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The dollar is a world reserve currency only because we are the only ones who ‘allow’ a trade deficit.

With a trade deficit, the rest of world is long your currency.

With a trade surplus, like japan, the world is short your currency.

The eurozone wants a trade surplus and to be a reserve currency.

They are either ignorant of how a monetary system works or have the arrogance of demanding the violation of an accounting identity by decree???

>   
>   On Fri, Nov 14, 2008 at 12:15 AM, Russell wrote:
>   
>   If True … hyper inflation in the pipe.
>   

Sarkozy Pushes for Abandonment of Dollar as World Reserve Currency

French President Nicolas Sarkozy said on Thursday ahead of the G20 meeting of world leaders:

“I am leaving tomorrow for Washington to explain that the dollar cannot claim to be the only currency in the world…, that what was true in 1945 can no longer be true today”.

There have been many previous indications that the dollar would not remain the world’s reserve currency for long. But this is a dramatic statement by a close American ally.

Reading between the lines, I am guessing that Sarkozy is pushing for a shift from the dollar to a basket of currencies as a world reserve standard, instead of a change to a single currency such as the Euro or the Yuan.

But we’ll have to wait and see what Sarkozy is really advocating.


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5 Responses

  1. That’s rich! As we hand over hundreds of billions $ to the Europeans to keep their entire monetary system from collapsing, he’s talking about the end of the dollar!

    He may be right in one regard, however. Our Fed will create a dollar collapse with this ridiculous open-ended lending to the ECB and other CB’s.

  2. You don’t declare your countries currency to be the “reserve currency”. You are voted for by other countries. Your country would require:
    1 A strong Military (who can deliver a weapons system to Taiwan if a spat broke out with China?).
    2 A legal system that can safegard assets held in that country.
    3 Guarantee deep and wide capital markets, liquidity.
    4 Functioning and stable political and public service institutions.

    Seems to me that Europe may fail the test on a couple of these requirements.

  3. As true as that might be, by definition, it at minimum requires a trade deficit, since there’s no other way for others to accumulate net financial balances in your currency.

  4. 4. Yes, when I stop and think about your comment, you are absolutely correct. A trade deficit would need to be run to allow accumulation of the currency.

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