November 29, 2010
For at least thirty years there has been great dispute about the weakness of the US Dollar. Is it weak because the Chinese economy is strong? Because we want it to be weak to help our exports? Because the Fed is printing money? Because some guy says the dollar is bad?
Every reason is at least a little bit right. But there are a lot of moving parts to international currency markets and a simple diagnosis is seldom the entire answer. For a currency to be universally accepted, economic and political strength and stability must be present. You won't find that in China. The Swiss, Canadian, and Australian economies are too small. Japan is struggling. How about the Euro? Try this: Google "Euro as international reserve currency." You will get a raft of academic research about the topic, not terribly interesting and, typically, inconclusive. Better to look at the facts on the ground: yet another Euro-bailout - this time of Ireland - after the Greek bailout earlier this year, and leading, I suspect, to similar deals for Portugal and Spain. The Euro will survive, though a few countries may drop out of the Eurozone. But the Euro as a reserve currency? Fat chance.
The US dollar will float and fluctuate in value, be abused at home and derided abroad, but it is the only international currency for the foreseeable future. To paraphrase Winston Churchill: the dollar may be the worst currency. Except for all the others that have been tried.
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).