Defacto the story is about the dollar debilities and the global concern to find out an alternative currency as a medium of global exchange to the US dollar.

Perhaps, the Euro looks a handy tool to replace the dollar & many experts have a favour yet, I say it is not the real remedy. In the short run that could be done but, an economical fundamental, European demography and productivity related issues may not permit the euro to play a significant-n-effective role even up to a decade!

Now, the world has to accept that the economic paradigm is shifted to Asian nations & that looks vibrant even in the long run! By 2010 it is likely to see a regional currency, the African currency, GCC’s, Asian currency along with the dollar-n-euro that could also play a role in the globe as a medium of exchange but, by 2020, India and China could emerge as a most leading economy & nations so that currencies could get accepted globally & that could play a role of global currency.
Perhaps an idea to set a single global currency by the global countries does not look feasible.
In short let’s go through the story & let’s think both the side of dollar!

In the month of July 2003, I inked, ‘US: a bubble like economy.’ Then after, wide in a three chapters I inked, ‘Cover Story’ in the month of March 2004, ‘India in Global village 2007.’ Though latter, my focus was upon India, the US and the dollar got prime position in that cover story while referring rest global economy and currencies!

Now, I’m inking ‘US: a bubble like economy dollar, impending burst!’ Let’s have a birds’ eye view on the stories of 2003-04:

1: Much more dependency on dollar will create a several economical issues to that nations & currencies  
while calendar is running the years 2005-2007, because during the period Asian economy will grew
over & that will shoot dollar sharply!

2: The INR will firmly raise-up that to reach at Rs.40 against dollar by 2007. Then after, will stay stable between the Rs.40 & Rs.30 against dollar yet, real exchange rate may be of Rs.20 to a dollar!

3: By 2007, China will be in a hot water & that will face blowing inflation unless that Yuan could push down dollar & get strengthen. Because, since 1996, China has kept Yuan firm & get fastened on exchange rate at Yuan 8.28 to a dollar!

4: Grown Yen has also been kept undervalued by continuously buying US securities & bonds of hundreds of billions by Japan. These buying-&-keeping Yen undervalued cycle will get completed by 2007. Then after, what will Japan buy form US by 2007! Correction is required in Yen too!

Now, this is March 2008. By adding a part of ‘dollar, impending burst’ once again I’m focusing US-bubble!

GJ Industry concern:

Virtually entire world is watching keenly today at dollar & US economy. Recently in the month of February, Gareth Penny, MD-DeBeers put a question against dollar that why not to be replaced from a medium of global exchange though, he said that DeBeers have accepted forty years ago now thinking to replace with else currency!

Before, Penny, Vybornov Sergey, President-Alrosa clearly insisted to the industry to replace dollar from its’ role as a global currency by showing Russian Rouble & African currencies including the Rand, have similarity in common that those currencies get exchange with dollar! Sergey appealed to the industry at China International Diamond Conference held in the month of November 2007. Diamond producers nations are hurting just because of dollar weakness is thinking of Sergey. Similarly, DeBeers also thinks, they are getting damaged, loosing growth & profit, Gareth get expressed to replace dollar in the exclusive given interview after delivering his presentation in the third international rough diamond conference!

The brand ambassador-GJ Industry India, Sanjay Kothari, Chairman-GJEPC had been expressed his worry against tumbling dollar, quite earlier than Gareth & Sergey, that growing Rupee seriously hurts Industry growth chart!

Therefore Kothari said, now the GJ industry will start dealing-n-billing in INR term instead of dollar.

US: A crippled economy:

The US, a nation of 303mn people is now busy in the up-coming presidential election yet, their National Debts has continued to increase at an average of $ 1.70bn a day since September 2006. That also increases per head citizens’ debts as of today is of $30,998.38! As of March 16, 2008 all together, in the accordance with US National Debt Clock, the national debts of the US is of $ 9,381, 847, 802, 084:82, which was about three trillion in 2003.

“The federal deficit will double from $ 162bn in fiscal 2007, which ended last September, to more than $ 400bn in both fiscal 2008 & 2009!” said Jim Nussle, Budget Director-White House in the response of submission of the $ 3.1 trillion budget proposed for fiscal 2009 by the President Bush on February 04,2008! Commenting on budget, Paul Craig Roberts wrote: “Super power America is a ship of fools in denial of their plight. While off shoring kills American economic prospects, ‘free market economists’ sing its praises. While war imposes enormous costs on a bankrupt country, neoconservatives call for more war & Republicans and Democrats appropriate war funds which can only be obtained by borrowing abroad.” “We have arrived at the point where it is no longer bold to say that nothing now can be done. Unless the rest of the world decides to underwrite our economic rescue, the chips will fall where they may.”

