For quite some time the U.S. politicians have been working on the demise of the Dollar as the world Reserve Currency. Moves by countries such as China and others recently have challenged the Dollar’s world reserve currency position. If the Dollar was in fact to loose its world reserve status, trillions of Dollars, now overseas as eurodollars and petrodollars, would come running back into the arms of Uncle Sam and would prove to be too many for even his deep pockets.
The economist Avinash Persaud, understood that reserve currency status is a relatively fleeting thing. “International currencies in the past have included the Chinese Liang and Greek drachma, coined in the fifth century B.C., the silver punch-marked coins of fourth century India, the Roman Denari, the Byzantine Solidus and Islamic Dinar of the middle-ages, the Venetian Ducato of the Renaissance, the seventeenth century Dutch Guilder and of course, more recently, Sterling and the Dollar.”
The function of a reserve currency is to facilitate international trade and behave as a preserver of value for governments. Up until the end of World War II that role was fulfilled by the British Pound, but when the sun began to set on the British Empire the Pound it was eclipsed by the U.S. Dollar. The Pound actually limped along for ten years after the wars end (and a 30% devaluation of the Pound) before the share of U.S. Dollar reserves surpassed that of Sterling.
Much like the Dollar in our day, the end of the old “Pound Sterling” was anticipated by many but the process was more gradual than what was expected at the time. More like getting out of the way of a glacier than a freight train. Does this suggest that what we see these days in the many exchange agreements between China and Brazil, Russia, Australia, etc., are evidence of a similar exit for the Dollar? Hmmmm, gold anyone?
So, if history is any indication, enjoy as long as you can this thing called world reserve currency.