The Weakening Position of the Dollar in the World Economy

The Weakening Position of the Dollar in the World Economy

As if the current struggles with skyrocketing national debt, the mortgage and lending crisis, and the increasing consumer credit burden weren't enough to strain the United States economic system, as well as that of the world, yet another potentially damaging fiscal problem is on the horizon. Approximately 66 percent of the world's currency reserves are held in US dollars. Thus, when the dollar loses value, it affects the world, as their currency reserves also lose a percentage of their worth. As the US dollar struggles against the sinking of its value, there are some nations are giving serious thought to setting it aside.

"This is the first time in my career that I am really worried about the dollar," said Stephen Jen, who is the head of currency research at Morgan Stanley, according to a November 7, 2007, article published in the Financial Times. "I didn't know it was going to go so far. The dollar is in trouble. What has so far been an orderly move can easily degenerate into a more violent event."

During the week that the Financial Times article was published, the value of the dollar slid further, resulting in a record low against the Euro. And, that's not the only record low the dollar set. The US dollar hit a record low against the Canadian dollar, as well, and the British pound and the Australian dollar, too. With all the uncertainty in the US economy, other nations are beginning to feel a bit frightened by the potentials of a dollar collapse and are starting to be concerned about the amount of money they have tied up in US investments. Add to those nations the countries who are none too pleased with the policies of the United States of late, particularly relating to the war in Iraq and the whispers of war to come in Iran, and there are more than a few nations that are giving real thought to setting aside the US dollar.