Ok the jury is still out on this. Once the Pound was the main currency of world trade, then it slipped. It took a couple of world wars, a depression, huge geo-political changes – big parts of the world shifted out of the Pound’s control…and the dollar became the King.

However it was not easy for dollar too. It was a gold backed currency till the fateful day when the US decided it would go off the gold backed status. It immediately became the world’s biggest counterfeit currency manufacturer. Look at the Japanese history all the $ that they bought at Y 300 can now be sold back for only Y 88. This in real terms is cheating. Clearly a topic for “Conspiracy of the Rich” for Robert Kiyosaki. The Chinese are not likely to repeat the mistake of the Japanese – they will quickly move into a multi currency basket. It makes sense for say China to have some Australian Dollar – and use it to procure commodities from Australia.

In the Middle East there is no great love for Obama inspite of the fact that he is making some overtures towards the Middle Path muslims also. If the sheikhs decide that the Oil need’nt be quoted in $s, you have one more of the $ bastion falling. If the Japanese, the Sheikhs, Asean, and India decide that money could be held in each other’s currency, the importance of $ could only fall further.

If Obama and Ben do not stop printing and convert all their wood to currency the value of the $ can only go south. I think the directon of the dollar is clear – it is the speed that is worrying. The steepness of the curve could be much sharper – and this will hurt the dollar denominated incomes and assets. Beware of the $. If you must build dollar assets hedge yourself with Asian assets like China, Japan, India, Asean…makes sense you see!

And if you do have an international portfolio concentrating on China – selling in China, buying from China, rendering services to the Chinese economy are all great opportunities. In fact many American (true blue American) companies are looking to list in China. If a few of them shift their regional HQ to Singapore, recruit English speaking people from India, Sri Lanka and Indonesia and cater to the Chinese market, do not be surprised. Go to google and see how many of them are doing it already. If you are earning in dollars (hey that means all u folks in Singapore, Malaysia, Bahrain, UAE, …!!) at least keep your assets in Asian currencies, not in dollars. If you have dollar denominated assets (yes u guys who have those great variable annuities) and hoping to make money….think again real hard.

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  1. Dr Mohammed Ali Khan

    But Subra
    If not dollar.. Then what..
    The US rightwing people are clamoring for a return to the Gold Standard..
    Will Gold return to its historical place as the single world currency..
    In fact for much of human history Gold has been the common currency..
    Even the Pound and Dollar became popular because of their Gold Standard..
    Will it usher in a new era of financial stability ? Like the “Gold Bugs” predict…
    What will happen to the central banks if this happens..?

  2. Subra,

    That’s a terrible scenario waiting in the dark to unfold should the Dollars southward journey catch speed.

    You have recorded what conflicts occurred in the transition from Pound to Dollar as a Global currency.

    The World is much more a integrated place since then, and what a defeated Dollar could mean would be extremely hard to foretell.

    But I do find myself in concurrence with the view that the Dollar is headed south and is every likelihood will sooner or later snowball into a crisis — which may eventually contain Global Warming.

  3. I agree that it is difficult to imagine a world where $ is not supreme. Imagine if there were options available in 1973 Nixon cheating the world by going off the gold standard would have plunged the world in a big crisis. So instead of keeping money in $ it is better to keep it in assets like gold, real estate (even in US) or Australia, India, Dubai. Unlike if it is so much that you need to worry about multi currency risks. Simplest is gold etf hoping to protect yourself against inflation – and not hoping to make too much money. Treat is as a saving, not as an investment.

  4. Dr Mohammed Ali Khan

    Another advantage of the Gold Standard cited by the ” Gold Bugs ” is that Governments cannot overspend on costly wars with the Gold standard.. They contend that if the warring nations of Europe had not discontinued the Gold standard during World War 1, the War in Europe would have been over in a matter of weeks and not dragged on for 4 years from 1914 to 1918.
    They also assert that the power of the Governments will be clipped with the Gold Standard and this will mean less wars and less atrocities… Do the readers of Subramoney.com agree ?

  5. The argument advanced by Dr Khan does make sense ‘ a shift to Gold Standard could clip powers of governments – its impact on taking decisions about going or not going to war is debatable but how a currency tied to Gold Standard could impact commerce, trade and try have a more equitable society has also to considered.

  6. Dr. Khan
    If u could please tell me,are you a doctor in medicine? Apology if u think it too personal question.

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