U.S. dollar to be completely replaced?

[The_Absolute]

http://www.nytimes.com/2009/03/24/world/asia/24china.html?ref=asia

I don't know much about economics or the stock market, but I've read online that people in the United States will no longer be using the Dollar as their currency. Just as Germany and Europe switched over from Marks to the Euro. Why is this being done? Will the name of this new currency be the "Amero"?

 

[alxm]

The US Dollar is and will remain the legal tender of the United States.

Foreign banks 'replacing' the dollar as a reserve currency is something else altogether.

 

[Phrak]

http://www.nytimes.com/2009/03/24/world/asia/24china.html?ref=asiaWill the name of this new currency be the "Amero"?

no, plastic

 

[HallsofIvy]

And the fact that China (or any other nation) "recommends" it doesn't mean it will happen!

 

[Phrak]

Apparently, the Chinese, who hold a lot of instruments backed dollars, are concerned about devaluation of the dollar. Anybody else would trade to instruments that are backed in some other currency, if they were so concerned. So this begs the questions, why would they be pushing for an international unit of monetary exchange, rather than switching to eros, or some other currency? Apparently they don't trust in the future value of the euro either.

Now, as I understand it, the Chinese have been artificially supressing the yen. Is this true, and what does it mean? So if the yen swings up and the dollar down, they stand to loose a great deal. I'm on fuzzy ground at this point, so does this make sense?

Another good question is, what leverage do the Chinese have to make this happen?

 

[alxm]

why would they be pushing for an international unit of monetary exchange, rather than switching to eros, or some other currency? Apparently they don't trust in the future value of the euro either.

Because, when the US economy goes down the toilet, so does Europe's. There's relatively little to gain. That said, the Euro has increasingly displaced the USD as a reserve currency since its inception.

And it's not an international unit of monetay exchange they want, but an international reserve currency that would not be independent on any single economy or economic zone.

Now, as I understand it, the Chinese have been artificially supressing the yen. Is this true, and what does it mean?

The yen is the Japanese currency. You mean the yuan. It means they're keeping it pegged at an exchange rate lower than it would be if it was traded freely. This is good for exports. Bad for anyone in China wanting imported goods.

So if the yen swings up and the dollar down, they stand to loose a great deal. I'm on fuzzy ground at this point, so does this make sense?

Not really, because it doesn't really cost anything directly to keep a currency undervalued. The only problem with it is keeping your people from demanding higher wages and imported goods. Which is less difficult in an undemocratic country like China.

Another good question is, what leverage do the Chinese have to make this happen?

They're one of the world's largest economies, with a giant and growing currency reserve, so what they think in such matters is quite important. On the other hand, the effects of having such a currency would be small. So it's more a matter of how willing they are. China will always have a quite significant proportion of their currency reserves in USDs as long as the USA is their main trading partner.

Overall, people make way too much of this in general (I submit this thread as evidence of that). We're talking about _reserve_ currencies. What color you have on a piece of paper that sits in a vault and is almost never touched. And as long as it isn't getting touched, the color doesn't really matter.

 

[mgb_phys]

Because, when the US economy goes down the toilet, so does Europe's. There's relatively little to gain. That said, the Euro has increasingly displaced the USD as a reserve currency since its inception.

Any averaged SDR type currency will fluctuate with the Euro/USD anyway. China may be more worried about speculators, it has a historic distrust of foreign capitalists anyway and the idea that a George Soros could destroy their economy is very real to them.
In the absence of such a currency it could just go back to hoarding gold.

It means they're keeping it pegged at an exchange rate lower than it would be if it was traded freely. This is good for exports. Bad for anyone in China wanting imported goods.

You could also accuse the US of doing the same for the last 5 years. A low currency makes it cheap to export goods, so helping your factories, although expensive to import goods and raw materials. But the main US raw material import, oil, is priced in US$ anyway.

will always have a quite significant proportion of their currency reserves in USDs as long as the USA is their main trading partner.

And as long as they need to buy foreign oil.

Overall, people make way too much of this in general (I submit this thread as evidence of that). We're talking about _reserve_ currencies. What color you have on a piece of paper that sits in a vault and is almost never touched. And as long as it isn't getting touched, the color doesn't really matter.

It is a common crank topic though - that there is a secret commie/fascist/liberal/vegetarian plan to merge US/Mexico/Canada. Some state (Montana?) accidentally used a map of the whole N. American continent on some commemorative plaque and half the state took to the hills with guns.

 

[Ivan Seeking]

And the fact that China (or any other nation) "recommends" it doesn't mean it will happen!

Yes, we have been down this road before. But in the end, there is no safer bet than the US.

Eventually I would expect that some more "international" currency will evolve.

 

[zankaon]

Another currency for America?

An alternative to another world reserve currency, or in addition, would be to introduce a competitive currency for our debased D.C. dollar.
Is the Fed just debasing the currency? Is it time for dual currencies here in America? Perhaps a Fed Reserve West in the heartland, with a N.A. dollar (North American dollar), with tight bank management controls, good IT team, and transparency and accountability, especially when temptation (creating money) is at the door or window. Start the 2 currencies at par. Then let all Americans decide what currency they prefer in transactions, both personal and for business accounting. A more limited supply increases the value of any commodity, including a currency; hence protecting the value of a currency. There is too much money out there idling already; more geenbacks by the Fed is not the solution; too much debt is the problem. Debt city or deleveraging city (D.C.) what's the call - America?

 

[byohannan]

Yes eventually. Till 1940s pound sterling (UK) was the de facto currency of choice for internationl trade and as in instrument for monetary debt for global financial institutions

In a likely scenario , In 20 years down the line, an IMF backed currency , which has weightage of the global currencies would include USD , euro , yen and currencies of the BRIC countries will replace USD

 

[SW VandeCarr]

Yes eventually. Till 1940s pound sterling (UK) was the de facto currency of choice for internationl trade and as in instrument for monetary debt for global financial institutions

In a likely scenario , In 20 years down the line, an IMF backed currency , which has weightage of the global currencies would include USD , euro , yen and currencies of the BRIC countries will replace USD

That sounds too logical but it would probably be good thing if it did happen. There's not a lot of rationality in currency markets. The ratio of the US national debt to GDP could be as high as 80% by the end of 2010, but this ratio is already over 200% in Japan now! Yet the yen is still considered to be a strong currency. The advantage Japan has is that its people are savers which gives the government a large domestic credit pool and low interest rates. The US has to rely on foreign creditors, but this could be a good thing in the short term since the US is "too big to fail". At some point though the dollar will fall to more realistic levels, but being part of a basket of currencies will help stabilize the dollar and make currency markets more stable.