under strong pressure on the foreign exchange markets last night as fresh concerns were raised about the vulnerability of Wall Street to the crumbling American housing market.

With the pound trading at its highest level against the dollar since 1981, the credit rating agency Moody's said it had placed a new $6bn (£3bn) tranche of securities backed by US mortgages under review for a possible downgrade. The move followed separate announcements by Moody's and a rival ratings agency, Standard & Poor's, on Tuesday, that put $17bn of sub-prime mortgage-backed securities on credit watch, adding to growing concerns about the health of the world's biggest economy. Dollar falls again amid growing US fears (more)


Mark Alexander