Sarkozy criticizes the current US dollar regime

Sarkozy takes up the currency issue.  The main issue is the role of the dominance of the US dollar as a reserve currency.  The Euro is not even close to replacing the dollar in this respect. 

The real problem comes in because everyone in the world has the dollar as a reserve currency, if that currency is weakened, through QE2, or any other means, their holdings are also worth less.  So, if the dollar weakens by a worse case of 50% over the course of one year, the whole world will be in danger of a financial crisis because their reserves are worth half as much as they previously were. 

That could cause it all to come crashing down in an instant as governments shed their dollar assets.  The one who gets out first is the winner and the loser is the poor sap who waited. 

Via Bloomberg:
“It’s already a success that the G-20 agrees that the international monetary system is a problem,” Sarkozy said. “That wasn’t always the case.”

While Sarkozy avoided castigating any country for unstable foreign-exchange markets, in the past he blamed the dollar’s dominant role as a reserve currency for helping fuel the financial crisis. French officials have been vague about what they’d suggest to replace it, partly because there aren’t any ready alternatives.

“Everyone agrees the international monetary system is not ideal, but the world is not ideal,” Charles Wyplosz, director of the International Centre for Monetary and Banking Studies in Geneva, said in an interview. “Sarkozy can criticize it all he wants, but it’s too complicated to find something better. There’s a deep cleavage between currency markets that are global and governance, which is based on nations. You have one market and 190 countries.”

....“We have to update the international monetary system for the 21st century,” said Sarkozy, who has named currencies, volatile commodity markets and better representation for developing countries as his priorities.


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