U.S. Dollar Not Leaving the World Stage Yet

American Monetary AssociationFrequent readers of our posts might reach the conclusion that the dollar is on the cusp of expiration, and that they should be trading in greenbacks for yuan, yen, pound, or even Aussie dollars. Rumors of the United States currency’s death might be somewhat exaggerated, though our unassailable position at the top of the world’s economic food chain is showing definite slippage. Former higher-ups at the Federal Reserve, Donald Kohn, Laurence Meyer, and Randall Kroszner, recently gave separate interviews about their thoughts regarding the direction of our currency for 2011 and further into the future.

Their collective wisdom included the following:

1. The euro/dollar exchange rate should remain about where it is now (1.35) through the end of the year.

2. The Chinese yuan will likely gain strength against the dollar in 2011, as the communist government tries to control inflation, but investing in that currency still carries risk.

3. In spite of various warnings from ratings services, the U.S. debt rating is not likely to be downgraded this year, though continuing woes of the recession, foreclosures, etc., will continue to exert downward pressure.

4. Chaos in Egypt will likely result in a short term strengthening of the dollar. Our own unrest looks absolutely placid (and secure) when compared to the Middle East. Other than that, all bets are off when it comes to that area of the world.

Seriously, the fact that the entire region we call the Middle East hasn’t consumed itself in a wave to religious intolerance, political unrest, and terrorist insanity is a mystery to us, but how many times can you strike a match over a puddle of gasoline and not get blown to moon eventually? Hopefully, we won’t find out any time soon. When you take that into account, the United States begins to look positively stable when compared to most of the rest of the world. Expect the dollar to remain the global currency for the time being and for decades to come. While it may be weakening, it’s not ready to collapse just yet…unless, of course, those clowns in the Fed, administration, and Congress don’t find an economic clue or two along the way.

The American Monetary Association Team


Flickr / fabio.dilupo

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