Best world reserve currency

[ML]

It is aways fun to bash at people and things at the top.

Current fashion calls for bashing the US Dollar.

Yes, there are current and looming problems for the USD, mainly due to the stimulus policy which has released a new flood of USD.

However, there will always be a need for a world currency for use in world trade, world travel and as a reserve currency.

So those who predict the USD will lose it's place as the primary world currency must be prepared to offer up the alternative currency which will replace the USD .

For this discussion, let's stick with existing national currencies rather than proposing gold, SDRs or some other 'to be created' currency.

Tell which other currency is currently held in sufficient volume world wide to replace the USD, and is not also subject to the similar pressures as the USD with respect to economic problems in the issuing country (countries).

Don't 'chicken out' and just contend that the USD is doomed to failure. 

Tell which currency will replace it, and why.

[Kuna]

Lots of pressure from Chinese companies (read: Chinese Government) at the moment to transact in RMB and I think we'll be seeing more of that over time.

If I lived in the US I'd just start worrying when you start getting paid in Renminbi by your Chinese owned employer... ESPECIALLY if you work for the government.

[The Natural]

It's not about bashing the dollar or anything like that, it's just facing the realities. No other currency is able to take the current place of the US dollar as the worlds reserve currency. But you briefly mentioned it, in time it might be something new like SDR. But nobody knows when. It is said that historically all currencies fail and are replaced with something else. Silver and gold has always held it's value, so personally I don't save in fiat money but in silver and gold.

[acctBill]

Lots of pressure from Chinese companies (read: Chinese Government) at the moment to transact in RMB and I think we'll be seeing more of that over time.

If I lived in the US I'd just start worrying when you start getting paid in Renminbi by your Chinese owned employer... ESPECIALLY if you work for the government.

The problem that China has with regard to the renminbi as a global currency is that few countries and companies trust the Chinese government.  The Chinese government exercises tight control over their currency, making sure it doesn't appreciate in value and harm the Chinese export market, the lifeblood of the Chinese economy. 

[ML]

Lots of pressure from Chinese companies (read: Chinese Government) at the moment to transact in RMB and I think we'll be seeing more of that over time.

If I lived in the US I'd just start worrying when you start getting paid in Renminbi by your Chinese owned employer... ESPECIALLY if you work for the government.

This may all be true, but present your case for RMB being a world currency in the  sense that USD is.  i.e.  Exchanged in 195 or so countries of the world.  Business deals in countries outside China with no Chinese firms involved being set up in terms of RMB, as is done with USD.

[Rubicon]

Lots of pressure from Chinese companies (read: Chinese Government) at the moment to transact in RMB and I think we'll be seeing more of that over time.

If I lived in the US I'd just start worrying when you start getting paid in Renminbi by your Chinese owned employer... ESPECIALLY if you work for the government.

Fat chance of that Kuna.  As has been mentioned nobody trusts the Chinese because they are always manipulating their currency.  The dollar on the other hand is allowed to go up and down with it's fortunes.  Professional currency traders around the world love that and can make big money by going in and out of it.  Even though we (the USA) have enormous debts we also have the worlds largest horde of Gold and we still have the largest economy in the world.  So for now the dollar is going to remain the currency of reserve for the world.  If we can elect a Republican conservative (not a spend like there's no tomorrow on foreign wars George Bush Jr, but a TRUE conservative) than our house will be getting back to order. 

[Rubicon]

It's not about bashing the dollar or anything like that, it's just facing the realities. No other currency is able to take the current place of the US dollar as the worlds reserve currency. But you briefly mentioned it, in time it might be something new like SDR. But nobody knows when. It is said that historically all currencies fail and are replaced with something else. Silver and gold has always held it's value, so personally I don't save in fiat money but in silver and gold.

That's excellent.  I'm sure you know to invest in Gold and Silver bullion and not just large gold chains around your neck.   

[Gylden]

Lots of pressure from Chinese companies (read: Chinese Government) at the moment to transact in RMB and I think we'll be seeing more of that over time.

If I lived in the US I'd just start worrying when you start getting paid in Renminbi by your Chinese owned employer... ESPECIALLY if you work for the government.

