Tue 2010-04-20 10:05 EDT
The Search for a Reserve Currency
...good governance as an essential component of currency value and the trust in that currency can transform overnight, just as we witnessed the post-World War II collapse of sterling, and, now, the shakiness of trust in the US dollar (despite the reality that, at $14.2-trillion in value in 2008, is the world's largest). The age of the US dollar as the global reserve currency isn't yet over, but it's threatened, and the trend toward a flight from the dollar (despite occasional returns to it) is evident. At present, however, the dollar is shored up because in many respects there's nothing of its stature ready to replace it...major trade will gradually become more bilateral in nature, based on very real mutual trust in each other's currencies or goods. This will be a significant limiting factor in trade, and will make bilateral balances of greater interest than in the past when trade balances of a bilateral nature ``washed out'' in the great mixing bowl of the global banking system...