JEF in the Media

By: Giacomo Luciani

Abstract: Ten years after the creation of the Euro, the debate on the future of the dollar as the world's reserve currency has again come to the fore. Aggressive liquidity creation by the US Federal Reserve has succeeded in stemming the tide of the recession, but has also cast doubts about the currency's future prospects, leading some to propose a transition toward alternative reserve currencies.

What can be said about the future is that there might be a critical moment in the transition towards a multiple-currencies system when there might be a danger of a dollar collapse. At present, such danger would appear to be minimal because too many interests are vested in the stability of the dollar, and "creditor" nations are in the forefront of defending the dollar in order to prevent their own currencies' appreciation. But, if the transition towards a multi-currencies system unfolds more or less in an orderly manner in the coming years, the moment will come when the outside world's vested interest in a stable dollar may be very much reduced. By that time, it will be crucially important for the US to have accomplished the transition to financial stability, or else international investors may well decide to pull the plug.

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