Well, it is interesting that I finally created my blog amidst such interesting events on the world scene. Sometimes when I read a magazine or a newspaper about politics and/or economics I feel that people generally do not appreciate how interesting and complex the world actually is. Today, I am waiting for a announcement by the New York FED and the most respectful Mr. Bernanke which will clarify what moves the US monetary policy would make to avoid any unfortunate events in domestic and international perspective. Mr Bernanke will also clarify the eventual intervention of any fiscal policy which can be performed by the Bush’s Administration in order to cooperate with the Federal Reserve System and prevent a feared recession through a collective effort. However, the more important issue regarding the FED’s actions and views is how are they gonna pave the future of the dollar in the international trade scene, in times so distressful for the ‘greenback.’
The title of this entry probably looks like a brave statement. However, people should remember the lessons of history. In the end of WWII the British pound sterling went through a similar process which gave an opportunity to the US dollar to become the primary foreign reserve currency in the world. It is true that the sterling lost its position as a popular mean of trade as a result of the devastating WWII and the so-called Breton Woods II system. However, it is important to recognize every chance for a shift in the basic terms upon which international economic relations are founded.
It is a good time to look at what the Economist magazine says about this situation. Many people are watching for the FED’s announcement right in this moment because they are concerned about their stocks which would most probably shoot up as Mr Bernanke decides to move the target rate to a quater point lower position (4.25) Nonetheless, none of these people with lots of money in the stock market and a strong confidence in the real value of the ‘greenback’ is thinking about China and Japan. Each of the two Asian industrial giants have more than a trillion of $ in foreign currency reserves in their vaults and in the same time their own currencies are linked to the US dollar through a lot of bonds and US government securities bought by the Chinese and Japanese governments which keep the dollar high compared to both. That gives the two Asian countries a certain advantage in diplomatic negotiations but on the other hand hides a huge instability in case of more distressful world crisis. Look at the trend – USD against CNY.
