Chinese central bank head Zhou Xiaochuan’s call for creation of a new “super-sovereign” global reserve currency may have provoked thoughts and merit but President Obama knocked the idea down in blunt terms. “I don’t believe that there’s a need for a global currency,” Obama said, terming the dollar “extraordinarily strong right now.”
If U.S. cannot defend its currency as the only global currency then it would lose the advantage of not having to pay true market value for costs of the debt binge that has exploded and massive debt for bailouts and financial decisions on the road to economic recovery. The cost of borrowing therefore is shifted to and distributed among other countries and the commodity/energy prices.
Why is the dollar “extraordinary” strong? The main reasons are foreign central banks keep piling up huge reserves of the U.S. Dollar (To save the U.S. economy) and that it is the international medium of exchange for commodities and energy (everyone trades in U.S. Dollar).
Every country in the world has bought U.S. treasuries, albeit lending money to the U.S. at cheap rates. There is also additional pressure on countries to keep its own currency cheap to keep their exports competitive. There used to be when U.S. enjoyed sovereignty as the World’s strongest country.
Well, things have changed.
Asia has been less affected by the global depression than the regions. A major reason is after the 1997 Asian financial crisis, many Asian leaders have done what was needed, which often included building up dollar reserves, to avoid a repeat of history. As such, many believe that the Asia economy will be the first to recover in this global recession.
In any case, the global economic crisis will run into full-blown and make it increasingly difficult for the U.S. to continue to get cheap credit without giving in to the need and desire for a new “super-sovereign” global reserve currency.
If U.S. cannot defend its currency as the only global currency then it would lose the advantage of not having to pay true market value for costs of the debt binge that has exploded and massive debt for bailouts and financial decisions on the road to economic recovery. The cost of borrowing therefore is shifted to and distributed among other countries and the commodity/energy prices.
Why is the dollar “extraordinary” strong? The main reasons are foreign central banks keep piling up huge reserves of the U.S. Dollar (To save the U.S. economy) and that it is the international medium of exchange for commodities and energy (everyone trades in U.S. Dollar).
Every country in the world has bought U.S. treasuries, albeit lending money to the U.S. at cheap rates. There is also additional pressure on countries to keep its own currency cheap to keep their exports competitive. There used to be when U.S. enjoyed sovereignty as the World’s strongest country.
Well, things have changed.
Asia has been less affected by the global depression than the regions. A major reason is after the 1997 Asian financial crisis, many Asian leaders have done what was needed, which often included building up dollar reserves, to avoid a repeat of history. As such, many believe that the Asia economy will be the first to recover in this global recession.
In any case, the global economic crisis will run into full-blown and make it increasingly difficult for the U.S. to continue to get cheap credit without giving in to the need and desire for a new “super-sovereign” global reserve currency.
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