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Not in dol(lar)drums
Unless the EU reforms & learns , defeating dollar would be difficult
F or decades, the world has been hearing the doomsday soothsayers predicting the forthcoming downfall of USA. Yet it has never happened that way. On the contrary, the obsession of this world with American products, way of life and most importantly their currency has been growing exponentially, so much so that some of the emerging powerhouses who otherwise have a strong revulsion about the US, would blindly prefer the US Treasury market to park their burgeoning forex reserves. A recent report of the IMF Statistics Department stated, ‘Industrial countries’ use of the euro has risen to 21% from 17% in December 2000, while their dollar holdings have remained fairly steady at 72% compared with nearly 73% six years earlier.’ By this standard the EU & euro would take at least a century to even come anywhere near to the US. Consider this: the cumulative forex reserve of the top ten reserve holders in the world is $4.6 trillion. Nearly 70% of this is put in US Treasury market. So all that the US does is to keep the world intoxicated in marijuana of dollar while it continues with dollar printing. Surprisingly their BRAND DOLLAR has defied the very concept of how printing more currency notes end up in decreasing the value of the currency.
Yet, the real issue is why euro has not been able to keep up to its expectations. Well to start with, the EU is no USA. France, Germany, Italy and even the UK have high ambitions but within themselves, the EU nations have not been able to keep aside their internal antipathy for each other. The UK is yet to become part of Eurozone as it considers it to be an encroachment on its freedom to decide its own monetary policy. Moreover orthodox Europe is badly in need of major structural reforms which are badly hampering its ability to remain in a race in which India and China would surely put them far behind.
Yet, this is just one side of the story. Whenever dollar has been on a slide, USA has used its might to bring it back on the road. Be it the sale of military hardware or initiating a conflict, USA can achieve what the EU even as a single entity cannot. Center For Defense Information, (CDI) states about US military sales, ‘Total Direct Commercial Sales in the five years after Sept 11 totalled roughly $66 billion more than in the five years prior, an 11-fold increase.’ The 2003 invasion and systemic extermination of Iraq not only gave the US access to the second largest proven reserve of crude oil but thwarted all the attempts by Saddam Hussein to trade in Euro which could have posed a major threat to dollar. European nations had no option but to meekly support USA in spite of knowing that American gain would eventually mean loss to Euro. Thus dollar won again. Moreover, the US knows that the ability of its pot bellied burger munching population to carry on with the legacy of its superiority, is gone. Therefore, it has opened all its floodgates for immigration. People from all over the world who are frustrated with their own nations’ bureaucracy land up in USA to create wealth for her while the EU continues with its policy of exclusivity.
When India, Russia, Brazil & China put their money in US Treasury market they do it because of their faith in USA’s military to safeguard the value of dollar & ability of all the expatriates from BRIC countries who would continue making wealth for USA. Unfortunately, it would remain like this unless the EU educates itself. Till then, dollar would grow however much we might not like it.
By:- Pathikrit Payne
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