Of course the world is not going to replace the dollar as a reserve currency immediately, or for that matter ever. What is going to happen is the IMF or an Asian entity will formulate a basket of currencies and possibly gold into a unit much like the USDX.
There will be an issuing agent and much like the SDR it will be an accounting unit representing the underlying bits and pieces.
It is from this base that Japan has proclaimed major nations should support the dollar. This is management of perspective economics and spin.
What is presently occurring and will accelerate over the coming weeks and months is DIVERSIFICATION out of dependence entirely on the US dollar and the adopting of other currency types even if it takes time to produce the super sovereign currency basket.
The risk the MOPErs take is that the longer the IMF waits due to the risk of dollar damage by issue of this SSCI (Super Sovereign Currency Basket Index), the greater the probability that another entity in the Asian trading block will design this simple entity themselves. An Asian entity would be based on the usual suspects plus their own currency like the Yuan and probably gold.
MOPErs are now caught between facing the fact that central banks outside of North American and Euroland are sharply decelerating their purchase of US Treasury instruments or are playing games for their hot air dollar support that results in the marketplace revealing the SSCI plan by sharp dollar depreciation into the final quarter of 2009.
If the dollar market makes the decision for the IMF then anticipate the last quarter of 2009 to the last quarter of 2010 as the year of dollar hell. The dollar market making the decision for the IMF means the bottom drops out of the dollar rather than the exercising of MOPE’s "Strong Dollar Policy" which is defined as the dollar dropping slowly, rather than catastrophically.
MOPErs have not distinguished themselves by preventing the problem before it has occurred or fixing the real problem. The economic school of MOPErs simply issues more paper to attempt to fix the problem via more MOPE.
You see, the MOPErs are primarily Yalees from one fraternity that control Wall Street which has captured Washington, installing their school of economics of which Greenspan is a major practitioner. When you MOPE you produce nothing but paper bubbles, not sustainable economic gains. You must recall his speeches on market perceptions creating economic occurrences.
You see, one day the MOPErs paper planet melts down. Of course they save themselves by issuing more paper – this time dollars to themselves and they truly don’t give a rat’s ass what happens after that.
So the lesson you need to learn is that all things economic are processes. The dollar is losing its position first as the universal reserve currency, now as the major constituent of international central bank reserves and finally as just another part, not necessarily the majority part, of a new SSCI (Super Sovereign Currency Index) used then as the universal reserve currency.
This make the school of the "dollar will always be a reserve currency" right and wrong. It is right in that it will always be a PART of the reserve basket but WRONG in the implication that this lasting presence means anything bullish whatsoever for the dollar.
Those that hold, like I do, that the value of the US dollar has a long way to go on the downside are right on price, but if they then conclude it is no longer any part of the reserve system they are stone wrong!
1. Does the statement that major government will support the dollar as a reserve currency mean it should rise in price?
2. Will the US dollar always be part of the reserves of central banks?
3. If the US dollar is always part of the reserve of central banks should that be bullish for the US dollar?
4. Why is buying momentum so important to the value of the US dollar now?
5. Why would increased interest rates on 30 year US Treasuries be bearish for the US dollar?
If you can answer these five questions with certainty then you understand what a SSCI is and why MOPE will be useless in 125 days.
4. A decline in the momentum of buying, even without central bank selling, would hold the most bearish implications for the US dollar.
5. Because that would occur as non-USA buyers of long US paper exited the market as buyers.