Death To The Dollar – Reserve Status In Question

I clipped / edited this as I found it to be most interesting:

A common believe  is that there is no credible substitute for the dollar – so the dollar is safe as the reserve currency.

Another believe is that it would take decades to replace the dollar (central banks need to have “some” assets that hold or increase in value right?).

Increase in value right? …………………………………………………………….obviously the dollar is not doing this.

In truth almost any other asset is a better reserve than the dollar. There is no need for every central bank to pick the same one.

Some believe that it would take the Gulf States many years to replace the dollar as the currency oil is priced in. This is a peculiar claim since Iraq and Iran switched to non-dollar sales in short order (Iraq before the war). As should be expected with a dropping dollar, Iran says it profited from switching to non-dollar oil sales. Other countries can see this and can just as likely – switch too.

Imagine that central banks currently had their assets as 60% Dollars and 30% Euros. If the value of the dollar were to drop in half, then they would have equal value in Euros and Dollars without changing anything.

For thousands of years gold and silver have been used as a store of value. Imagine a central bank with 10% in gold and 90% in dollars. If the dollar goes down by 2 and gold up by 5 it could suddenly have most of its assets in gold.

The point is that the dollar could be replaced as the dominant reserve asset even without central banks ever selling their dollars, just by it’s dropping in value. Several times in the past the dollar has dropped significantly in value in a just a few short years.

Why would now be any different?

4 Responses

  1. schmederling December 12, 2012 / 11:01 pm

    Hey Kong – we could speculate on today’s action in the PM’s – on a positive note the miners did well. I personally believe there is still one more mountain to concur which is the FC. Once this has been put to rest the market will feel more comfortable and money will again flow into Risk Assets and more flow. I am of the opinion that markets like certainty and a relatively clear path. The road was clear of snow today with the Fed action and it will be lite once the CF has been finalized. then the path to least resistance will be lite and clear with clear direction.
    Just my thoughts….

    • Forex Kong December 13, 2012 / 2:20 pm


      The ridiculous circus of “american media/politics” clammers on – and yes….this “fiscal spliff” story has more than worn out it’s welcome. Its ridiculous. What I can’t understand is why on earth it needs to play out in full view of the entire world? – why not have said nothing – short of a few days etc…then the resolve! Oh ya….cause America is on a mission to scare the shit out of its population, rid them of their savings – heard them into bonds, steal their gold and destroy their money.

      It’s a gong show on an entirely new level of “gong”.

  2. Andrew December 13, 2012 / 4:55 am

    Simple. It’s all a perception thing.

    • Forex Kong December 13, 2012 / 6:54 am


      It’s just great that you’ve stopped in and will be here to take part! Alot has changed since the “early days”.The community side going a little slow but hopefully (now that you are here too!) we can get some good solid debate/convo going. I hope all is well with you – and so look forward to your future comments/views/contributions. I’ve tried to track down Razor as well – but so far still no luck.

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