19
October
Treasury: Dollar Will Prevail As Long As U.S. Policies Are Sound
19 October 2009 Wall Street Journal
With all the noise about the weakness of the dollar and foreign investors’ uneasiness about future fiscal policy and inflation — and periodic talk from China or the Middle East about abandoning the dollar in favor of some other currency or a basket of currencies — the dollar continues to be the world’s dominant currency. And, the U.S. Treasury said Thursday, “As long as the United States maintains sound macroeconomic policies and deep, liquid, and open financial markets, the dollar will continue to be the major reserve currency.”
A chart accompanying the Treasury’s semi-annual report to Congress on the currency shows the dollar has lost some — but not a lot — of market share to the euro in the past decade. “The key factor that may explain the smaller share of the euro as a reserve currency is the size and depth of government bond markets. Although total sovereign debt outstanding in the euro area rivals that of the United States, there is no common euro area sovereign debt market. This reduces the ease with which holders of euro-denominated securities can buy and sell them, compared with U.S. Treasury securities,” the Treasury said.
