How many dollars to the pound
TARP’s $700bn of toxic assets will add to an already creaking US budget deficit, and could signal the end of the dollar’s dominance - the new dollar coin will totally replace the dollar bill too. Soon the answer to how many dollars to the pound will be ever increasing.
On paper the dollar deserves to lose its status as the leading reserve currency held in significant quantities by many governments and institutions as part of their foreign exchange reserves. The FT’s John Plender explains the dollar succinctly as, ‘a reserve currency attached to a broken financial system, a persistent current account deficit and a fiscal nightmare.’
If the dollar were to lose its status as a reserve currency then the US would face an increase in the price of commodities, and increased interest payments on the funds it borrows.
However, the accepted view is that the dollar will not quickly lose this status because security allies of the US will continue hold dollar reserves. It will also take time for another currency to usurp the dollars massive liquidity. This liquidity is an advantage that cannot quickly be eroded.
But in the long term the dollar is in all likelihood dead as a reserve currency, and the Troubled Asset Relief Program is another big nail in its coffin.
Charles Dumas
China is a great example of the dollar’s unsustainability as a reserve currency: Charles Dumas of Lombard Street Research estimates that China makes 1-2 per cent on its dollar reserves, loses 10 per cent on the exchange rate, bears Chinese inflation rate of 6 per cent, and thus has a total real return in renminbi of about minus 15 per cent. That is a loss of $270bn a year, 7-8 per cent of gross domestic product!!! Don’t expect China to bear this loss just to maintain the political status quo.
The dollar exchange rate is set to fluctuate significantly for the foreseeable future.
Locate Free Government Grants and Low Interest Loans Now. Billions Available. Never Repay!