This is not the worry of Roberts only, many media in US is getting expressed so by referring several economists and savvy.

In Davos global players were worried about US economy and recession in this January 2008. They fear that recession could slow-down global economy for four quarters of FY 2008-2009! Therefore Japanese Prime Minister Yasuo Fukuda appealed in Davos-Keynote speech that the globe to go for a collective response to the US economic turmoil. Probably, same worry was expressed in the G-7 summit in February 2003, ‘How to stop collapsing dollar.’ Equally analyzed the US economy that went through a recession in the year 2002!
Defacto, worry about a slowing US economy get expressed not only at Davos-2008 or at G-7 summit-2003 but also get expressed by several economic savvy-n-analysts since 1990 but that was ignored by US Federal. Even now, many global observers believe is the federal is not taking proper initiatives or not paying attention upon dollar & economy especially after the latest budget, allocation for war, hiding an exact amount kept for war-n-weapons, cutting the several sizes of public health, maintaining roadways, medical &… US writers-n-budget critic says the Federal is playing in black! These will last up to 2013 that may collapse US economy. Federal has never taken proper initiatives to boost home-economy.  They never bothered to diversify a ‘spending-led-economy.’

All this economic debilitation in US begun with overvalued dollar. Dollar reigned over global product-n-services through its’ great purchasing power.

Over valued dollar:

In the year 2003, under- ‘Rectification of Indian rupee value,’ heading I inked, ‘Initially dollar is over valued. Today, the over valued dollar is not getting support of strong US economy. The US growth rate is also unable to push up the dollar. The foreign national debt of US $3000bn is trimming dollar.’ ‘I think these will continued dollar inflow to India… these will strengthen INR more-n-more until the Rupee-Dollar get set at appropriate value… the rectification will be continued until the rupee is under valued!’

In the last March, 2007, William Silber inked ‘Reign of the Dollar.’ Earlier, Professor of finance & economics, William inked: ‘When Washington shut down Wall Street’- The great financial crisis of 1914.

Silber talk over American financial supremacy. Defacto Pound sterling was playing a role as dollar does today. Dollar aspired dethrone the pound sterling in 1914. The UK was maintaining the currency convertibility in to gold in those days! Also UK preserved such credibility. During the world war era I, 1914 the US also maintained dollar against gold. But, in 1919 the pounds abandon gold and crow that favoured dollar to be a global medium of exchange. Though the global status didn’t returned to pound in 1925 even after retuning back to gold standard! Thus dollar started enjoying higher credibility in the global trade-n-commerce!
President Nixon surrendered to the force & shut-down ‘golden window’ in 1971, and ‘floating rate’ allowed to dollar. The force appeared because of heavy inflation that started in Europe & Asia during 1960 onwards. To control inflation those nations started demanding gold by returning excess of dollar at the agreed rate under the Bretton Woods Agreement 1944. This exchanges brought US gold holding to bottom, thus allowed floating rate that work under the law of demand & supply like commodity. Perhaps, dollar could continue a role of global currency. This dollar which floated without gold support stayed & remained over valued!

Reign to vain state:

Because dollar could reign among global currency virtually US citizens’ enjoyed a palmy days until 1990. The people-in-general believed that could buy any global products-n-services that get import from overseas of good in quality & economical comparatively!

Literary the consumer-led-economy means just enjoy that became the meaning in US. This started more-n-more unloading of global products at US ports and forced domestic products to get shut down! Lower interest rate, huge easily available credits & fatty dollar that could accept at any where they go!

Now, China then Japan rocked over US market they crushed domestic manufacturing and kept their currencies undervalued to the US dollar. Not only these two but many developing nations have accepted the same way to grow home economy. The vain state didn’t estimated exact value of their currency and never read their road map where their economy is rushing. At least in the decade of 90’s! Perhaps economists and analysts started, shouting and rang alarm bell that the US economy is tumbling at the rate at 2.5pa since 90’s decade & trade deficit is growing at rocket speed, increasing global debt could push down the dollar and hurt severely to economy!

Instead of taking initiatives to lift-up US economy that to be healthy and moderate, hubristic measures taken, accepted deficit…economical rules are rules, not a politics that can’t get vanished even if the state fight and attack on any nation. Imposing war would show ad hoc diversion yet, that add fuel to the flam of burning economy.

Another side of coin is rest of the world especially Asian nations that grew and became fatty. Healthy economy, alluring growth rate, higher interest rate, stability in region- nations and in their currency, strong fundamentals, huge home market & … all together that shifted paradigm to east from west.

Economic Paradox:

Now, if US boost home manufacturing and starts attracting foreign investment that needs higher interest rate and market. If the Federal Reserve is increasing interest rate, market slump and consumer restrict spending; credit payment refusals could increase and that may led to financial crunch. A lower interest rate encourage spending that widening trade deficit and damages economy!

