The concept of "reserve currency", in which one country is
allowed to print currency in exchange for goods and services,
seems faulty to me. I agree on Euro - it was introduced with
exactly that goal, to compete with USD for the status of
reserve currency. It now accounts for 1/2 or more of all credit
derivative trades, so it probably can't gain much more on the
dollar. On the other hand, I do believe inflation stats in the
US (at least) is severely underreported. So far, Euro has been
a bit better, but the abuse associated with its now
established reserve status could be on its way. I don't know
how the current account deficits in the US could be persistent
over time, without causing USD to fall. Will the Asian
countries keep accumulating USD and Euro in reserves to
infinity? It seems the "reserves" may now be flowing to the
oil producing countries, which may choose to spend them
elsewhere, or to allow their currencies to appreciate - less
inflation for them.
Without "reserve currency" status, 7% US current account deficit
is clearly unsustainable, and should lead to a severe
depreciation of the currency (against the currencies that run
a surplus). Pound is not any better either. Overall, I
don't think we have a precedent in history when the US current
account deficit has been so large for such a long time. During
this decade, it simply zoomed upward, and stayed there.
If this continues, I think, oil may go up further, reversing
the current account surplus for Asian countries. Will they
allow their currencies to appreciate then? |
