The shifting of US dollar in today’s economy

If you keep an open ear and a keen eye on today’s economy, you will be sure to find some very unhealthy signs. For example, take the cases of big commerce conglomerates like Fannie Mae, Freddie Mac, FDIC, Wall Street and even the newly formed Health Care. Everything points to the ailing health of the economy as these once esteemed entities have sunk deeply into murky financial waters.

It is true that it is impossible to borrow to get out of debt which is precisely what the US Treasury is doing; it is essentially getting a loan to pay off a debt.

The Middle East

President Nixon cut a deal with the Saudis to supply US with a continuous flow of cheap oil paid in US dollars. This demand caused others to pay for oil from OPEC in US dollars which was fine when the US economy was strong as that made the US dollar strong. But when the economy slumped, as in the 2008 financial meltdown, the nation’s lenders were clamoring for repayments of the debts.

As the other parties, they got together with OPEC to discuss the possibility of moving over to using Euros rather than the US dollar. That happened at the 2009 and 2010 OPEC meetings behind closed doors. There will be more meetings to bring on the total changeover from Petro-Dollars to Petro-Euros soon as the US economy spirals further into greater debt.

World Reserve Currency

For many years, US has had a very strong and firm control over the world currency and economy but with its recent poor performance and decreasing standing in economy and currency value, the IMF came out with a Special Drawing Rights which is basically an international lending house with varying currencies to be lent. This makes IMF a more palatable lender than the US as not all focus is on one particular currency. It is just a wise business move of not having every egg in one basket.

This became tough competition and it became difficult for the US Treasury to hold its fort, much less of the top position in the financial standing of the world today. And the competition is looking good with all its fringe benefits and frill offerings.

Sooner or later, the players in IMF will be pushing for the SDR to be the new world reserve currency instead of the US Dollar. Signs are set in place as big guns like China, India, Japan and Russia are boosting up their gold reserves through the sale of the treasuries.