Economic Charts

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Saturday, February 26, 2011

Is the Dollar Dead

A lot of observations are being made that in the past few weeks of major geopolitical unrest in the world, the dollar has continued to devaluate.  In past history when events like these occurred investors flocked to the dollar as a safe haven, so it was expected that the dollar would rise during these troubling times.  This has drawn many to the conclusion that the dollar is now a weak currency and is no longer a safe haven.  The following 2 charts is a view of the dollar index short term and longer term.

The following is a CNBC interviews illustrate the point a little more.  i think Rick Santelli makes an astute observation that "the  Dollar doesn't seem to have the international cache that it use to".

Larger countries (China, Russia and India) are slowly moving away from the U.S. dollar as a reserve currency by creating bilateral agreements between each other and smaller countries to exchange goods/commodities in their own currencies.  Keep in mind that prior to these agreements when a  country wanted to buy a commodity it had to be traded in dollars (hence the reserve status), which created demand for dollars.  Demand for dollars causes the dollar to increase in value/strength.  If the bilateral agreements continue to grow, then only trade with the U.S. will be done in dollars and lets face it, the best thing we export these days is inflation. 

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