On the other hand entire globe is analyzing uncertainties in US economy. Now, nobody wants dollar. Those who are less depending on US that made imports have started paying attention to else and at own domestic market than to export US. Excessive dollar could get disposed by such nations. Japan & China have trillions of dollar reserve yet China is export-led-economy. Any slowdown in US spending could hurt China’s manufacturing & industries economy. Therefore to absorb this US dependency…rapidly China has been started developing their domestic & interior markets! India also has started developing infrastructures and domestic retail that to get organized faster.

Now export led-economy major China & spending led economy US, both are in a crunch of each others. Defacto China wants to run away from dollar perhaps their economy must be tidy. To run healthy economy China has made a schedule and strategy that to reduce dollar holdings at one hand and on the other hand firm to maintain home inflation, to grow home and home purchasing power in the context of diminishing rate of export dependency on US. The day, China will manage their export dependency on US by developing home market, may dispose excess holdings of trillions of dollars. That may print worst design on the US economy.

Equally GCC and related oil producing nations also have resolved to replace dollar exchange for oil to Euro or own currency. Equally they have started shifting investment portfolio from US to Asian nations especially to India. Japan also have adopted such practice to dispose dollar holdings & that to invest else, probably in India. Here US are facing economical paradoxical from both the end within nation and at global ground.

Within US, in the spending-led-economy where citizens go on spending of about 72%pa of their national income is equal to $ 800bn more than that economy produces with minuscule rate of savings! Spending society wants lower interest rate; a more-n-more foreign borrowing now that called the US National Debt of about $10 trillions which is growing at the rate of about $2bn a day.

Experts say the trade & budget deficits that have passed the point of no return. The US trade deficit will closed when foreigners cease to finance it.

Global ground also created paradoxical points. “If foreigners were to stop accumulating dollars the dollar’s value would plummet, if foreigners were to reduce their existing holdings of dollars, super power American would instantly disappear.” Roberts said

Abdicating Dollar:

Though, it’s an opinion of major players of global economy that to replace the dollar as a well accepted global currency status and as of medium of exchange, it’s very difficult to go swift. Perhaps, major analysts said that dollar to be replaced with Euro. Will Hutton said in The Observer, “The EU, Japan, China & the oil exporters need to co-ordinate massive foreign exchange intervention.” William Silber inked by putting question, ‘will the Euro dethrone the dollar: Even former Federal Reserve Chairman Alan Greenspan said, “The euro could replace the US dollar as the world’s primary reserve currency.” “…absolutely conceivable that the euro will replace the dollar as reserve currency or will be traded as an equally important reserve currency.”

Scampering Euro scan:

As we know Euro is a currency that to be used in 12 members European countries. Because of collective standing and weakness in US economy as well as in dollar, the Euro is scampering against dollar since it has been introduced.

Initially oil producing nations said that the dollar to be replaced, slowly and gradually Saudi Arabia, Iran, Russia, Sudan, and Venezuela like nations joined the chorus to replace dollar now, including major analysts and Alan Greenspan have been joined the vagabond with the song that is blown by say virtually the whole world ‘Replace dollar!’ In the context of getting louder-n-louder voice that the dollar to be replaced as a medium of global exchange, the question get arise which currency that could replace dollar and lobbing started for Euro that as an easily available tool to replace dollar!

Here I’m not of that opinion for Euro that could replace dollar I do believe that to look more at Euro before we get pushed to Euro holdings with the mass chorus!

Ideal forex currency & Euro:

After referring the paper by Federal Reserve Chicago I could ink few features of global currency. That currency would be a global medium of exchange, if that have-

1: Higher interest rate in home than the globe
2: Lower inflation rate
3: A domestic trade surplus to other nations
4:  A strong domestic financial market
5: Comparatively strong economy in the globe
6: Sound monetary policy aimed price stability
7: Higher credibility in the globe

So far as Euro concerts it’s a currency that gained ‘instant credibility’ on the back of dollar weakness, probably in the real term and at the ‘time parameter’ the Euro has not been yet tested. Defacto Euro has to walk, long, right now that has no entity, and it’s a currency of no nation - a man without address! Its formation is a collection of supported political will that could get changed within no time just because of several political, national & multinational factors. Who actually is committed to bear Euro? History of European country says, each European nation think that they are greater than rest! Over a time living in a compartment with several postulates & prejudices for rest European countries. At any movement upon any issue any country could get up & go away from the euro currency to protect own baby-own economy! I think just a journey less than a decade is not enough to praise euro the trustworthy and creditable currency!

