Sunday, August 14, 2011

Dollar and its superior status

·         the ratings downgrade of the United States sovereign debt has done nothing to erase the dollar's special position as the numeraire of international transactions
·         However, the downgrade might be the most forceful reminder ever that the dollar's special status might be lost at some point in time.
·          the downgrade is attributed to “the political discourse that has diminished the credit standing of the U.S.”
·          even as the stock markets across the world turned extremely volatile, investors sought the sanctuary of U.S. government treasury instruments.
·         treasuries are still considered a haven
·         studies have shown that in times of great global uncertainty the demand for U.S. treasury instruments goes up. This has enabled the U.S. to lower its cost of debt.
·         Governments around the world continue to keep a large part of their reserves in dollars.
·         According to the IMF, the dollar's share of global reserves was as high as 60 per cent as followed by the euro (26.6 per cent).
·         The dollar is therefore unlikely to lose its safe-haven status any time soon.

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