Intelligent Investing Panel
Alexandra Zendrian, 07.09.09, 04:00 PM EDT
What would happen if the dollar were dethroned as the world’s reserve by currencies from Brazil, Russia, India or China?
“With the G-8 summit taking place, there is some talk that the U.S. dollar could be replaced as a reserve currency by a “competing” currency from Brazil, Russia, India or China (known collectively as the BRICs). These countries have large economies and are outgrowing their emerging-market status. So what happens if the dollar is no longer the top dog?
Before your heart starts palpitating, take a moment to breathe. Most investment advisers and foreign-exchange traders think this change is unlikely to happen soon, if at all. Dr. Robert Barbera, chief economist at Investment Technology Group ( ITG – news – people ), says cold fusion is likely to happen before the BRICs take over the world reserve. With China’s renminbi pegged to the dollar, it’s an unlikely candidate to replace our currency for logistical reasons, he says. “An emerging, conflicted country’s currency shouldn’t replace ours.”
Even if the dollar isn’t replaced by a BRIC currency, that doesn’t mean that the dollar couldn’t be swapped out for something else. By having the dollar as the world reserve, we have the luxury of borrowing in our own currency, Barbera says, adding that we can always print more dollars, while a country like Norway doesn’t have the option of influencing the money supply. But by having the world reserve’s currency, U.S. monetary policy is also compromised by other countries trying to pull the U.S. dollar toward their own currencies… Read more here: the BRICS and our currency