According to CPB Netherlands Bureau for economic Policy Analysis, ‘Medium term prospectus for economic growth in Europe less bright than for the US due to weaker growth of working age population!’ The report says, Potential output in Western Europe is forecast to rise by almost 2.5%pa up to 2010 which is not much different from the average of the past twenty years. The working age population will hardly increase

Defacto EU is cool off, have no vibrancy, even the UK now is weakening economy sooner that will be seen to the globe by Q3 of FY 2008-09. That may be easy to replace dollar with euro but, in any incidence where to dump euro if the globe wish to dispose? Demographic factors have no favour to go growth and individually European nations will adopt a home policy to sustain their currency and economy that process could last up to 2015 from 2010. During the process, when it is carried on by European countries, the Euro should sustain and if it is fatty enough by 2020 one can think about the Euro.

I could draw a bottom line that, right now, Euro could be a choice to the dollar in a moderate and calculated manner so in the case that could get disposed back by 2010. Right now, especially for Indian player, ‘short Euro, long Rupee’ is right equation that means use Euro for short-term gain and Rupee for long run!

As I said in July 2003, that the Euro is also over valued and of a cool economies of Europe that could no longer sustain this over valued currency. It requires moderate valuation & rate of exchange; this could be seen by 2010 following after the UK slow-down in 2008-09!

Here there is a question, if not Euro then which is the appropriate currency that the globe could get rely upon! Which currency that could play a role to be a global currency and global medium of exchange while dollar egress!

While dollar egress...

Now, one can say, debilitated dollar could not play its global role. Over valued dollar plummeted because of economic impasse that just happen in US because of over extended finance, over extended geo-political policies and over extend military action-these three ‘over’ Jim Rogers said to James Finch!

Now, how over valued Euro could survive! Even in the short run one could replace dollar with Euro but eventually the process could made euro too heavy and that heavy Euro could stop export from European countries to the global market…then what could be done with Euro? If Euro walk longer as dollar way may reach to the same destination that may harm European economy badly!

Not, dollar, not Euro then which currency could peg?

Defacto this is severe macro economic issue. Indeed experts and economists are searching the right tool that could be an effective even in long run & that also could assure smooth-n-easy global transactions as a medium of exchange. Fewer favours Euro that could get extended from 12 member nations to 22 and could get extended up to 192 nations of the globe! Fewer are busy to see a multi currency world that of the common regional currency introduced by Africa, Europe, GCC, Asian nations & so on…to play a role of global currency taking a pie of dollar.

I think in this scenario the globe could not throw dollar away at a time, equally immediately could not rush swiftly at Euro. Equally Asian mammoths China and India shall look at own currency and they will find out, all the ideal features which are applicable to be a global medium of exchange will be available in their currency perhaps, neither China nor India will claim to be a global currency, and none American or European could say that these currencies deserves & eligible to be a global medium of exchange.

Under such situation the global flow will replace dollar with Euro initially and pay attention to own home or will led by regional currency up to 2010 & then by up to 2015 the global economy will accept multi-currency-led-globe. Then after by 2020, the globe could get mighty currency!

According to National intelligence council HQ at CIA says: ‘The world economy will likely be 80% larger in 2020 than it was in 2000, and average income will be 50% higher. While the United States will retain its role as the world’s dominant economy and military power, China & India, the world’s two most populous countries, will see their clout grow substantially.” “The risk of great power conflict is lower than at any time in the past century.”

Defacto this is a part of the report and this is not only a report that the council carried on, but even in the past’ say in 60’ such type of report, ‘challenges to US military in 21’ century’ said, China & India are most likely nations that could be a challenge and therefore the US funded to WHO & they influenced and pour money to a ruling party in India to go effectively on Family Planning.’ And up to Sanjay Gandhi aggression to control population reached to a pick & at that time because the report get public,  the movement of ‘FP’ in India lost aggression to control population growth rate so that tern in to  moderate shape. The US could go by spending dollars in those days to restrict huge population thus control over future challenges from India like nations but now, the US economy is not as favorable as that was in the past! That means growing economy of China & India could run un-interruptive. 

Indeed this too early to say Chinese Yen or INR will be a global currency. Everything has been observed by global experts, analysts, investment bankers, financial savvy, economists & …! Right now they says,
‘Short China-Long India’ Go investing in China for short-term & invest India for long-term!

Courtesy & more reading: US: a bubble like economy, India in global village-chapter I, II, III, How low can the US dollar go?-By futures magazine group, Strong Dollar, Weak Dollar: Foreign Exchange Rates & the US Economy by Keith Feiler-Tim Sctilling- Federal Reserve Chicago, ‘India, China will be economic giants’ by Johan Diamond, Reign of the Dollar & Will euro dethrone the dollar?-By William Silber. Dollar Collapse will Cripple European Economy- By prisonplanet.com.