Now that's funny!
The Chineese yuan in the US?
I think I hear the sky falling!

[Gylden]

It's not about bashing the dollar or anything like that, it's just facing the realities. No other currency is able to take the current place of the US dollar as the worlds reserve currency. But you briefly mentioned it, in time it might be something new like SDR. But nobody knows when. It is said that historically all currencies fail and are replaced with something else. Silver and gold has always held it's value, so personally I don't save in fiat money but in silver and gold.

The SDR is nothing more than a currency fund, which consists of four currencies. Of which the USD is the majority (currently about 42%).

[Kuna]

Now that's funny!
The Chineese yuan in the US?
I think I hear the sky falling!

Although I didn't add the goofy-faced emoticon I hope you detected the tongue in cheek.   



The thing that I find funny about all these "America is the greatest nation on earth" threads is that there's always one or two Americans who are prepared to give perfect examples of why much of the world detests them so much.

Personally, I'm pro-American and think "middle-American values" are where it's at...  but they do have a fair number of great examples of people that just naturally p!ss people off.

America - Land of the free - Home of the brave...  Yeah,  I'll give ya that!

America - Home of free enterprise???  Not on your life!

[Gylden]

LOL, Yeah, I am a little slow to pick up on tongue and cheek sometimes and I wasn't quite sure.
 

[Kuna]

LOL, Yeah, I am a little slow to pick up on tongue and cheek sometimes and I wasn't quite sure.
 

My mistake though.  Next time I'm trying to poke fun I'll attach this pic:



In this press conference Obama was reassuring the American public the economy would come good and everything was going to be "Aye - Okay".

.. and just for Gylden I'll add a " "


hahaha...  couldn't help it!

[chivo]

I'm ready to start a theory that the US government is conspiring to collapse the Dollar so that it can easily pay off its debt (or make its debt worthless to the people it owes like China and Japan), benefit from the fallout and ultimately start a new worldwide currency.

Maxx, you out there?
 
 
 
Currency Manipulation Wars
The problem in determining trends between currency pairs is further complicated because it is not only the relative loss of purchasing power through inflationary money printing and debt accumulation policies, but rather all governments to varying degrees (those that are not stuck in the Euro-zone such as the PIGS) seek to competitively devalue their currencies against one another so as to boost exports and reduce imports to improve or maintain their countries balance of trade and global trade induced economic activity which accelerates the rate of decent for all currencies than where they would be as floating currencies, which theoretically should seek to correct trade imbalances that governments instead fight against from occurring.
 
This manifests itself in an artificial managed currency market where instead of countries that run large trade deficits such as the US and UK seeing their currencies fall at a faster pace than countries that run large trade surpluses such as China and Japan, (Germany uses the bankrupting PIGS to its advantage so that they have to intervene LESS to keep the Euro weak).
 
The trade exporters intervene to manage their exchange rates from China's peg to the Dollar, to Japan stepping forward only the other week to spend hundreds of billions of Yen to buy Dollars in an attempt to cap the Yens rise to a 15 year high against the Dollar, which puts its export driven economic recovery at risk. Japan is coming under increasing pressure because China and other Asian exporters such as South Korea are eating into Japans export markets, therefore this currency war is just as much Japan vs the rest of Asia than Japan vs USA. In response to Japans intervention other central banks also act to sell their currencies, to buy Japanese yen and dollars, not because of a conspiracy of central bankster's, but because Japan sent a ripple through the currency markets as a consequence of weakening the Yen. In fact I would not be surprised if China is behind much of the Yen's recent rally (buying Japanese bonds) so that they can gain more exposure to the U.S. export market share by hurting Japan's exporters. Roughly both China and Japan hold an equal amount of U.S. Treasury bonds at about $830 billion each, so the currency war continues as they both seek to drive their respective currencies lower and the Dollar higher whilst other central banks are also forced to react or see their currencies appreciate.
 
However the impact of Japanese buying of dollars proved short lived because as mentioned earlier it is a case of all exporting countries fighting to keep their currencies weak against a FALLING U.S. Dollar and other importing currencies such as the sterling.
 
