G-20 Will Pledge Accord to Avoid Competing `Undervaluation' of Currencies http://www.bloomberg.com/news/2010-...d-competing-undervaluation-of-currencies.html http://en.wikipedia.org/wiki/Plaza_Accord
Inflation is so likely in the rest of the world, I don't see how the rest of the world can resist raising IRs any way. Look at Chinas inflation rate, Canada, Australia, Brazil is not far behind, etc, etc...
Nice links Things are looking a bit more like we need a Louvre Accord to stabilize the biggest "reserve currency" from the collective impacts of it's central banker and it's Wall Street based Financial Industry. The recession of the early 80's resulted from an "oil shock" and monetarist policies that gave the US interest rates above 15%. (I bought my first house with a 15.5% mortgage). This is what lead to an over-valuation of the $ which the Plaza Accord over corrected. Hence the Louvre Accord to fix the process set in motion by the Plaza Accord. The current $ situation has grown out of the creation and popping of a real estate bubble in the US. (Europe also had valuation problems as well). It is honestly very hard to fathom where things go from here. There are many examples of currency "failures". Can anyone cite an example of a "reserve currency" failure. It will likely paint a blue print for things going forward. Perhaps the $ has had it's day. The next question is whether the Euro has sufficient political unity to survive a full blown $ wash out. Irregardless of what the "masters of the universe" do the message to the end user is always the same, "Make do with Less". This message plays as poorly in Europe as it does in the US.
"New world currency index launch". The article in the link below announces a $20 bln foreign exchange manager launching a currency basket that it claims represents a "virtual world reserve currency". It differs from the SDR in that it included currencies of developing countries. http://www.ft.com/cms/s/0/1299b824-dd2c-11df-9236-00144feabdc0.html
If you can stand not having links to the story, there's the pound. Pre 1914, it was the world's reserve currency, along with gold, as having a pound was considered a practical equivalent, and a lot of central banks held sterling as a result. Post 1914 it continued pretty much on its own, although it shared the stage with the dollar and with a kinda-sorta gold standard. Post 1945 it was still considered a reserve currency, but second to the dollar. Gradually that fell away. As it was no longer considered a reserve, banks that still held sterling assets were of course net sellers, and this put constant pressure on it. In 1968, the Commonwealth countries came to an agreement among themselves not to sell sterling except by mutual agreement, kinda like the Washington Agreement for gold. Which agreement, by the way, is also an instance of what the downfall of a reserve currency looks like: while today gold is undergoing a resurgence, in the nineties the pressure on it was so bad they came up with the Washington Agreement in 1999. If the dollar begins to lose its reserve status, therefore, at some point an equivalent to these agreements will have to be made, to keep the selling pressure on the dollar from becoming overwhelming. I'm not of the opinion the dollar is going to lose its reserve status any time soon, by the way.
trefoil - Nice summary on the pound, thanks for the history lesson Like you I believe the dollar's reserve status has a long run ahead of it. For sure we need better thinking from the folks in Washington. Its hard to have conviction in the current "uncharted waters" when so much in that town (and on Wall St) seems so broken. There are a lot of issues on the horizon for most all developed economies that will have to be solved in the next 5 to 10 years.
Reserve currency status is not a benefit to the people of that country. It is only a benefit to the government of the issuing country in that they can spend freely on insane social policies without repercussion.