The fall of the dollar system born

The fall of the dollar system born

Just a few weeks after an outstanding victory of American and British troops in Iraq, the U.S. dollar and the pound sterling became one of the weakest currencies in the world. Do not it ironic?

A new Great Depression?
Since August 2002, the dollar is falling continuously on the world's leading currencies. In May 2003, the pace has accelerated the fall, and in the middle of the month the dollar has overcome the level of $ 1.17 per Euro - which began four years ago, life for European currencies. With regard to the pound sterling, it reached its lowest level in six years. Pound has never been so weak since the Labor Party promoted Tony Blair came to power. Since the early years, sterling has fallen on the euro by 10%. Pressure on the pound particularly intensified after the February 2003, when, to everyone's surprise, the Bank of England lowered the discount rate to 3.75% - the lowest value over the past 48 years. The English press is already matches the current situation with «sterling crisis» in September 1992 when the pound was expelled from the European exchange rate mechanism.

As in the U.S., the UK current account deficit out of control, the industrial sector shrink, and the consumption of individual households depends on the financial bubble of mortgage loans, which may soon burst.

The weakening dollar could cause a great international impact. The world financial system is substantially denominated in dollars. Most international trade contracts are also in dollars. World Trade Organization (WTO) said that the growth of world trade in 2002 was below 3% - the worst figure in 20 years. But what is 3%, if during that time the dollar on the euro has fallen by 20% (Fig. 1)?

And if converted GDP of the United States over the last year in the euro, yen and gold, then eventually we get the greatest decline in GDP since the Great Depression!

It is disturbing
Devaluation of the dollar is of great concern in other countries. European industrial corporations suffer from falling exports of their products. The Central Bank of Japan made a stealth intervention in the foreign exchange market of 2.39 trillion. yen ($ 20.5 billion), ie bought up dollars to keep yen jump. Although there was no official communication, but many analysts believe that the Bank of Japan resumed its daily intervention in the foreign exchange market, starting from 8 May 2003, which, however, did not give significant effect.

IMF chief economist Kenneth Rogoff (Kenneth Rogoff), which had three years ago warned of a possible decline in the dollar by 50%, said recently in an interview with Washington Post, that the sharp drop in the dollar «could make the financial system vulnerable», causing serious losses in the main market players working with the portfolios of derivatives and hedge funds, build on the strong dollar. More clearly than a comparison with other currencies, the dollar decline may be shown by the example of its purchasing power relative to gold (Fig. 2).

In the second decade of May 2003 the price troy ounces of gold reached $ 351. In March 2001, for every $ 100 you can buy a 12.0 g zolota. We have the same hundred, you can buy only 8.8 grams.

Actors on stage
A natural question is: who or what causes the rapid fall of the dollar? At first glance, his intention to initiate the majority of players played in the financial performance in the world: from the heads of central banks and Finance Ministers to currency traders and private investors. Most of them have good reason to get rid of dollars. What are they?

Asian central banks hold at about 80% of the world's reserves of foreign currency, with most of this money is invested in government bonds and other assets of the United States. No one was surprised already by the fact that Asian central banks are rapidly losing confidence in the ability of States to support the huge current account deficit of $ 500 billion to this amount is now added a further U.S. government budget deficit of at least $ 300-400 billion, therefore, Asian central banks are looking for various alternatives to the dollar, as that could be the euro, the local currency or gold.

The most openly express their attitude to the U.S., Indonesia and Malaysia. For example, a representative of the Ministry of Finance of Indonesia said that the country intends to introduce the euro as base currency for trade transactions, and the central bank has gradually replaced in the Euro 15% of its dollar-denominated reserves, which are generally accounted for $ 33 billion Guide Indonesian state oil company Pertamina has proposed to sell oil for euros instead of dollars. The Prime Minister of Malaysia Mahathir Bin Mohamad said that the state oil company Petronas to explore a program of action that intends to hold the Indonesian Pertamina. Replying to a question, not whether the United States will be unhappy with such action, the Prime Minister said: «The question is not whether the United States will be unhappy, but whether we get real value for our products».

After the robbery of American geopolitical Arab investors are now asking themselves the question whether it would be investing the proceeds from the sale of oil assets in the United States continues to be profitable. Any State may suddenly find themselves in the list of «axis of evil», and one fine morning to find that his assets were frozen in the States. In recent months there have been several reports that the U.S. markets is derived from $ 200 billion of Saudi money. Regardless of the truth it or not, the reluctance to invest in U.S. assets are growing every day. In the political and financial circles of Europe strengthens the view that the introduction of the euro as foreign exchange reserves and U.S. competitor in world trade can be a useful tool to counter U.S. hegemony in international affairs. However, the economy of the European countries are also at risk, and the relative strength of the euro - this is only a reflection of the weakness of the dollar. Finally, there is the administration of President Bush, which is increasingly desperate policy against the already unhealthy economy.