The dollar sinks

"It was sad when the great ship went down"

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Jeffrey Frankel is a professor of economics at the Kennedy School of Government, Harvard. He sees the US dollar being replaced by the euro as the world's dominant currency by 2015. As you can read below, he seems to know what he's talking about.

What does having the worlds' dominant currency really mean? What does it mean to physically produce the money that everybody around the world buys nearly everything with?

It means that when ever the USA owes anybody money they just print some and give it to them. And for years and years America's creditors have accepted that. Can you imagine how much fun it would be if you could do that too? Scribble "twenty dollars" on a piece of paper and walk away with some groceries that you could actually eat?

Can you imagine what it would be like if you had gone through life like that and suddenly had to stop? If you are an American living on dollars, you have and now you will. It's not going to be any fun. DS

Frankel: The euro could surpass the dollar within ten years - VOX
Abstract: In the past, US deficits have been manageable because allies have been willing to pay a financial price to support American global leadership; they correctly have seen it to be in their interests. In the 1960s, Germany was willing to offset the expenses of stationing US troops on bases there so as to save the United States from a balance of payments deficit. The American military has long been charged less to station troops in high-rent Japan than if they had been based at home. Repeatedly the Bank of Japan, among other central banks, has been willing to buy dollars to prevent the US currency from depreciating (late 1960s, early 1970s, late 1980s). In 1991, Saudi Arabia, Kuwait, and a number of other countries were willing to pay for the financial cost of the war against Iraq, thus briefly wiping out the US current account deficit. Unfortunately, since 2001, during the same period that the US twin deficits have re-emerged, America has lost popular sympathy and political support in much of the rest of the world. The hegemon has lost its claim to legitimacy in the eyes of many. In sharp contrast to international attitudes at the dawn of the century, opinion surveys report that the US is now viewed unfavourably in most countries. The next time the US asks other central banks to bail out the dollar, will they be as willing to do so as Europe was in the 1960s, or as Japan was in the late 1980s after the Louvre Agreement? I fear not. The decline in the status of the pound during the course of the first half of the 20th century was part of a larger pattern whereby the United Kingdom lost its economic pre-eminence, colonies, military power, and other trappings of international hegemony. As some wonder whether the United States might now have embarked on a path of “imperial over-reach,” following the British Empire down a road of widening budget deficits and overly ambitious military adventures in the Muslim world, the fate of the pound is perhaps a useful caution. The Suez crisis of 1956 is frequently recalled as the occasion on which Britain was forced under US pressure to abandon its remaining imperial designs. But the importance of a simultaneous run on the pound and President Eisenhower’s decision not to help the beleaguered currency through IMF support unless the British withdrew its troops from Egypt should also be remembered. READ IT ALL