Now could be time for the world to wave goodbye to the dominance of the US dollar as a world currency, according to a study by HSBC bank.
Offshore investors need to seriously consider the rise of a new world order in currencies, headed by the rise and rise of the Chinese economy.
The BRICS countries – Brazil, Russia, India and China – are set to eclipse the old world order as global industrial powerhouses and having their currencies tied in to the US dollar does not suit their expansionist economies.
Dollar
The dollar is now a ball and chain for many of the world’s leading economies rather than a dream to aspire to.
Current dollar performance, says HSBC, is hardly awe-inspiring:
- The Euro has climbed to $1.48 signalling a new low for the dollar
- Currency traders are switching away from the dollar as other countries pull out of the recession – New Zealand is the latest country to pull free of the downturn with the NZ$ rising to a 13-month high against the US.
- Even in desperate Japan, where the economy is in tatters, the dollar is falling against the yen
China and Asia have reached a point where they cannot hold down their currencies to boost exports because this is holding back their own economies.
The problem was emerging before the recession but was masked by the global financial crisis. Sooner or later the pressure will return to stress the US and other G10 countries as other nations see their economies motoring ahead.
“The dollar looks awfully like sterling after the First World War,” said David Bloom, HSBC’s currency chief.
“The whole picture of risk-reward for emerging market currencies has changed. It is not so much that they have risen to our standards; it is that we have fallen to theirs. It used to be that sovereign risk was mainly an emerging market issue but the events of the last year have shown that this is no longer the case.”
