What's The Currency Kenneth?

Alphaville has a post up in which they note some work from BoNY Mellon that cites the very real possibility that “certain governments are seriously deliberating the USD’s hegemony as a reserve currency and even its stability over the longer-term.”

The idea can’t be shocking at this point. There are opinions all over the place about the likelihood of this happening and what could possibly supplant the dollar. For some context I have been writing about this for years with the opinion it will be a very slow moving theme taking years to get to a point where the greenback shares the role of reserve currency (maybe the SDRs which are heavy in dollars).

You should draw your own conclusion about what, if anything will happen. One reason I think the dollar would simply share the role instead of lose it is that most of the other currencies are simply too small and the euro has problems with its biggins (Spain, France and Germany) and many of the EMU aspirants are in serious trouble like Latvia which just held a t-bill auction that drew no bids.

One way to come at this would be not to worry about what country will be the new reserve currency and simply seek out countries with fundamentals that are strong now and seem poised to stay strong for the foreseeable future. If you have been reading my stuff for a while then you know that for me the list would include Chile, Brazil, Norway, Australia, Canada and China.

Some people think China could end up being a world reserve currency. Maybe but that is a long way off, for now it is too small and there are plenty of restrictions. The yuan will become more globally relevant and probably do so at an accelerating rate but reserve currency is hard to see anytime soon.

Don't know why I did a goof on an REM song for the title, that is a band that when I hear now I wonder why the hell I ever like them.

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