Basket Case

Is the Dollar done?

That’s what some analysts think. After the Chinese publically worried about their Dollar assets and suggested moving to a basket of currencies, some concluded that a commodity-based basked might hold the future of global finance. Higher real rates for the greenback would inevitably follow.

But we’ve seen this movie before. It’s a short trailer with no plot. You can’t enact a currency by decree. Companies and countries need to issue debt in that currency, and they only do that if people do business in that currency. That way issuers can balance their income and expenses. Europe had a do-nothing basket for years, the Ecu. It went nowhere until countries abolished their local currencies and adopted the Euro.

Since the US has the largest economy with the most liquid markets, it’s the world’s reserve currency. The only way we’ll see the dollar retired is if the US unilaterally decides to put George Washington to sleep.

Douglas R. Tengdin, CFA
Chief Investment Officer
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