Dan Herman Research

Looking for the next Dollar February 23, 2010

For years, analysts have sought to predict the demise of the US dollar and its eventual replacement as the world’s preeminent global reserve currency. However aside from the ego boost of being in demand, and the not insignificant benefits of low-cost borrowing, being the world’s reserve currency carries significant mid- and long-term economic costs that history tells us may preclude any one currency from taking the lead in the 21^st Century.

The role of the US dollar as the world’s reserve currency dates back decades, to the end of World War II, when the US sat as the world’s lone, relatively unscathed and economically powerful combatant and thus replaced the British Pound as the global currency of choice. The fact that US dollars rebuilt much of Europe and Japan in the years that followed significantly strengthened the global tie to the USD. In 1970, over three-quarters of global reserves were held in US dollars. (more…)