For these reasons, the USA may actually be happy to get out of reserve currency status sooner than later/ to decouple the value of the dollar from the price of oil is the only way to get the kind of currency flexibility desired without this potential disaster.
To me the reserve status is about the only thing keeping the dollar afloat. The fundamentals are pretty ugly.
Debt to GDP at 130% (104% excluding states), budget deficit at 8.4%, trade deficit at 50 b$/month.
For comparison the Eurozone (Debt to GDP at 82% (including states), budget deficit at 4.2%, trade surplus at 3-4 bEur/month)
Moodies itself said last year that the reason not to downgrade the US yet was the status of the dollar. When that changes and the dollar starts trading on the fundamentals of the US rather than its purposefullness as a reserve/trade currency, then you might see a large drop in dollar value.
I think that the value of the dollar will start to fall for several reasons.
- US has to start cutting the budget in november (I don't think they will get away with doing nothing again)
- I think we will see a downgrade by moodies this year.
- Reduced statue of the dollar as reserve currency.
China, Japan to Use Yen, Yuan and Not the USDThe Euro: I think when you look at it overall, it could be a strong currency. The fundamentals are good, but the problem is the inability to come to a workable economic and regulatory model. When they succeed the Euro could definately rise, if they fail.....
....well that could be interesting.
Actually I think it is funny to hear this question from a Canadian, because if I would have to pick a currency to put my money in, it would either be the loonie or the Norwegian Krona.