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S&P/TSX +23.80 (12,577.28)
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U.S.$ - The World Reserve Currency - StockResearchPortal.com
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January 26, 2010
Good Morning:
U.S.$ - The World Reserve
Currency
What I see a particularly thoughtful article titled the 'Dollar as Reserve Currency: Mixed Signals' says
"The world is debating the dollar's role as the global reserve currency. But business
needs exchange rate stability-and has to push for clarity". Briefly, the article
says:
· "conjecture is once again rife that we are reaching the end
of the era of the dollar-centric global currency system". China, Russia,
Iran and some individuals have suggested a new Reserve Currency based on the International
Monetary Fund's Special Drawing Rights. Others have advocated a coordinated
approach to exchange rate policy involving target zones - while the Corporate world
has been notably absent from these discussions. You can read my several comments
made in prior e-mails by visiting StockResearhPortal.com and clicking on Newsletter/E-mail
Archive found in the Lower Main Navigation Bar;
· uncertainty over the commitment of the U.S. to supporting a
strong dollar as a reserve currency is one of the major sources of future uncertainty.
Recently the McKinsey Global Institute (MGI) looked at the reserve currency issue
from the perspective of the costs/benefits to the U.S. of the U.S.$ as the Reserve
Currency. It concluded the U.S. enjoys two main benefits: (1) the profit made
on issuing additional currency to non-residents, estimated at $10 billion a year,
and (2) the U.S. is able to raise capital more cheaply because of very large purchases
of U.S. Treasury securities by foreign governments and government agencies at lending
rates less than would otherwise be the case - which the article's authors estimate
to be worth about $90 billion per year.
· the downside to the U.S. is that the reserve currency is a magnet
for the world's official reserves and liquid assets - and that this means the dollar
exchange rate is higher than it would otherwise be by 5% - 10%, harming U.S. exports.
The authors say this means U.S. exporters lose out by up to $100 billion per year,
reducing U.S. employment from what it otherwise would be by between 400,000 and
900,000;
· there is growing consensus that the world will move away from
the U.S. dollar as a reserve currency, and also less clarity on where the
world will end up;
· for a number of reasons stated in the article the authors do
not believe the euro zone will promote the euro as a new global currency if the
U.S.$ ceases to be the Reserve Currency, and that if neither the U.S.$ nor the Euro
is the Reserve Currency is at some future date we may de facto be in a period
of an "unmanaged" reserve currency system with "no firm hand on the tiller"; and,
· businesses seem to be anticipating greater exchange rate volatility
to result from this system in transition, a worrying prospect for business.
This is an article that in my view 'begs to be read carefully and thoughtfully'
by equity investors. I strongly recommend you do that by clicking here.
What all this says to me is that the World Reserve Currency issue is one more important
factor that highlights the problems facing the U.S. Administration in its ongoing
attempt to manage the U.S. economy through meaningful recovery, while at the same
time maintaining the U.S.'s predominant position on the world stage. I believe
both things have to play out on world equity markets over time. My fear -
which fear is increasing almost weekly - is that President Obama and his 'band of
merry men and women' are increasingly finding themselves in the position of the
juggler who is adept at keeping three batons aloft but has seven thrown at him.
That is not an intended slight on the Obama Administration, as I believe any U.S.
Federal Administration - Republican or Democrat - would do no better faced with
the same issues that face the Obama Administration.
Notes to Readers
This email and its content is in no
way to be interpreted as an endorsement of one or more of the companies mentioned
herein, a suggestion as to the future direction of the stock price of one or more
of them, or a suggestion or recommendation to buy or sell the shares of one or more
of them. Rather this email is simply a short overview commentary and tutorial
demonstrating the type of information available on StockResearchPortal.com and how
to access it.
The owners of Stock Research DD Inc. (the owner of StockResearchPortal.com and StockResearchPortalBlog.com)
or their families, entities in which they have ownership interests, and officers,
directors, employees, agents, partners, affiliates and partners of Stock Research
DD Inc. may beneficially own securities and participate in Private Placements of
companies referenced in this E-mail. The fact that one or more companies are
referenced or discussed in this E-mail should not be construed as an endorsement
or investment recommendation with respect to those companies or their securities.
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