Replace the Dollar? Not so Fast.

Vincent Fernando writes that any plan to replace the dollar as the global reserve currency is way too premature.

Despite worldwide consternation, there simply isn’t a currency ready to trounce the dollar’s reserve status, even if somehow we wanted to change the system.
Why the Euro remains a pipe dream:

USA Today: But for all its attractions, the euro lacks some essential attributes. Although the European Union has a central bank, comparable to the Federal Reserve, there is no European treasury. Instead, there are 27 European treasuries. Investors can’t easily track or influence fiscal policy on the continent.
The dollar is also buoyed by the existence of a massive government bond market. There’s roughly $4 trillion worth of U.S. Treasuries floating around, and almost $100 billion changes hands each day, according to investment management firm Pimco. Trading that’s carried on almost 24 hours a day, rolling east to west from Tokyo to London to New York, makes it easy to move into and out of dollar positions in a hurry.
Europe, by contrast, has no analogue to the U.S. Treasury market. Instead there is a fragmented scene with individual sovereign debt from Germany, Italy, France and other EU members. No individual market enjoys anything like Treasuries’ liquidity and size.

Posted by on October 23rd, 2009 at 10:45 am


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