The Troubled Dollar

October 2008 • Volume 2, Issue 10
Will the world's "anchor" currency be replaced?
By Peter Behr

Introduction

The sagging U.S. dollar is leading to speculation that the euro — or even China's yuan — someday may replace the dollar as the world's
The sagging U.S. dollar is leading to speculation that the euro — or even China's yuan — someday may replace the dollar as the world's "anchor" currency. (AFP/Getty Images/STR)

Since World War II, the powerful U.S. dollar has symbolized American economic might and fueled an expanding global economy. Foreign central banks stash dollars in their vaults as secure reserves, and most international financial transactions occur in dollars. But since 2002, America's record-high trade and federal budget deficits have severely weakened the dollar, which has lost 21 percent of its value against other leading currencies. That has helped to push oil and food prices higher around the globe, causing suffering among the poor and painful economic adjustments for others. Foreign investors — who in 2007 held more than half of the U.S. Treasury's $3.5 trillion worth of debt — had begun to lose confidence in the dollar even before the current Wall Street financial crisis and Washington's struggles to craft a rescue plan. Experts now debate whether in the coming decade the dollar could collapse in value against other currencies or even be replaced as the world's currency of choice by the euro — or, eventually, by China's yuan.

ISSUE TRACKER for Related Reports
U.S. Dollar and Inflation
Oct. 2008  The Troubled Dollar
Feb. 13, 1998  Deflation Fears
Mar. 13, 1987  Dollar Diplomacy
Oct. 14, 1983  Strong Dollar's Return
Jul. 11, 1980  Coping with Inflation
May 16, 1980  Measuring Inflation
Dec. 07, 1979  Federal Reserve's Inflation Fight
Jun. 09, 1978  Dollar Problems Abroad
Sep. 20, 1974  Inflation and Job Security
Feb. 26, 1969  Money Supply in Inflation
Feb. 14, 1968  Gold Policies and Production
Dec. 15, 1965  Anti-Inflation Policies in America and Britain
Mar. 15, 1965  World Monetary Reform
Dec. 02, 1964  Silver and the Coin Shortage
Oct. 17, 1962  Gold Stock and the Balance of Payments
Dec. 15, 1960  Gold and the Dollar
Oct. 10, 1956  Old-Age Annuities in Time of Inflation
Jan. 17, 1951  Credit Control in Inflation
Aug. 10, 1949  Dollar Shortage
Oct. 04, 1943  Stabilization of Exchanges
Jan. 21, 1941  Safeguards Against Monetary Inflation
Mar. 25, 1940  United States Gold in International Relations
Dec. 14, 1937  Four Years of the Silver Program
Oct. 04, 1934  Inflation in Europe and the United States
Jan. 30, 1934  Dollar Depreciation and Devaluation
Sep. 05, 1933  Stabilization of the Dollar
May 29, 1933  Invalidation of the Gold Clause
Mar. 15, 1933  Inflation of the Currency
Oct. 25, 1924  Bank Rate and Credit Control Federal Reserve Policies and the Defaltion Issue
BROWSE RELATED TOPICS:
Currency
Deficit, Federal Debt, and Balanced Budget
International Finance