As a result, we should expect more dollar reserve accumulation by China.
In 2009, dollar reserve flows exceeded euro flows, but only slightly.
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Krugman and much of the left are content to lean on QE2 to deliver the next bubble without high inflation, an outcome they have been able to secure repeatedly in the paper dollar reserve currency system.
Lastly, under Bretton Woods there was no real alternative to the dollar as a reserve currency.
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Yes, since World War II the world has relied on the U.S. dollar as the reserve currency.
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The combination of such irresponsible fiscal and monetary policies threatens to erode confidence in the dollar as a reserve currency.
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Since abandoning the dollar as a reserve implies radical change with unknown consequences, governments have been very reluctant to take the chance.
Before that the ratio of dollar to euro reserve holdings was 3:1.
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Its favourable demographic trends mean its fiscal day of reckoning is further off than Europe's and the dollar's reserve-currency status provides manoeuvring room.
In 2009 and the years leading up to it, we had an extremely unstable dollar under Federal Reserve Chairmen Alan Greenspan and Ben Bernanke.
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The world is moving away from the dollar as a reserve currency and the results will certainly be inflationary and devastating to our standard of living.
Emerging economies' rising heft will also undermine some of the cushy global arrangements that have benefited the West, such as, in America's case, the dollar's reserve-currency status.
The post WWII status of the dollar as a reserve currency had its advantages, especially in the 1950s and the 1960s but also since then to a lesser degree.
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Go back a few years to the advent of the euro and you will find plenty of reports of the imminent demise of the dollar as a reserve currency.
The longer-term effects are driven primarily by whether other countries, like China did recently, also downgrade the US. In that case, the biggest impact should be through the effect on the dollar as a reserve currency.
The Australian dollar climbed after Reserve Bank of Australia Governor Glenn Stevens said at a parliamentary committee that interest rates were at an "appropriate level, " suggesting a pause in the central bank's series of aggressive rate cuts.
Yet it is the reason government spending has blown past budgetary constraints, revenue downturns, and public outrage since the last check on Federal Reserve dollar-printing ended in 1971 with the demise of the Bretton Woods gold exchange standard.
Mr Zhou suggests that the dollar's reserve status should be transferred to the SDR (Special Drawing Rights), a synthetic currency created by the IMF, whose value is determined as a weighted average of the dollar, euro, yen and pound.
In the long run, we have to pay for our imports with exports although that discipline works more directly on other countries than it does on the United States since the Dollar is a reserve currency that foreigners are willing to hold and use.
They are in better shape than others in the region, such as Australian banks, which have seen interbank funding costs soar, leading the Federal Reserve to open a dollar swap line this week with the Reserve Bank of Australia.
In short, the West desperately wants to maintain the dollar and euro as reserve currencies.
Very shrewdly, China has not proposed that the yuan replace the dollar as the global reserve currency.
There is also the problem of the dollar as the international reserve currency.
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It has been trying to promote the yuan as an alternative to the US dollar as a global reserve currency.
Japanese stocks surged on Tuesday, hitting a fresh multi-year high, while the Australian dollar fell after the Reserve Bank of Australia cut interest rates.
In Australia, the Australian dollar fell after the Reserve Bank of Australia cut interest rates by a quarter of a percentage point to 2.75%.
If the Chinese yuan were to appreciate by 10% against the dollar (and other reserve currencies), China would suffer a capital loss worth almost 3% of GDP, the study found.
It would indeed be ironic if a change in China's exchange-rate policy came not as a result of American pressure, but from China's own disillusion with the dollar as an international reserve currency.
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