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Even a weakened dollar still rules Michael R. Sesit As the dollar tumbles, concern is growing that its weakness may augur the end of the 62-year reign of the U.S. currency as the world's specie of choice for trade, financial transactions and central bank reserves. But to paraphrase Mark Twain, reports of the dollar's death have been greatly exaggerated. The dollar owes its position as the world's premier international currency to its status as a haven during times of turmoil, the absence of a suitable rival, weak domestic demand in other countries, and plain old inertia. Geopolitics also plays a role. If the dollar falls from its perch, which currency might supplant it? The most likely candidate is the euro, a widely traded currency backed by deep capital markets, a respected central bank and a large economy. The 13 countries that use the euro constitute a $10.5 trillion economic bloc.
Still, the European common currency has drawbacks: London arguably rivals New York as a global financial center but Britain is not a member of the euro area. The euro is also identified more with the European Central Bank than any single country and does not command the national support that other monetary units enjoy. Italian politicians have suggested exiting the club. Moreover, European political union is not on the horizon.
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