"Commentary"-The Dollar Has Seen Better Days
Monday, February 05, 2007SUSIE GHARIB: In tonight's commentary, a few thoughts on the global shift away from the greenback. Here's Bernard Baumohl, director of the Economic Outlook Group.
BERNARD BAUMOHL, DIRECTOR, ECONOMIC OUTLOOK GROUP: The story is a familiar one, an aging boxing champ finally gets beaten by an eager young challenger. In a way, that plot line can be applied to the world of finance today. For more than half a century, the dollar ruled supreme. If you wanted to close a deal anywhere in the world, all you had to do was flash the greenback and the deal was done. Even today, the dollar's attractiveness remains fairly strong.
The U.S. still manages to lure nearly $2 million from foreign investors every minute of the day, every day of the year just to fund the trade and budget deficits. The problem is foreign enthusiasm for the U.S. currency is starting to wane. China, Russia, Japan and some OPEC nations have gradually lightened their portfolios of dollars, preferring instead to invest more in a five-year old currency, the euro.
Indeed, for the first time, the value of all euro notes in circulation exceeds the value of dollars. So like it or not, the dollar is in the process of being replaced as the world's leading reserve currency. What does all this mean for Americans? Not much in the immediate future. But within five years or so, half of all international transactions may be conducted in euros and that suggests the value of the dollar much like the value of a toppled boxer will continue to depreciate in the years ahead. I'm Bernard Baumohl.
