The Troubled Dollar

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.