An excellent article by Barbara Rockefeller in the June issue of [I][B]Currency Trader[/B][/I] magazine ties in with Jim Rogers’ prediction regarding the dollar.
Here are five paragraphs from Barbara’s article [B]Be careful what you wish for: The reserve currency dilemma[/B].
Is the dollar doomed as a reserve currency? Yes, because it is the inherent nature of the beast. Every reserve currency fails in the end. This is a hard thing to accept, but it’s even harder to imagine exactly how the global economy will weather the storm.
While market observers and investors bemoan dollar weakness, we tend to lose sight of the inconvenient fact that reserve currencies are the fall-guy for conditions outside anyone’s control, least of all the reserve currency issuer itself. In fact, economists have known the dollar was doomed from the moment the Bretton Woods agreement was signed in 1944.
The inevitable decline and fall of the dollar is due to something called the Triffin Dilemma…the reserve currency issuer has a duty to supply larger amounts of liquidity to the world market than optimum domestic policies call for, thus running a current-account deficit.
It is the very nature of a reserve currency to fall in value, whether rates are fixed or floating, because it is the reserve currency that facilitates global growth. The only way for the reserve currency not to devalue is for every international participant to embrace much slower rates of growth and global trade far reduced from today’s standards.
So, with all due respect to the World Bank and the IMF, and to critics who long for a totally impossible return to the gold standard, we are stuck with the dollar, and yes, it is likely to continue a long-term secular downtrend unless and until the U.S. reverses from a severe deficit condition to surpluses, whereupon there will be a dollar shortage and the cycle begins anew.
That’s a small portion of a very long article, but one well worth your time to read.
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