Thursday, December 6, 2007

Rogoff on the Dollar's Reserve Status

Kenneth Rogoff tells us why the dollar's decline does not necessarily mean the loss of reserve status:

"The good news for Americans is that there is enormous inertia in the world trading and financial system. It took many decades and two world wars before the British pound lost its super-currency status. Nor is there any obvious successor to the dollar yet. Indeed, the sub-prime crisis has made the European financial system look just as vulnerable as that of the US. Likewise, while the Chinese Yuan might be king in 50 years, China's moribund financial system will prevent it from being crowned anytime soon. A huge share of world trade is denominated in dollars, even if some Opec presidents, such as Venezuela's Hugo Chávez, openly preach mutiny. Central banks still hold more than 50% of their foreign exchange reserves in dollars."

Read the rest of the article.

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