Some readers may at this point start to feel a little angry as to why the likes of Japan and China don't play fair by manipulating their currencies to keep them artificially weak instead of letting them float to correct unsustainable huge trade imbalances. Don't worry the system is designed so that the last laugh is on the currency pegging countries, for them to keep the pace of decline relative against fundamentally weak currencies such as the US Dollar or the British Pound then they need to BUY Dollars and British Pounds which usually means buying British and U.S. Government Bonds (paper IOU's). This allows countries to live far beyond their means as the people in the west basically live off of the hard work of poorly paid Asian workers as the Asian trade surpluses are recycled back into western debt. Debt that is constantly losing its value ! Of course there is a price to pay as the likes of the UK and USA find it difficult to compete and export and find it even more difficult to wean their populations off of cheap Chinese junk that fills up their nations garages, which therefore results in higher domestic unemployment and lower level of economic activity, whilst the Chinese enjoy relatively higher levels of employment and economic activity.
 
Some rogue politicians in the west calling for action against currency manipulators have not properly thought out the way the system works as they need to realise that what they are in effect asking for is for China to not only stop buying U.S. Treasury bonds but to sell them, and hence push up U.S. interest rates and at the same time send the U.S. dollar sharply lower and inflation sharply higher, though of course China is not going to stop buying US Dollars which is evident by the size of its $2.5 trillion reserves.
 
The policy of deficit importers such as the US and the UK has been to print money (via smoke and mirrors) to monetize debt with a flood of currency forcing their currencies lower thus prompting Asian and other exporters to step into the currency markets in an attempt to soak up this perpetual new supply as well as fight against other exporters in an downward currency pegged death spiral that continuously seeks to inflate the west's debt bubbles by financing consumption and deficits. Since there is no sign of an end to the huge deficits especially for the U.S., therefore there is no sign of an end to quantitative easing to monetize the deficits. All of these competitive devaluations in the face of US money printing to monetize debt IS resulting in higher inflation as evidenced by the surge in commodity prices, and especially gold, which as expected is rising in all currencies that are spiraling downwards with one another as they fight a losing battle to peg themselves to death.
 
So the U.S. Fed is merrily pumping out dollars at 0.25% interest rate which prompts the banks and financial institutions to go across the world and chase higher returns with plenty of cheap dollars thus driving the dollar lower, against which other central banks are fighting hard to maintain their currency pegs and are thus forced to buy dollars which effectively means financing the U.S. budget deficit. It does not exactly match the case that the headline grabbing politicians make of evil foreign currency manipulators, does it ?
 
Also there is the question of U.S. dollar corporate and investment profits, all this flood of dollars invested into say China and other emerging markets would benefit hugely from a dollar devaluation, Chinese Yuan revaluation would mean higher dollar profits for U.S. corporations and financials. Which makes sense as the reason why U.S. politicians are so vocal on this subject as they tend to be on the payroll of Wall Street are thus pushing for a China Yuan revaluation so as to artificially create more dollar profits for Wall Street.
 
Furthermore countries such as the US and to a lesser degree the UK are obsessed with spending large chunks of their GDP on the military, so that they can keep butting in the on the internal affairs of other countries by operating a multitude of foreign military bases right across the globe, all of which means spending dollars for other currencies without any output i.e. one off consumption which explains why the trade deficits will persist no matter what crackpot protectionist trade tariff bill is enacted.
 
However, racking up ever more total debt whether monetized or not is not good, because there is an interest cost to pay on the debt which has an inflationary impact on the economy and results in an even further weakening of the currency that feeds the fires of inflation as the debt interest burden eats into government tax revenues leaving less available for spending which acts as a leverage to the amount of new currency printed which can only have spiraling inflationary consequences towards the ultimate destination of a hyperinflationary bust.
 

[Anotherkiwi]

...The thing that I find funny about all these "America is the greatest nation on earth" threads is that there's always one or two Americans who are prepared to give perfect examples of why much of the world detests them so much.

Personally, I'm pro-American and think "middle-American values" are where it's at...  but they do have a fair number of great examples of people that just naturally p!ss people off...

