New York, NY (PRWEB) December 07, 2012
Investment Contrarians, an e-letter of Lombardi Publishing Corporation, a 26-year-old consumer publisher that has served over one million customers in 141 countries, warns that, while the U.S. dollar has been the world’s reserve currency for decades, this position might be under attack. With the rising level of U.S. debt, many countries around the world are questioning the position of the U.S. dollar as the reserve currency.
“Cracks are beginning to appear,” said financial analyst Sasha Cekerevac in a recent article. “The latest sign is that China and South Korea have come to an agreement in which banks from either country are able to borrow funds from a swap line that makes loans available to companies for deals in local currencies.” (Source: “China, South Korea to Boost use of Local Currencies in Trade,” Bloomberg, December 4, 2012.)
“This swap line is currently set at $59.0 billion, and allows firms to settle deals in either the Chinese yuan or the South Korea won, instead of the U.S. dollar. On the surface, this might not seem like a direct attack on the U.S. dollar’s status as reserve currency, because reducing transaction costs is inherently advantageous to corporations. However, the willingness by these nations to increasingly avoid the U.S. dollar is a problem,” Cekerevac noted.
Shifts in the reserve currency status take many years to develop. For years now, rising U.S. debt levels have been putting increased pressure on the international community to diversify away from the reserve currency nation that is becoming increasingly irresponsible in the way it handles fiscal and monetary policies.
Running up the U.S. debt levels over the short term might be seen as innocuous by American politicians, according to Cekerevac, but over the long term, the sustained inability to properly manage government spending will lead to a lack of belief in the country itself and, ultimately, in the reserve currency status.
“Unless real changes are made, we might be witnessing the beginning of such a shift here,” said Cekerevac. “The rising U.S. debt levels are raising questions by many countries around the world as to the legitimacy and viability of the U.S. dollar as the reserve currency.”
Politicians in Washington must wake up and realize that the U.S. dollar’s status as a reserve currency is not written in stone, according to Cekerevac. The financial markets are currently more dynamic and fluid than ever before. And, with the click of a mouse, you can transfer money around the world.
He concluded, “Unless America gets its fiscal house in order, I believe we will see more agreements, such as this one with China and South Korea, which will avoid the U.S. dollar and increase the continuing questions about the viability of its reserve currency status.”
Founded in 1986, Lombardi Publishing Corporation, which has served over one million customers in 141 countries, is one of the largest consumer information publishers in the world. For more information on Lombardi Publishing Corporation, and to get its popular Investment Contrarians e-letter sent to you daily, visit http://www.investmentcontrarian.com. Or, visit http://www.lombardipublishing.com/customer-service.html.