STRATFOR issues this analysis suggesting that while there is a lot of talk about something replacing the US dollar as global reserve currency, right now there does not appear to be a viable candidate for the job. This is further evidence for what we have said here for some time. Without a new major global financial crisis that involves shaken confidence in the US dollar, the pace for change is likely to be very slow. Below are a couple of excerpts from the analysis.
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- Even though potential U.S. policy moves could undermine the dollar, its days as the world's reserve currency are unlikely to end any time soon.
- There are no strong candidates to supplant the dollar, since other leading national currencies have drawbacks that limit their appeal to investors.
- Alternative currencies such as the Special Drawing Right or bitcoin face stability issues because their functioning relies on cooperation among parties that might not be sustained. (my added note: this is a point we have made here on the blog)
"While national currencies have served as global reserve assets until this point, some people have argued that the likeliest successor to the dollar could be an entirely new type of currency. Two developing trends, in particular, have the potential to produce nonnational international currencies: the SDR, and cryptocurrencies such as bitcoin.
The SDR functions as the internal money of the IMF. It derives its value from a basket of five major currencies: the dollar, yuan, euro, yen and pound sterling. Countries have SDR accounts at the IMF, and they can credit and debit one another using the SDR if they wish to. The fund makes decisions around the basket, such as which currencies are included and what measures to use to calculate its value. In recent years, a proposal emerged to develop the SDR into a currency that could be used by individuals and companies (at the moment, only countries can use it). With its multinational underpinning, the argument goes, the SDR could be a solution that would prevent any one country from monopolizing the exorbitant privilege."
. . . . .
"The world's financial systems are entering a new period of uncertainty. Some of the truths investors had taken for granted with regard to the dollar may no longer be relied upon, and the currency could become less secure in the future. Nevertheless, a look at the dollar's potential replacements shows that none are close to being ready to assume its mantle as the reserve currency, and in fact many are headed in the wrong direction."
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