Much as it pains me to agree with an Australian  , I totally agree with this...and there are certainly some on this forum!   (but we do love you, guys...most of the time!)

[Kuna]

All smaller brothers rebel against the big brother... US and Canada, Ukraine and Russia. NZ and Australia... It's natural. What I can't explain is why all little brothers speak with a strange accent???
 

[Anotherkiwi]

All smaller brothers rebel against the big brother... US and Canada, Ukraine and Russia. NZ and Australia... It's natural. What I can't explain is why all little brothers speak with a strange accent??? 

What's strange is that you guys think your accent is NOT strange!
 
When I see something like this I'm always reminded of the story I read years ago about the English writer Monica Dickens at a book signing somewhere in Australia.  As the queue of people came up with their books she would ask what name was to be inscribed.  One lady came up, thrust out the book, and said "Emma Chisitt."  Miss Dickens duly wrote "for my fan Emma Chisitt" on the flyleaf, causing a look of bewilderment on the lady's face and a gentle whisper in Miss Dickens' ear from the local agent that the lady was actually enquiring about the price.

[LAman]

All smaller brothers rebel against the big brother... US and Canada, Ukraine and Russia. NZ and Australia... It's natural. What I can't explain is why all little brothers speak with a strange accent???

 

Easy....y'all got different daddies!!! 
 

[ML]

Guys and gals, please believe me when I tell you that I in no way was trying to hype my own country.

As a world experienced businessman, I couldn't care less what is the best currency to use with respect to which country it is from.

So my comments were strictly business like and non-emotional.

However, in some of  the comments, it is still obvious that many like to simply bash the USA (and its people and currency) at every opportunity, even in a semi-disguised manner.

I am still looking for someone to step up to the plate and address my original query:

- - - - - - -

So those who predict the USD will lose it's place as the primary world currency must be prepared to offer up the alternative currency which will replace the USD .

For this discussion, let's stick with existing national currencies rather than proposing gold, SDRs or some other 'to be created' currency.

Tell which other currency is currently held in sufficient volume world wide to replace the USD, and is not also subject to the similar pressures as the USD with respect to economic problems in the issuing country (countries).

Don't 'chicken out' and just contend that the USD is doomed to failure. 

Tell which currency will replace it, and why.

[The Natural]

It is ironic that by listening to Americans like Peter Schiff, for example, who is bearish on the US dollar, one is accused of being anti-American or bashing the US if one echos those concerns.
 
After the Dollar: What Comes Next?
 
http://lewrockwell.com/schiff/schiff126.html
 
So I guess if one say that also the Euro, yen and yuan is out of the questions as the worlds reserve currency, one is also then bashing the Europeans, the Chinese and the Japanese? Well, I think most people will not think in those terms. Most people!

[BC]

There are a number of 'reserve' currencies.  The USD of course is the most popular due to the wide distribution and acceptance along with the fact that there are a heck of a lot of USD in circulation.  A huge number of factors contribute to it's popularity, even the USD driven drug trade.

As it pertains to another currency gaining popularity it would be tough to match unless the USD really bottoms out and becomes a junk currency.  Several factors protect it's position:

Those holding huge debts in USD are not keen to seeing the value drop, thus hold.
The worldwide economic crisis has let the USD retain relative value against other dropping currencies.
Any currency desiring to become a top reserve currency will need to produce a huge amount of currency to meet demand and that simply cannot be done without issuing debt which decreases it's value.
Most countries have exchange reserves of other currencies.. one country dumping USD might find their own currency being dumped by other countries.

So all in all it's a balancing act.

China's currency could become another reserve currency if they drop their controls, but there again there are interests against doing so.

Any change will likely be slow as to not tip the scales in this huge balancing act.

There are some fairly serious nudges though from here and there, so news is not so jolly:

http://moneymorning.com/2011/06/27/invest-in-the-yuan/

http://www.thehindu.com/news/international/article2136968.ece

http://www.examiner.com/finance-examiner-in-national/russia-joins-china-dumping-us-debt-as-end-of-qe2-nears-for-fed